Panicky ANC chooses a land route Zimbabwe has now rued in U-turn
How does SA reconcile a truly inspiring address to the nation with the supreme irony of the ANC panicking into land expropriation without compensation just as Zimbabwe, which destroyed its economy thereby, recognises its folly by belatedly promising compensation?
The markets have been in denial on this one. It wasn’t going to happen, just too ghastly to contemplate, right? Really?
Hopefully, yes of course, but not just the president and the ANC are on the hook. All South Africans are, and when President Cyril Ramaphosa called citizens to work together to make this country great again, it includes this. So the good news is that the bad news now finally forces SA to get real on land.
The objectives of righting large historic injustices and boosting agriculture in every way, including bolstering black ownership and participation, are wholly laudable.
One of the problems is how to deal with a situation in which the eggs are largely scrambled. South Africans are not alone in this. In Who Owns Britain, for example, author Kevin Cahill says: "Although the history books tell it in rather more sober terms, the bare facts of the Norman Conquest are that in 1066 a wanted criminal and his gang of villains arrived in England and overran the place. The next act of William the Bastard, as he was known in France, was to claim the place as his own…."
Cahill goes on to show, in fascinating detail, how about 189,000 families (many of them descended from the Normans), about 700,000 people or 1.2% of the British population, own 16-million hectares, or 67%, of the total land. So the descendants of the Conquerors, including the likes of the Duke of Westminster, continue to derive enormous benefits at the expense of the majority. Does this sound familiar?
And, yes, the solution is the same, just as it is throughout the world.
The difference, of course, is that while land value capture is receiving growing attention in the UK, there are no angry English threatening illegal occupation and expropriation without compensation, so it’s not an issue there now.
In SA, the hospital pass from Jacob Zuma to Ramaphosa in December has to be handled deftly and urgently if South Africans are to avoid the mortuary, let alone the intensive care unit.
So what’s to be done? Well, SA can start by forgetting everything economic text books never told it about land. The days of conflating it with capital are over. While the legal system is understandably clear about improvements belonging to the land owner, economically speaking land is, in the first instance, a gift of nature, while improvements are man-made.
Moreover, land value is largely a product of the community, which provides security of tenure, infrastructure and many other benefits. So it makes sense for the community or its proxy, the government, to collect the value it creates instead of taxing, and thereby discouraging, the application of labour and capital. Land values are reflected in land prices and one of the first things to recognise is that land means land and not the improvements.
SA has about 35,000 commercial farmers and on the 80:20 principle, about 7,000 produce most of total production. The farms are highly capital intensive, with improvements and plant comprising up to 90% of property values in many cases. The banks are highly involved.
Land also happens to be what cities are built on. This focuses attention on the fact that land prices accurately reflect the locational advantage of land, and therefore on the phenomenon of rent, the elephant in the room in the conversation about land. Talking about land without rent is like talking about courts without judges. While agricultural land values vary hugely, from sparse Northern Cape grazing land to lush irrigated KwaZulu-Natal cane farms, the values in urban areas are multiple times higher yet.
Follow the money! It is here that the benefits of community-created value are to be seen, such as the mushrooming buildings on sites around the Gautrain stations.
Adam Smith simply said rent was payment for the use of land, to which could be added all other natural resources.
Another useful way of looking at it is the value added remaining after earnings of labour and returns on capital. It can be argued that Smith saw it as meeting his criteria in his famous Canons of Taxation and, as such, being the natural source of revenue for the sovereign.
A move towards collecting land and other natural resource rent instead of taxation would have many advantages:
Inefficient users would be encouraged to sell, thus increasing the supply of land and lowering costs;
Efficient users would be encouraged to invest without any penalties for doing so;
Economic activity would resume on marginal land (most rural areas);
By using the erstwhile gold formula tax as a proxy for land rent collection, mining would be rejuvenated; and
The need for clarity and security of tenure in former homelands would be energised.
But, most importantly, moving from collecting tax to rent would at one stroke go a long way towards remedying the age-old injustices of the past. SA cannot hope physically to redistribute its 122-million hectares among 57-million South Africans. The preamble to the Constitution states, however, that SA belongs to all who live in it. So all that has to be done is collect the rent on the land. At one stroke every South African would know that he or she is benefiting from every square metre of land.
While measures to equip aspirant farmers to operate effectively and pay the rent on land would still be necessary, production would be stimulated, not disrupted.
The supreme irony is that SA can’t expropriate what’s been "expropriated" already, and it is therefore forced to look at a much simpler, more natural and growth-friendly way of finally addressing the land issue. This means South Africans all have to understand rent and join the conversation as to how best to collect it. Is this perhaps what the president has in mind?
• Meintjes is head of research at Momentum Securities. He also explored this topic in Our Land, Our Rent, Our Jobs.