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A few weeks ago this ten year old article by Fred E Folvary was brought to my attention. I thought I had blogged about it before, but in the light of what I said in 'Revolutionary Liberalism: 5 - The "Sovereign Individual"' the other day and the welter of stories of party funding corruption this week it's worth reprinting today I think:

Democracy Needs Reforming

by Fred E. Foldvary, Senior Editor, The Progress Report

Ever since the 1996 elections, we have had wave after wave of revelations about improper or suspicious political campaign finances. Campaign contributions from Asia, soliciting contributions from government offices, overnight stays at the White House, diversion of "soft" money to political parties -- all this money sloshing and influence peddling points to the corruption of government, whether it was strictly legal or not.

The finance reform bill now being considered may be blocked by Democratic opposition to the "paycheck protection act" that would bar unions from using dues for political contributions without the members' approval. Even if it passes, the problem will remain. We've had campaign finance reforms every few years, and 114 votes on the issue by the Senate during the last ten years, but nothing really changes.

The basic problem is the way we elect our representatives. Our system is mass democracy: a large mass of voters elect a Congressman or Senator, or the President. The voters' don't know the candidate personally, so the candidate relies on advertising in the media to project a favorable image. This costs money, and the special interests are happy to contribute the funds.

No matter what laws are passed, the special interests will find ways around them, because of the tremendous gains they can get. Government financing of campaigns only gives more power to the two major parties, reducing even further the opportunity for smaller political parties to challenge the system and come up with new ideas. The problem is the corrupt incentives built into the system. To solve the problem, the whole voting system has to be changed.

Since the key problem is mass democracy, the only remedy is to change it to small-group democracy. Have every election take place in a small group. That would eliminate the need for mass media, and therefore the need for mass campaign funds, and thus the opportunity for special interests to buy out the election. Also, wealthy candidates would no longer have such an advantage.

But if a Congressional district has several hundred thousand people, how can we elect the representatives with small groups? The solution is multi-level voting. Divide cities and counties into small neighborhood districts. Each district elects a council. Then the council members elect one of their members to a higher- level council made up of a dozen neighborhood districts. These then elect members to the next higher level, and this continues on up to the representatives to the city council, state legislatures and Congress. One of the rules is that a lower-level council may recall a representative at any time if they are not satisfied.

Now you the voter are electing someone from your neighborhood for the neighborhood council, somebody you might know or easily have access to. Instead of mass mailings and TV commercials, the candidates would hold neighborhood meetings. All the higher-level elections would also be personal, since only a dozen or so councils would elect representatives to the next higher level council. The President himself would be elected by Congress, and the House of Representatives would only have, say, some 60 members instead of 435. And let's cut the Senate to 50 members, while we're at it. We want smaller groups, right?

Somebody might object that he or she wants to be able to elect the President directly. But one vote out of tens of millions does not amount to much. One vote in a neighborhood election of about 200 voters does count for something, plus your voice will be heard, and those who want to be representatives don't need to raise money.

This bottom-up multi-level voting system would also profoundly change the incentives for taxation. Power would shift dramatically to the neighborhood councils. Decentralized voting would lead to decentralized government and decentralized taxation. With local funding that gets sent to higher-levels of government, income and sales taxes would not longer be practical. Taxation would shift to real estate, especially to land, which does not flee when taxed.

Small-group democracy would be a radical change, but if we want to eliminate special-interest influence and the corruption of government, campaign-finance laws alone won't do it, because of the incentives built into the system. Either we change the voting system, or we will continue to let the special interests have their way.

As Secretary of Lib Dems ALTER (Action for Land Value Tax and Economic Reform) I have been trying to follow from the sidelines the progress of the Tax Commission. Recent discussions within ALTER suggest that for a variety of reasons the Commission may be shying away from the idea of a land based tax in the final recommendations, or that, at best, they see a possibility of a minimal form of LVT as if to oblige one lobby.

So I wanted to make a plea for people, particularly Tax Commission members to which this document will go in a slightly modified form, to take one more look at the claims we proponents of LVT make. To ask Tax Commission members and others whether they think they have had enough information to enable them to evaluate these claims and prove or disprove them.

Most of all it appears to this LVT proponent that they have either not grasped the so called “narrative” behind Tax Shifting from a predominantly income, capital and transaction tax base to a land and natural resource use tax base. Perhaps they have and have dismissed it and if so, I would be interested in the grounds on which they have done so.

