Value Capture for Perth Airport Link: Kill (At Least) Three Birds with One Stone

airporttrainThe Western Australian Government has announced that it intends to build an underground rail link to Perth Airport, as well as Forrestfield, a suburb to the east of the airport. This will involve 8 km of tunnel (the line will be built entirely underground), and cost about $2 billion.
It is encouraging to see this railway line proposed. Public transport usage in Perth is increasing, and there is sure to be travel demand from both visitors and residents for a railway to the airport. There will be many benefits from this rail line, as it will become easier to access Perth’s airport, but how are the benefits distributed.
Travellers will save money on taxis and parking, and potentially save time as well.
But the main beneficiaries will be owners of large plots of prime land near stations. The newspaper article about this proposal in The West Australian even has the headline, ‘Landowners Eye Airport Rail Bonanza’

“A 250ha pocket of semirural and light industrial land in High Wycombe is set to leap in value when the Barnett Government announces the terminus station for its airport rail link.

The Forrestfield station is next to a strategic pocket of land bounded by Maida Vale Road, Dundas Road and Roe Highway.
The land is certain to be rezoned for higher density mixed-use residential and commercial – a windfall for dozens of landowners.”

There is a fundamental disconnect, when infrastructure is paid for by the public purse, and yet huge benefits flow to private landowners, whose contribution to this project may barely have been greater than that of a low-income earner struggling to make ends meet, and who rarely goes to the airport.
What is effectively a transfer of wealth from the government to the lucky few who own prime land would be bad enough at any time, but this comes at a time when the WA government is under severe financial pressure. Concerns have been mounting over the rising level of state government debt, especially last September when the state government lost its AAA credit rating. According to Premier Colin Barnett:

“The only thing I can say is maybe we’re guilty of trying to do too much too quickly, maybe we need to slow down a little bit.”

Election promises for huge infrastructure spends had to be scrapped, with the MAX light rail system shelved, and the Airport line deferred (although it was originally proposed to be completed by 2018, the current completion year is 2020).
Making matters worse for Barnett’s government, the Federal government simply refuses to fund urban rail. On the campaign trail last year, Tony Abbott said:

“We have no history of funding urban rail and I think it’s important that we stick to our knitting. And the Commonwealth’s knitting when it comes to funding infrastructure is roads.”

The WA government is putting its budget position on the line to build a $2 billion Airport rail link, and yet huge benefits are flowing to a select few owners of land near stations.
If this increase in land values was captured using substantial land value taxation (WA has a small land tax, but it is insignificant in terms of the gains possible for lucky landowners), the WA government could build a rail line to the Airport that was self-funding. In fact it could build light rail as well, and could build many infrastructure projects, without the need for unsustainable debt. The government spends money on the rail line, but they will get a return on their investment from increased land value tax revenue.
More generally, increased land value capture would also help reduce the WA government’s debt, and could replace stamp duty, an inefficient tax that punishes households for moving to homes better located for their needs, even though this is already a costly inconvenience. Treasurer Mike Nahan claims that Stamp Duty is a ‘dumb’ tax, but sees no alternative.

“Our largest tax base, besides pay roll, is stamp duty on housing transactions which is actually a tax on people moving house – about as dumb as you can get,” Dr Nahan said.

“It’s a bad tax but it’s a very important tax to us and we have no alternative.”

If Dr Mike Nahan could implement an increased land value tax, he could kill (at least) three birds with one stone – fund infrastructure such as the Airport Rail Link, reduce the WA government’s debt, and replace Stamp Duty.

Jobs, Automation and the Leisure Society

We say we want jobs. If a politician promises to ‘create jobs’, he or she will receive more votes. If a company says that it will ‘create Image
jobs’, than it can be expected to see political and community support, no matter what it does to in order to create those jobs. If a proposed legislation for environmental protection is said to ‘destroy jobs’ then that law is considered bad and should not be supported, no matter what good it does to the environment. We hear all the time about automation and other technological advances, such as self-serve checkouts, ‘taking jobs’, giving the impression that the use of technology in the economy should be limited.

But why? Why do we want jobs so much? Aren’t we also sick and tired of work? Don’t we long for the weekend? Aren’t labour-saving devices for domestic work such as washing machines and dishwashers considered great technological achievements that have increased living standards and equality in many countries? Don’t we hope to retire one day, taking cruises around the world, putting the days of working behind us?

THE LEISURE SOCIETY 

Automation technology is already quite advanced, and will advance further. Technology has the power to remove the need for much of the labour currently used in the economy, paving the way to a leisure society, where most of the population works only a few hours a week and has plenty of leisure time. Yet technology is also painted as a job-killer that will increase inequality, displace the middle class and leave many in unemployment and poverty. Why is labour saving technology seen as an undesirable thing?

