This is an interesting publication and something ‘green’ economist have been wrestling with for years. The value of something is very complicated and in our ‘neo classical economic’ consensus, the standard economic argument of today is something is worth what someone else will pay for it.
Why the NEA is wrong and will never be practical
It is virtually impossible when it comes to nature and ecological processes to put a value on something. So many people have vastly different values they associate with it and the modern system of regulation and taxation finds it very hard to deal with complex economic externalities from the loss of natural processes of any form. The mechanisms to construct a system of valuation and payment for those valuation would be doomed to failure, except as a dry exercise for purely academic purposes.
Some basic Problems:
1. How can you put a value on an intangible natural asset?
2. How can you arrive at a market price when there is no market?
3. How can you value something in a web of complex economic externalities?
4. How can you value something that represents the wealth of many generations yet to come, as our children will need these resources to survive
The Fundamental Problem
The fundamental problem is not one of valuation (as outlined above), but one of who benefits from its destruction. The proceeds of the destruction of natural resources are all private in western economies. The profits at the moment go into the hands of a few landowners, whether that is the Saudi family in Arabia or the local country squire.
But worse than the private gain of natural resource destruction, is that that profit goes untaxed!
We have developed a ridiculous economic system, through hundreds of years of manipulation by vested interests, which sees the wealth provided by nature placed, untaxed, into the hands of a tiny percentage of our population. Our laws and economic policy set this out in the current system of taxation and the freehold ownership of land. Worse still public funds are used on a vast scale to subside such land and natural resource owners through agricultural grants, tax perks, indirect subsidy through government bodies such as the Environment Agency funding of land drainage, flood protection and land reclamation. The list is endless of the special rights and subsidies afforded to those that own land and natural resources. All these subsidies come out of the hard work and industry of the rest of the population though taxes on our wages and on commerce.
The Simple Solution:
But there is a simple method, that has been proven, that could address these issues. It would be incredibly easy to implement and benefit the vast majority of people in this country.
That system would be for the Government to charge a ‘rent’ for the natural resources used.
Such rents, based on an annual tax of what someone is prepared to pay for the service commercially, would be as follows:
1. unimproved land value, based on its rental value, very easy to calculate.
2. Water rent on abstraction, based on what an auction of water abstraction licenses would fetch on the open market
3. Taxes on raw materials extraction such as salt, coal or oil equal to the rent someone would pay a landowner for the contract to operate such a business (natural resources extracted outside the UK would pay the tax on import). An estimate of resource use would be placed on all categories of imports such a TV’s fridges, food etc. and placed on those imports. This would be all done by importers and be audited just like VAT and other duties (which it would replace)
4. While pollution laws would still be enforced, minor pollutants that fall below the scope of the law such as sewage, farm/industrial waste would be paid by the polluter based on the rent of a business operating such a disposal service. So the cost of putting X tonnes of nitrates on Y type of land would cost a water company Z to clean out of our drinking water. The cost Z would be levied on the landowner on the fertilizer used.
Why this system would work:
1. easily understood
2. very easy to measure (and because its market based it is not vulnerable to distortion or corruption)
3. very easy to collect
4. impossible to avoid
5. obeys all the modern ideas on economic efficiency
6. Will not affect the wider economy as it is inelastic in supply
7. Can offset other taxes – thus creating rural jobs and prosperity (this is all to do with lowering the margin of production see below)
8. Helps regulate overuse of natural resource as it provides a negative feedback loop as rent increases as supply decreases
9. As it is a yearly rent it will adapt to changes in the economy, as the economy grows so does the rental charge in line with the economy (Ricardo’s Law of Rent) this would have the added benefit of buffering the effects of booms and recessions
The problems faced in implementation:
1. The privileged elite:
Those who own the right to our natural resources are often very powerful financially and politically. These natural resource owners receive huge private rents for the ability to exploit, pollute and use natural resources and would use all their power to stop any such proposal making it into law. I often think the biggest hurdle would be that many of our current squire-archy, who send their sons to Sandhurst, would baying for a Coup d'état
2. It would not tackle all externalities – we would still need pollution laws and wildlife protection laws for rare habitats and wildlife
3. Legal changes in land and resource tenure – we would need legal mechanisms for land to be held in trust for the nation so it could receive tax breaks for those looking to recreate wilderness and high extensive natural grazing systems while at the same time allowing a landowner, private or collective, to retain the right to be steward and protector of that land
4. Public misunderstanding – most people do not have the economic knowledge to understand these concepts and would find it hard to support them. Especially when faced by the massive lobbying efforts by those vested interests wishing to protect their monopoly and the ability to take private income from the loss of wildlife and natural resources.
Many people would need a lot of help understanding the beneficial effects of changing our system of taxation from taxes on earned income to unearned income and natural resources.
lowering the margin of production
This is the most important concept for rural businesses, extensive farmers and wildlife managers. Because there is a tax break for jobs and not assets such as tractors and fertilizers (and they now reflect some of the externalities of their production) many more rural, farming, leisure and wildlife conservation jobs would be created. This is because less profitable work would now become feasible and people could get a living wage.
The above is not my sole synthesis but based on the learning I have been doing for many years by learning from the great economists from Smith to Stiglitz, and of course Henry George.
