In The Land Trap, Mike Bird writes that land holdings remain the single largest constituent (about one-third) of the more than $500tn of the world’s real wealth. His book is a thoroughly enjoyable tour of land’s importance in economic history to this day. “No asset is more powerful in global finance than land”, he writes. It is an asset “that can make and break families, businesses and even entire nations.”
Bird’s account ranges from Babylonian land grants to the recent Chinese land speculation — the “biggest bubble in history”, the fallout from which is still playing out. He weaves phases of economic development together with waves of interest in land reform — from the turn-of-the-20th century campaign for a universal land tax inspired by American journalist Henry George, through Wolf Ladejinsky’s work on land reform in post-second world war Asia, to Hernando de Soto’s more recent push for formalising land titles in Latin America.
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A useful companion book to Bird’s is Land Power by Michael Albertus. His history concentrates on exposing how land reflects and reshapes power inequalities and social conventions. Gender relations, for example: Albertus argues that Canada’s 1872 Dominion Lands Act, by excluding women from acquiring land through homesteading mattered for their (delayed) political emancipation. Land reform in India may have stoked “favouritism of boys both as children and in utero”; “settler-style” land grabs have buttressed apartheid and colonisation.
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Meanwhile Bird, a journalist for The Economist based in Singapore, homes in on land’s financial function. Land is special, he explains, because it cannot be moved, does not disappear, and exists in fixed supply. That makes it unrivalled as collateral for secured credit.
That is why debt crises so often centre on land — and debt crises are, as Bird rightly points out, much more destructive to the wider economy than stock market crashes. As a result, the history of economic disruption is disproportionately the history of land speculation — of turning land into money — from 1920s Florida to 1980s Japan and beyond. The special role of land also reveals why financial markets can misallocate credit. Bird cites research showing that higher real estate prices reduce investment by real-estate-poor companies and thereby threaten innovation.
Land is, however, more often economically creative than destructive. Since it facilitates the emergence of credit — collateral is a substitute for trust and information, after all — it has kindled economic fireworks at both the individual and the aggregate level.
Bird asserts that China has gotten its land policies disastrously wrong, at great cost to its future growth prospects and overall stability as a nation. This is the case even if we put entirely aside all of Mao’s disastrous policies, what with the murder of landlords, collectivization of agriculture, cultural revolution, and famines. Reformers like Deng Xiaoping made many wise decisions that unlocked tremendous growth in the post-Mao era, but still made enough bad choices when it came to land policy that China ultimately fell into the morass that it faces today.
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In addition to the broken Hong Kong model, China’s central government made a sudden change to local tax policy. Originally, government was fairly decentralized, with local officials in charge of local tax revenues and local spending obligations. That changed in 1993 when the central government started appropriating large shares of local government revenues for itself, while the local spending mandates remained unchanged.
Local governments became desperate for alternate sources of revenue, but couldn’t raise new taxes because Beijing would just take a huge cut, and couldn’t take out loans or issue bonds because of banking restrictions. Officials eventually realized they could raise money with land lease sales, which wouldn’t count as “tax” revenue for Beijing could seize. Suddenly local governments were selling off land as fast as they could.
You’d think local officials might have second thoughts, because they would eventually run out of land and would then have no means left to finance their future for the next 99 years. Bird explained a second bad incentive to me over a phone conversation: top local Chinese officials aren’t lifers, and constantly hop from one province to another, seeking eventual posts in Beijing. Since leadership doesn’t stay around long, there’s less incentive for them to look out for an individual region’s long term stability.
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Meanwhile, the central government went to great lengths to suppress all other forms of investment:
The Chinese government engaged in financial repression to direct the country’s savings towards its industrial champions. Interest rates on bank deposits were kept deliberately low to ensure the banks could offer low-interest loans for China’s prized state-owned enterprises. Though the Chinese economy was growing almost more rapidly than practically any other economy in the world, the returns on holding money in a bank were often negative, after accounting for inflation.
China also imposed strict capital controls to prevent citizens from investing their money in foreign markets like US stocks, leaving average citizens with nowhere to park their money other than real estate. Beijing wanted investment to flow to manly Chinese priorities like factories, cars, and high technology, not effete Western nonsense like cryptocurrency, financial derivatives, and social networking apps. The bitter irony is that by crushing every other form of investment as hard as it possibly could, but still leaving the door open for land, China somehow managed to out-West the West at ruinous financial speculation.
https://archive.is/eewby
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Also see this book review from a Georgist perspective.
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