The Road Not Taken: What Russia Could Have Become
How Land Value Tax and Natural Resource Rents Could Have Built the Most Prosperous Nation on Earth, and Why the Failure to Adopt Them Gave Us Putin Instead
The inspiration for this essay stems from a meme shared
by R. Pettersson. It
addresses a subject I have explored extensively in conversations with my
mentor, Fred Harrison
In the autumn of 1990, as the Soviet Union was entering its
final convulsions, two economists flew to Moscow carrying an idea that was, in
every meaningful sense, perfectly timed. Fred Harrison and Professor Mason
Gaffney, both working in the tradition of Henry George, had been invited to
advise the reformers around Mikhail Gorbachev on the shape of the new economic
order that would replace Soviet central planning. They carried with them a
proposal that was elegant in its simplicity and radical in its implications:
instead of privatising Russia’s vast natural resources and land, the new
Russian state should retain ownership of those assets in the public interest
and fund itself entirely through the rents they generated. Citizens would keep
everything they earned through their own labour and enterprise. The state would
take only what the land and the natural world produced without anyone lifting a
finger.
The advice was not taken.
What followed is one of the great catastrophes of modern
history: the looting of a continent, the immiseration of a people who had
endured seventy years of communist austerity only to find themselves subjected
to a different kind of theft, the rise of an oligarchic class of a brutality
and shamelessness that astonished even seasoned observers of post-communist
transition, and ultimately the emergence of Vladimir Putin as the political
expression of a system built on the private extraction of public wealth. Russia
did not go wrong by accident. It went wrong in a very specific way, for reasons
that were entirely predictable, and the alternative was available and
understood at the time.
This essay is an attempt to think seriously about what the
other path looked like. Not as fantasy, but as an exercise in applied economics
and political history. What kind of country would Russia be today if Harrison
and Gaffney had won the argument?
The Moment of Historical Exhaustion
The historian J.G.A. Pocock wrote of moments of “historical
exhaustion and opportunity,” those rare structural junctions where the collapse
of one order allows for the genuine redesign of another. The Soviet dissolution
of 1990 to 1991 was precisely such a moment. The apparatus of central planning
had not merely failed economically. It had failed morally, spiritually and
administratively, and everyone in Russia knew it. The slate was, for one brief
and extraordinary period, clean enough to write something genuinely new.
The question was what to write on it.
The vacuum that opened up in Moscow in those years attracted
economists from across the world, most of them carrying versions of the same
blueprint. The Washington Consensus, as it came to be called, prescribed rapid
privatisation, price liberalisation and fiscal austerity. Get the assets into
private hands as fast as possible, the theory went, establish property rights,
and the market would sort out the rest. The Harvard economists who arrived with
their shock therapy prescriptions were not, in the main, stupid or corrupt.
They were operating within a framework that had become so dominant in Western
universities that its assumptions were no longer visible as assumptions. They
were simply the air that economic thinking breathed.
That framework had a name, and it had an origin. Professor
Mason Gaffney spent decades documenting what he called the Strategem: the
deliberate reconstruction of neo-classical economics in the late nineteenth
century, led by figures including John Bates Clark and Seth Low, specifically
designed to neutralise the threat posed by Henry George. George’s Progress and
Poverty, published in 1879, had sold more copies than any book in America
except the Bible. Its argument, that the rent of land properly belonged to the
community rather than to private owners, was gaining political traction in both
America and Britain and terrifying the landowning class on both sides of the
Atlantic. The response was not to refute George but to reframe economics in
such a way that his central distinction could not be made.
The classical economists, Smith, Ricardo, Mill, had built
their analysis on three factors of production: land, labour and capital. These
were genuinely distinct categories. Labour is what human beings do. Capital is
what human beings make. Land is what no human being made and no human being can
make more of. The rent of land, the income that flows to a landowner simply by
virtue of holding title to a location whose value was created by the
surrounding community, was recognised by the classical economists as
categorically different from the return on capital, which is a reward for
something genuinely produced.