The Tax Shifting “narrative”

Fairer taxing - working, making money, trading, providing the investment for someone else to work and make money in which you share, are all economically beneficial behaviours. Yet our system predominantly taxes these particular (and quite arbitrary) measures of “wealth”. Income taxes, corporation taxes, capital gains taxes, VAT and other taxes on transactions discourage these economically beneficial behaviours.

Because land value is created not by the owner pro tempore of a particular site but from the unique set of social, commercial and economic activities around it and the investment in them the speculative change in the value of land is not down to its owner’s work or investment in that land itself. It is taxing a monopoly (that location’s unique set of circumstances) of a scarce and finite resource that creates an unearned wealth increase (or indeed decrease) on the part of the owner.

Smarter taxing – we don’t offer a tax that merely “raises” money for government to spend. All tax mechanisms tend to modify behaviour. LVT however discourages behaviour we want to discourage – inefficient use of land and other scarce finite natural resources.

Since the landowner pays the tax whether or not they use the land for its optimal planning use, underuse is relatively penalised. Underused land is brought into use so it can make a return that justifies the tax burden. It encourages people to consider whether they use all the services and benefits their site gives them.

Liberal taxing – LVT is ultimately an obligaiton that can be controlled by the payer, so making it one of the most liberal tax mechanisms. If you want to save on tax, you can move to an area of lower land values and therefore lower taxes. Just as you can plot isobars on a map and watch high pressure move around to fill depressions, so you could plot land value scape and watch as the “smart money” seeks to minimise its tax liability by moving to areas of lower land values.

A tax for the globalized world we now inhabit – in a world where distances have shrunk with technology, where we can trade directly with individuals on other continents, where we can more easily hide our incomes (one open source software developer I know can effectively live on “donations” through his Amazon wish-list, never receiving a cash income from anyone), the state will have to become ever more intrusive to keep a track on incomes and transactions if it wishes to rely on these for a tax base. The land is pretty fixed however; once registered it’s difficult to deny or hide ownership completely. Its value pretty accurately reflects the value of supply side inputs around that location. It’s a non-intrusive, objective base for taxation.

An essential “eco-tax” – it encourages regeneration of our built environment (because it doesn’t tax improvements) – speeding up the redevelopment to modern environmentally essential technologies. By reducing capital values of house prices a household is better able to compare, for example, the relative merits of living far from work in a home they can afford but wth big fuel taxes to commute, or having a home they can afford close to work with a larger annual land tax bill but no fuel costs.

To recap, what we are promoting, in “manifesto speak”, is a shift in the tax base that will:

• make your tax bill controllable
• reduce the overall tax burden and the size of the state versus the individual and the market
• make housing more affordable and better match empty homes to households in need
• reduce the overall burden of debt in society
• ensure efficient use of land and prevent sprawl
• encourage our built environment to move with technological advance
• promote investment in areas of low economic prosperity
• recoup public investment in infrastructure directly from those who benefit from it in unearned wealth increases

…through a system that:
• taxes monopolistic windfall gains rather than hard work and enterprise
• is simpler to administer
• is more difficult to avoid/evade

Has the Tax Commission investigated such claims, understood them, and dismissed or disproved them? Or is it simply skeptical about something that makes so many wide ranging claims? Will they have done their jobs properly if they do not investigate such claims? Can we not steel ourselves to say “we have an idea even better than LIT” rather than worry about negative press for ditching it?

Most of the claimed effects are, after all, sound Lib Dem policy “desirables”. For example many housing professionals think that LVT is the best or even only longer term solution to current housing availability and affordability. We were not permitted to discuss LVT in our Housing Policy Paper discussions, as we had no fiscal remit, but were assured it would be considered when the party did look at taxation policy.

Let’s not forget in this year when we’ve been celebrating the 1906 Liberal Government, this is the tax that so enraged the vested interests in our society a hundred years ago that they gave up most of their “born to rule” birthright (Parliament Act 1911) to see it withdrawn.

Technorati Tags: land value tax, lib dems, tax shifting, taxation

I would certainly not be the first to draw parallels between the invention of printing and the invention of the internet. One of the things the invention of printing made possible was the Protestant Reformation. By enabling (relatively) ordinary folk to read the scriptures in their own language at (relatively) low cost and make up their own minds about the "economy of salvation" it gave rise to the idea that there was a "priesthood of all believers" - that there was no immutable law that the individual had to go through some kind of intermediary on earth to deal with the creator and could in fact, do a lot of that for him or herself.

