3.12.1-11: Land Value Capture: Rural Land and Agriculture

Module 3, Section 12.1-11

Land Value Capture: Rural Land and Agriculture

12.1 We learned in Module one that surface ownership and control of land is highly concentrated in most countries of the world. We hear the cries and demands for land rights and land access from the Brazilian landless and so many others. Big dams, river water diversion and other large infrastructure projects are too often instigated by the same few who own so much of the land and will benefit even more when the value of their lands increase. This is why these types of infrastructure placements, touted as “development projects,” so often do little or nothing to improve the lives of poor people.

12.2 Just as the stated intention of land “improvement” was used as the rational for massive land privatization by the few during the Enclosures period (as described in Module 1), so today this form of “development” is falsely presented as a way to improve living conditions even though village lands are flooded and people are evicted to make way for these big projects.

12.3 The problem of inappropriate and too-large scale systems for energy and other infrastructure is both a democracy and an economic justice issue. It is a democracy issue because this type of infrastructure impacts the lives of many people who rightfully should be included in the decision making process. It is an economic justice issue because the ultimate benefactors of this type of infrastructure development are usually those who have already accumulated far more than their fair share of wealth.

12.4 One example of how land value capture has been instrumental in furthering land reform and a fairer distribution of wealth can be found in large rural areas of central California. In the early 1900s most of the land in this region was owned by only a handful of people. Californians knew that irrigation would enable these vast lands to become fertile and productive for farming. A state legislator who understood land value capture wrote a bill that was passed by the state government which enabled local irrigation districts to be formed and empowered to issue bonds to raise funds to finance the irrigation infrastructure. Irrigation would greatly increase the value of these lands, so the districts were also authorized to capture the increase in land values in order to repay the bondholders.

12.5 These are some of the benefits of this approach to financing infrastructure that were well-documented during the following years:

  • The large landholders, upon now being legally required to make payments to the irrigation districts for their now more valuable land, put much of their land up for sale.
  • Those of modest means who wanted land for farming were able to buy land because it was now available at prices they could afford. Land value capture had thus instigated an orderly land reform.
  • These farmers used the irrigated and now fertile land in an efficient and productive manner yielding substantial quantities of food for market and secure livelihoods for farm families.
  • The local economy diversified as other forms of enterprise emerged to supply a variety of goods and services.
  • As the economy in these areas continued to improve and diversify over ensuing years, communities and towns developed which scored high on quality of life indicators as carefully compiled by sociologists and other researchers.

 

12.6 Studies of the impact of land value capture and land value taxation as utilized in rural areas of a number of countries have shown these overall benefits of this land rights public finance approach to equitable economic development:

  1. Undertaxing land favors large farming operations that are not necessarily the most efficient while full land value capture rewards farmers that are more capable and productive.
  2. Land value capture curbs land speculation and hoarding, thus maintaining land affordability for entry-level farmers.
  3. Untaxing the productive labor and activities of farmers increases their savings capacity better enabling them to purchase their own farm equipment and materials for farm buildings.
  4. By promoting an orderly approach to land reform, land value capture encourages owner-occupation rather than absentee ownership of land.
  5. Rural economies are strengthened as the land value capture public fund is utilized for provisioning public goods such as education, clean water and sanitation and other needed public infrastructure.
  6. By harnessing incentives for wealth production in an equitable and efficient way, land value capture encourages the development of a healthy and diversified rural economy.
  7. When people living in rural areas experience significant improvements in their lives and livelihoods many have less interest and incentive to move to cities in the hope of finding jobs.
  8. When fewer people are competing for limited jobs and places to live in the urban areas, wages there can be better maintained at a higher level.
  9. Conversely, when people in urban areas are not able to secure sufficiently high wages, they now have a viable option to find livelihoods in the more rural areas.
  10. Thus a fully implemented land value capture system promotes equitable, efficient, and appropriate development in both urban and rural areas.

(From Land Value Taxation: The Equitable and Efficient Source of Public Finance, an anthology edited by Kenneth C. Wenzer, published by M.E. Sharpe, Inc., New York, 1999)

 

12.7 Land privatization is not necessary to implement land value capture policy, which accommodates a variety of forms of land tenure. Tribal, clan, and extended family land bases can remain intact with a land value capture system, by constituting communal lands as types of leaseholds. People in rural areas and on communal lands can choose whether or not to remit funds to central land value capture authorities, depending on whether or not the community determines itself to be well served by that authority.

12.8 For example, if it is a question of whether to pave a section of road leading to a village, the villagers themselves might decide whether or not to remit funds for the job, after the central authority [in essence] bids to do the job. But they might determine that they could do the job with their own labor and capital, perhaps with a different type of paving material from that chosen by the central authority. They would have that choice, through their own village governance, bolstered by land value capture funding. Villages would, in essence, have decentralized, democratic decision-making power over what to do with their own resources, both labor and capital.

12.9 Similarly, if a village wants electric power, it could decide to buy into a grid system where power is generated from a distance, or find it more advantageous to establish its own utility systems, using wind, solar, or micro-hydro power appropriate to its own needs and local energy generation capacity. If a locality determines it needs improved infrastructure for example, it could freely choose to 1) capture value from its own communities and submit these funds to central authorities; 2) confederate with nearby communities for this purpose; or 3) provide such infrastructure using its own local capacity.

12.10 Overall, decisions on collecting and using land value capture funds can be made in a much more decentralized fashion, by all municipal levels, village, town, or city.

12.11 Worldwide concentration in land ownership has proceeded at an alarming pace for the past several decades. It is essential to now fundamentally reform our systems of land tenure and public finance in such a way that rewards productive labor rather than land speculation, efficiencies of scale and careful stewardship rather than impersonal big farm consolidations. The combination of these ten benefits of land value capture can support the flourishing of ecological villages in rural areas bringing forward an inspiring, hopeful, sustainable new way of living for millions of people around the world.