Neo-classical economics collapsed this three-factor model
into two factors. Land became simply another form of capital. Economic rent
became simply another form of profit. The distinction on which George had built
his entire analysis, the distinction between earned and unearned income,
between the return on what you make and the return on what you merely own, was
systematically erased from the curriculum of every major university. By 1990,
the economists who descended on Moscow had no intellectual framework that would
allow them to see the difference between an oil field and a factory. Both were
simply assets, both subject to privatisation, both properly in the realm of the
market rather than the public interest.
This was not intellectual accident. It was, as Gaffney
documented with forensic precision, intellectual design. And its consequences
in Russia were catastrophic.
The Tax State and the Clawback Scam
To understand what the Harrison-Gaffney proposal would have
changed, you need to understand what a state funded by taxing labour and
capital actually does to the people who live under it.
Harrison calls it the Tax Clawback Scam. It works like this.
The state taxes the wages of working people to pay for public services: roads,
schools, hospitals, railways, parks. Those public services, by making locations
more convenient, more connected, more desirable, raise the value of the land in
the surrounding area. That rise in land value flows to whoever owns the land,
privately and tax-free. The working population has paid twice: once in the
taxes that funded the public investment, and once in the higher rents and
property prices that the investment produced. The landowner has paid nothing
and received everything.
Harrison illustrated this with data from London in 2005 that
is worth sitting with for a moment. An employee earning £50,000 paid £15,194 in
income tax and national insurance. In the same year, a ten percent rise in
property prices gave the average London homeowner a windfall gain of £24,000.
The homeowner did not earn this. They did not produce it. They simply held
title to a location whose value the surrounding community had created. The net
result: the homeowner pocketed £8,800 more than they paid in tax. They lived,
in effect, a tax-free life, subsidised by the labour of people who did not own
property. Every pound that a non-property-owning worker paid in income tax was,
through this mechanism, ultimately transferred into the pockets of those who
did own land.
Scale this up to the Russia of the early 1990s, where the
assets being privatised were not London terraced houses but oil fields, gas
pipelines, nickel mines, diamond deposits and some of the most strategically
valuable urban land in Eurasia, and the scale of the clawback becomes almost
incomprehensible. Every public investment the Russian state made in roads, in
pipelines, in urban infrastructure, in port facilities, simply capitalised into
the land values and resource values that the oligarchs had acquired for a
fraction of their worth. The state taxed the wages of teachers and nurses and
factory workers to fund the infrastructure that made the oligarchs’ assets more
valuable. It was the most comprehensive clawback in modern history, conducted
at the speed of political chaos.
A Russia that had adopted the Harrison-Gaffney model would
have structurally prevented this. By funding the state from the rental value of
land and the extraction value of resources, it would have ensured that public
investment in infrastructure recaptured its own value. When a new road raises
the value of the land along its route, a land value tax automatically captures
that uplift for the public. There is no clawback because there is no private
recipient of the windfall. The value created collectively returns to the
collective. It is, in this respect, not merely a different tax system but a
different theory of what a state is for.
What Harrison and Gaffney Were Actually Proposing
The proposal itself was not complicated, though its
consequences were profound.
Russia in 1990 sat atop extraordinary natural wealth. It
had, and has, the largest proven reserves of natural gas in the world, the
second largest reserves of coal, enormous deposits of oil, the world’s largest
forest cover, vast agricultural land, enormous mineral wealth including nickel,
palladium, titanium, diamonds and rare earth metals, and some of the most
valuable urban land in Eurasia in Moscow, St Petersburg and the other major
cities. Under the Soviet system, all of this had nominally belonged to the
state, which is to say it belonged to nobody in particular and was managed with
catastrophic inefficiency.
The Harrison-Gaffney proposal was to keep land and natural
resource rents in public hands, not through Soviet-style state ownership of
enterprises but through a straightforward levy on the rental value of land and
the extraction value of natural resources. The proceeds would fund public
services. In exchange, all taxes on income, wages, enterprise and trade would
be abolished. Russians would be free to earn, invest, build and employ without
the state taking a cut. The only thing the state would claim is what it had not
created: the value of the earth itself.
