STICOMYTHIA: What Vermont and Russia have in common

The 1990s economic disasters in Russia under Boris Yeltsin hold a lesson for Vermont, itself seeking independence from a collapsing empire. What do vast Russia and tiny Vermont have in common?

The lesson concerns the privatisation of what we're calling the Commons; that is, the Land, the natural resources, all natural opportunities, anything provided by nature that is not the product of our work. It is the life and work of each community that adds to the value of the Commons. Currently, the value of the Commons is largely siphoned off and removed from Vermont. We resemble a colony, rather than a State. Speculation raises the market value of land especially, to a point where we can barely subsist. If you recall what the news media said, they said that the 'housing' bubble burst. What exactly burst? Was it the cost of your depreciating housing stock with the leaky roof, or was it the lucky location of that house that added so much to its market value?

Back in the nineties, Prime Minster Evgeny Primakov proposed a resource-rent tax to finance the nation's recovery from the collapse and breakup of the USSR. His proposal was to tax the profits of natural resources, which have production costs and high windfall. That would have retained rather than liquidated the seventy-plus years of Soviet capital investment. A corrupt Duma chose to give the profits to their associates, who became the Oligarchs. The Duma did what our own esteemed legislature in Montpelier have been doing for even longer, that is, sell off the shares to non-Vermonters.

Professor Herman Daly of the University of Maryland, wrote a letter to the Duma in 1998, proposing the same. I am not sure if Professor Daly's letter or Primakov's proposal came first; I'm sure there were lots more people who felt the same way:

While it is true that land and natural resources exist independently of man. and therefore have no cost of production, it does not follow that no price should be charged for their use. The reason is that there is an opportunity cost involved in using a resource for one purpose rather than another, as a result of scarcity of the resource, even if no one produced it.

But if we tax wages and profits too heavily then the some of the value added to natural resources and land by labor and capital will indeed disappear. The natural resource throughput begins with depletion and, after production and consumption, ends with pollution. Putting the tax at the beginning of the resource flow through the economy (throughput) is better than putting it at the end. A resource tax at the point of depletion induces greater efficiency in production, consumption, and in waste disposal.

Mayor Yuri Luzhkov of Moscow cited the ‘stealing, squandering, and distribution of natural resources and the largest sectors of industry to those who could not support their development.’ Gary Flomenhoft, if you read vtcommons.org at all, has not only documented the exact same thing about Vermont, but has gone further than the Mayor and given it a dollar value.

In an independent Vermont, we have to decide what to do about our Commons. If we create a Leftist government, we'd have to 'take' back what is ours... and probably remain as marginalised in world trade as Cuba under the Castro brothers.

Or we could move to the right, make no changes, and trust in the 'invisible hand' to transform the current corporate owners into responsible capitalists, rather than speculators. This is Montpelier's current solution, also not viable. There is a third way.

The third way, neither right nor left, is for government to shift tax away from productive activity such as wages and capital investments, and collect the _unimproved_ value of land, resources, timber, radio frequencies, opportunities; that is, the Commons. In the classics of Economics (which virtually nobody in academia ever reads), men such as Adam Smith, Ricardo and Henry George, called the value of the Commons, 'Rent'. All three agreed that a tax on Rent would mean the least hardship on society. Nothing radical here, so far.

I think it would be a good idea to allow the titular 'owner' of any part of our Commons to retain some small percentage of the rental tax, in order to capitalise it for sale. This would draw 'local' economic activity back into the state in a way that far huger tax breaks have failed, as well as keep the IBMs of the world from crying to a truncated US for intervention. Vermont will remain a cash cow, drying up only slowly.

Critics of the third way (defined here) often cite the popular view, that keeping taxes low on undeveloped land also keeps it from being developed. That plays right into the hands of the speculators, who are used to virtually tax-free Vermont investments. All that keeping taxes artificially low accomplishes is to force leapfrog-style development ever outward, into the sprawl that you see today! Is that 'green', having to drive through the sprawl? Is it cost-effective for the wage-earner and capitalist, who has to pay the vastly increased infrastructural costs of sprawl?

I look forward to debating these and other ideas, and hope beyond hope that we will get the chance to debate them in the context of a free and independent Vermont. Please use the comments section to poke holes in my arguments, and add your own ideas!