On Friday 2018-07-27, A-magasinet – Norwegian newspaper Aftenposten's weekly magazine – printed an article titled Topsoil or millionaire? (The article is in Norwegian and behind a paywall.)
It tells the story of farmer Ingjerd Loe's fight with Bane Nor, the state-owned company responsible for national railway infrastructure. Bane Nor wants to build a new railway on Loe's property, and developers want to build housing. She doesn't want to sell her land even though it could be worth hundreds of millions of Norwegian crowns. (Yearly GDP per capita in Norway is about half a million.)
The article discusses the trade-offs between different uses of land. How important is food security compared to new infrastructure and adjacent housing? The question of what to build where is a difficult to answer.
A radical proposal
In their 2018 book, Radical Markets: Uprooting Capitalism and Democracy for a Just Society, Eric A. Posner and E. Glen Weyl suggest a general solution to such problems – partial common ownership.
The idea has three main parts:
- Owners self-assess the value of their capital.
- They must periodically pay a share of the self-assessed value as a tax.
- Subject to certain conditions, anyone has the right to purchase the capital for the self-assessed price.
(I'm leaving out a lot of details which are thoroughly covered in the book.)
The farmland example
As a thought experiment, let's try to reason about how such a system would change the story introduced above:
The farmer considers what her land is worth to her. Let's say 500 million, because that's a bit more than what she has been offered. But before she submits this price, she calculates what she would have to pay in taxes. Posner and Weyl think that 7 percent yearly would be optimal. 7 percent of 500 million is 35 million. This is most likely a lot more than what the farm earns, so she would have to find another way to calculate the value.
Instead, she would probably start with what she's willing to pay per yer – say 1 million. (The tax revenues from this scheme could be used to lower other taxes, leaving tax bills on average equal.) Then, she would calculate the price: 1 million divided by 7 percent is roughly 14 million. Because the land is worth a lot more to developers (even accounting for an estimated two-thirds reduction in land prices), her land would most likely be bought very quickly.
This thought experiment illustrates one of the authors' main points, which is that this system would increase allocative efficiency – the most efficient use of property. Under the current system, where the farmer can refuse to sell no matter what buyers offer, her land is not used in the most efficient way.
(In this particular example, the farmer and others argue that economic analyses don't take into account the full value of the soil, e.g. for food security. It's likely that the free market wouldn't, either, because food security is a public good. Subsidies and/or other measures could offset this market failure.)
This is only a brief introduction to the authors' main idea, and they present others. If it caught your interest, I'd highly recommend checking out Radical Markets. It's succinct, clearly written, approachable and very interesting.
The image is from the A-magasinet article.