The contrast with the path actually taken could not be more
stark. The table below captures the essential difference:
The neo-classical path that was adopted treated resource
wealth as fungible capital, subject to privatisation through the voucher
system. Its primary revenue source became taxation of wages, capital and
production, penalising the very productive activity that Russia most needed to
encourage. The result was concentrated ownership, with resource wealth
extracted by a parasitic minority, and an incentive structure that rewarded
speculation over production.
The Harrison-Gaffney path would have collected the rental
value of land and natural resources as public revenue, leaving wages and
capital entirely untaxed. Ownership would have been socialised in the
meaningful sense: not that the state would have run the enterprises, but that
the public value of the territory would have funded the community rather than
enriching a handful of insiders. The incentive structure would have rewarded
investment and technological effort, because those activities would have been untaxed.
The only cost of holding land or resources would have been the rental levy,
which would have made idle speculation unprofitable and productive use
essential.
The Strategem and Its Victims
The intellectual roots of the disaster run deep. Gaffney’s
account of the Strategem is, once you understand it, one of the most important
and least-known stories in the history of ideas.
Henry George terrified the propertied classes of the 1880s
not because his ideas were impractical but because they were, in the view of a
great many people including some of the most eminent economists of the day,
obviously correct. Land values are created by communities, not by landowners.
The rent that flows to landowners is, in the classical sense, unearned. Taxing
it rather than taxing wages and enterprise would raise the same or greater
revenue at a fraction of the economic cost, because unlike a tax on productive
activity, a tax on land value cannot be passed on, cannot be avoided by working
less, and does not reduce the supply of land, which is fixed regardless of what
you charge for it.
The response from those whose wealth depended on private
land ownership was not to engage with these arguments but to reshape the
discipline that made them thinkable. Clark, working at Columbia, developed a
marginal productivity theory of distribution that gave capital and land a
common analytical treatment and implied that all factor incomes were equally
deserved returns on productive contribution. The concept of economic rent, the
unearned surplus that flows to landowners by virtue of location rather than
effort, was quietly dissolved into the general category of return on
investment. The distinction between land and capital that had been foundational
to Smith, Ricardo and Mill was declared obsolete and banished from the
curriculum.
The consequences extended far beyond academic economics.
When Soviet central planning collapsed and a new economic order had to be
designed for Russia, the intellectual toolkit available to the designers simply
did not contain the concepts needed to see the problem clearly. The Harvard
economists who advised Yeltsin were not equipped to distinguish between the
privatisation of a factory, which might genuinely create productive incentives,
and the privatisation of an oil field, which would simply transfer a pre-existing
rent stream from public to private hands. The Strategem had done its work so
thoroughly that the distinction had ceased to be thinkable within mainstream
economics.
Harrison and Gaffney could see it, because they had not
accepted the Strategem’s terms. But they were operating outside the mainstream,
without the institutional backing of Harvard or the IMF, and in a political
environment where time was desperately short. The window for genuine structural
reform, measured in months rather than years, closed before their argument
could gain traction.
The Looting That Actually Happened
Before imagining the alternative, it is worth being precise
about the scale of what the failure of that alternative produced, because even
thirty-five years on, the full enormity of the 1990s has not been absorbed into
Western consciousness.
The privatisation process that followed the Soviet collapse
was not a transfer of assets to those who would use them productively. It was a
transfer of assets to those best positioned to exploit the chaos of transition:
former Communist Party officials who understood the bureaucratic machinery,
well-connected insiders who could acquire vouchers at a fraction of their face
value, and a small number of genuinely entrepreneurial figures who grasped very
quickly that the rules of the new game were being written in real time. By the
mid-1990s, a handful of men controlled the commanding heights of the Russian
economy. They had acquired, for sums that were often derisory, the oil
companies, the gas monopolies, the metals enterprises, the television stations
and the banks.