Of course the intermediaries, the priests, and their institutional backers, the Catholic Church, held a monopoly on this power of intercession. And that monopoly had, as all do, made them rich and riddled with corruption such that they had all but abandoned any pretense of the basic tenets of the faith they were set up to help spread in the first place. And they met this threat to their monopoly and comfort with gusto. The Inquisition, the Christian "soldiers" of St Ignatius's Jesuits, the casting out of anyone who sided with or sponsored, for whatever ends, these Protestant individualists, the raft of new, draconian laws intended to cut away some of the fluff of their decadence and return to hard core consolidation of power: the Counter-Reformation.

But the world had irrevocably changed. They couldn't uninvent printing or the burst of knowledge amongst the masses it had given rise to and they couldn't prevent the questioning of their hegemony that reached its peak in the Enlightenment. And slowly those same institutions have struggled to adapt themselves to the modern world. Still at times holding out against it, but slowly, creakingly, crawling towards Enlightenment themselves.

And now we have the internet. Suddenly, those who want to can have access to almost unimaginable reams of collected human knowledge for themselves. We can work out for ourselves how things work and formulate our own ideas of how to make things better. We no longer need the intercession of a few who hold a monopoly of power. We can expose, just as the Reformers did, only this time in ninety-five million theses, the abuses of that power wielded over us and the inequity they create. We might call it the "government of all citizens". And so, threatened and already slightly mauled, come the Counter-Reformers. They have already heaped the raft of new laws on us to tighten their grip, already cast out many of those who sponsor the new "economy of politics", whatever their intended ends, and try, with their FUD tactics to tell us that this new phenomenon sets us on a dangerous course.

Enter Matthew Taylor - no, not the nice liberal chap looks after the good folk of Truro, but the one who, from IPPR to Downing Street must count as one of the High Priests of the concentration of political power and generation of worthy ideas. Those of us who were not at this "internet conference" at which he gave what might be his valedictory rant from his Downing Street position cannot know I suppose how much of it has been reported without context by folks at the BBC and so on, but as one of those spinmeisters he must have known that choice phrases would be picked out and used in evidence against him.

But as much as on the surface his words tell us just how scared they are in the corridors of power about this new economy of politics, how dangerous might be the consequences (to them more than anyone else) of the "government of all citizens" they also show just how much they have missed the point. And if they want to oversee an orderly evolution from the current monopoly of power to a more broad based self-governance they are going to need to grasp this. For the alternative, revolutionary change, can sometimes be bloody. And if those who currently hold the monopoly of power do not want to be treated like the Catholics in this country were for the largest part of the last four hundred years, they need to join that new economy and not fight against it.

Taylor's words, as others have said, here, here, here and here at least, make me really angry. The patronizing tone about "us" not understanding how we put additional and contradictory demands on government and how we are not ready for self-governance by our increased interest in what they do "in our names" is exactly why I so loathe Westminster politics. I simply do not accept that the world needs people who think they have some unique abilities that give them a claim to be able to manage better the affairs of tens of millions of people at a time, and the internet, and blogging in particular, is proving exactly that, daily.

The depth and breadth of discussion, scholarship, information, interpretation and opinion available "out here" must surely rival anything possible in a pile of red dispatch boxes or a cabinet committee. Yes, we have to learn to discriminate - just as we now subconsciously filter out most of what John Prescott says, say. But we have economists and social scientists doing for nothing often what the sealed corridors of the Treasury and other Whitehall departments have long striven to keep from us and through voluntary co-operation people from all over the planet sharing their ideas and weighing them up and generating new syntheses of them. And on a one-to-one basis we are virtually meeting people from all over the planet, and you know what, we probably agree far more than our governments, posturing on our behalf, manage to do government to government.

It is they that are creating a dangerous new world, and we who are forging new alliances and trust relationships, and this is leading a vicious (if you happen to be on the inside of that plutocracy - rather more virtuous if you are not) cycle of distrust in politicians and them trying to hold back the tide Cnut style.

The big common factor now, as it was half a millennium ago, is that we, or they, cannot uninvent this new medium through which all this is being spread - even though they seem to want to on occasion, or control its development on their terms. If they understand where this is leading, they can still, probably, get away without the punishment we meted out on adherents to the old order and the civil wars that followed. If not, they will be solely to blame for clinging onto coercive outmoded forms of government which promise to deny us more freedoms than we started out with. And the answer is not the odd minister blogging or inviting petitions to Number 10, or insisting that councils have to let us pay our bills online. The internet will lead to a whole new, decentralized and more voluntary and participative, way of government. If they do not want to grasp this and help in the process, it is an admission that they think they are better than the rest of us. And they aren't.

But maybe we could rekindle that fire in Oxford's Broad Street just in case?