In the past, we have always dreamed of a leisure society, in which the human race is freed from the tyranny of work. For example, John Maynard Keynes wrote in Economic Possibilities for our Grandchildren in 1930, that the economic advancement of the last 250 years should continue, with the Great Depression caused by technology reducing the need for labour faster than the economy can find new ways to employ labour. Keynes suggests that in the future, we may only work three hours a day, or fifteen hours a week, and we will be freed from the drive of money, and the resultant greed and avarice, and become more virtuous and fair. If in 1930 a work week of 15 hours was predicted in the future, why do we still work 40 hours a week and upwards? Do we desire leisure or working?

WHY DO WE STILL WORK SO MUCH THEN?

The truth is, we do not actually desire jobs themselves, but what they provide and represent.

At the individual level, a job provides an income. A job and an income are nearly synonymous for most people of working age in non-subsistence-economy countries. A job also represents self-reliance, and ‘earning’ money. Australia and most other developed countries provide welfare, in giving payments and housing to the unemployed. People still want jobs though, because working for money feels fairer and more just, the right thing to do. There is a stigma attached to receiving welfare payments funded by taxpayer dollars, as working people are unhappy that the money they earn go to the pockets of others.

In addition to these individual motivations, there are reasons job growth is desired by society as a whole. Since a very large proportion of a country’s population is in the labour market, creating more jobs will spread wealth more evenly amongst the population, and reduce income inequality. More jobs would give the otherwise unemployed money through wages, and make labour more scarce, increases wages for existing workers. It is said that automation technology that reduces the amount of labour, on the other hand, will increase the share of an economy’s income going to owners of capital, and reduce the share of wealth going to agents of labour. Since ownership of capital is concentrated among a certain ‘One Percent’ of society, increasing the share of income going to capital at the expense of labour will increase income and wealth inequality.

To summarise, we want jobs not because we want to exert labour, but because we want more wealth distributed relatively evenly in a form that all people feel is fair and does not carry a stigma. Is there any way to distribute wealth to large numbers in a fair manner other than through jobs? A way that will accept the increasing role of labour-saving technology in the economy, rather than allowing it to be demonised as currently?

A CITIZENS DIVIDEND

How about a Citizen’s Dividend – a Basic Income scheme funded from the natural commons, such as land values, distributed equally to every citizen on an unconditional basis? If everybody can receive enough income to cover living expenses, then a job becomes not a necessity, but simply a way of earning extra income, on top of the Citizens Dividend, if one desires extra income. And since a job is no longer considered a necessity, there should be little resistance to labour-saving technology that ‘kills jobs’. In fact, automation technology should be hailed as reducing work and increasing leisure time for workers.

WHO BENEFITS FROM AUTOMATION?

It is not necessary for capital to come under control of the state in order to share the benefits of labour-saving technology to all. This is because, ultimately the fruits of increased technology flows to owners of land rather than owners of capital.

The process of wealth generation involves labour acting upon land, aided by capital and entrepreneurship. Labour, capital and enterprise collectively represent producers, and producers require land. There cannot be a factory, office or creative studio without land to put it on. Therefore producers must rent or purchase a block of land to place capital (such as buildings) on. Different producers compete to use one block of land, based on the advantages that land has to production, such as proximity to suppliers, customers, road and rail links, and so on. This competition allows landowners to charge a fee for producers to access land, increasing fees up to the greatest amount a producer will pay.

What a producer will pay depends on what they can produce on that land. The law of rent states that a producer will only pay the advantage of the extra wealth they can create on a given superior piece of land compared to the wealth they can create on marginal land, land which is free (because no other producers are competing for it). When there is no free land, producers will pay the amount of land rent that will leave enough left over to maintain and motivate the different producers. This means sufficient wages to pay the living expenses of workers and motivate workers to work, a sufficient return on capital to pay for the costs of maintaining capital and motivate investors to invest in capital, and a sufficient return on entrepreneurship to meet the living costs of and motivate entrepreneurs.

When labour-saving technology advances, producers’ productivity increases, as more units of output can be produced per unit of input. A given amount of wealth can be produced with a given amount of labour, capital and entrepreneurship, or a given amount of labour, capital and enterprise can produce more wealth.

Labour-saving technology increases the amount of wealth producers can create, allowing land owners to increase the fees they charge to access land. Hence, the benefits of labour-saving automation technology predominantly go not to agents of labour or capital but to owners of land.

The large-scale ownership of land is concentrated among the wealthiest portion of society, so under our current economic set-up, technology that reduces the need for work mostly benefits owners of land to the exclusion of others.

This can be changed, however. If the value of land is captured for all, by a government or trust administering the common ownership of all to land, then the benefits of advancements in technology will be shared, and will increase the living standards of all. If only we shared ‘The Natural Commonwealth’, we could grow collectively into the leisure society we have always dreamed of.

Watch out for the addendum I plan to post shortly, in which I explore Keynes’ explanation for the Great Depression, mentioned in passing earlier in this post as labour being saved faster than new ways to employ labour are found.