The wealth they accumulated was not created wealth. It was
extracted wealth, the rents of Russia’s natural endowment, which had been
produced by no one and now flowed to a tiny number of private individuals
rather than to the Russian state or the Russian people. This is precisely the
dynamic that Gaffney identified in his analysis of the Maryland property tax
system, where residential properties were assessed at 117 percent of parity
while large agricultural and commercial landholdings were assessed at only 42
percent. The bias was always in the same direction: the productive classes pay
more, the owning classes pay less, and the gap between them widens with each
cycle of public investment and private capture.
Russia was the most extreme version of this pattern ever
recorded. Between 1991 and 1998, GDP fell by roughly forty percent, a peacetime
economic contraction without parallel in modern history. Male life expectancy
collapsed. Alcoholism, suicide and violent crime surged. The pension system
failed. Public services disintegrated. The intellectual and professional class,
doctors, engineers, scientists, teachers, found that their skills were worth
almost nothing in an economy organised around the extraction and export of raw
materials. Harrison has a phrase for what happens to a country in this
condition: it becomes a Chinese Takeaway Society. He means something precise by
this. Just as a steel mill is sometimes more valuable dismantled and sold for
scrap than left running, a country whose elites have captured its rent streams
has every incentive to strip the productive base rather than develop it. The
ThyssenKrupp steel works, dismantled and shipped to China for its scrap value
rather than maintained as a going industrial concern, is his image for what
happened to Russia’s industrial capacity in the 1990s. A nation being eaten by
its own ruling class.
And out of that catastrophe came Putin. Not as an accident
or an aberration, but as the logical product of the system that had been built.
The oligarchs needed a state strong enough to enforce their property rights but
weak enough not to threaten them. Putin initially seemed to offer that bargain.
He then renegotiated it on his own terms. The oligarchs who cooperated kept
their wealth. Those who did not, Khodorkovsky being the most prominent example,
were imprisoned or exiled. The fundamental structure, private capture of public
wealth, remained intact. Only the beneficiaries changed.
The Alternative: Year by Year
Now imagine that in 1990 or 1991, the advice of Harrison and
Gaffney had been heard and acted upon. What follows is not speculation for its
own sake. Each stage of the argument is grounded in what we know about how land
value taxation and resource rent systems actually function.
The early 1990s: stabilisation without immiseration
The first and most immediate difference would have been
fiscal. One of the drivers of the chaos of the early Yeltsin years was the
near-total collapse of state revenues. The Soviet state had funded itself
primarily through enterprise profits and a web of internal transfers that made
no sense in a market economy. When those mechanisms disintegrated, the Russian
state had almost no money. It printed currency to cover the gap, producing
hyperinflation. It failed to pay soldiers, doctors, teachers and pensioners.
The resulting breakdown of public order created the vacuum into which the
oligarchs moved.
A land value and resource rent system would have provided
immediate, stable, substantial revenue from the outset. Russia’s natural gas
reserves alone, at 1990s prices, generated enormous rents. Gazprom, rather than
being handed to insiders for a fraction of its value, would have remained a
public asset whose rents flowed to the state. The same logic applies to oil,
metals and urban land. Moscow’s central districts were already, even in the
chaos of transition, acquiring enormous locational value as Western businesses
arrived and the market in commercial property began to form. A levy on that
value, collected by the state rather than pocketed by whoever had managed to
acquire title, would have been substantial from the outset and would have grown
rapidly.
Critically, Gaffney identifies land assessment as the
absolute first priority for any government seeking to implement this reform,
for seven reasons that have particular resonance in the Russian context. Taxing
land encourages its productive use while taxing buildings does not. Land is
more systematically underassessed than improvements in every jurisdiction that
has tried to value it. Land constitutes a larger share of total real estate
value than most assessors acknowledge. Land ownership is far more concentrated
than ownership of productive capital, meaning that correct assessment is also a
redistributive measure. Regressive assessment, the systematic undervaluation of
large holdings relative to small ones, is most pronounced with respect to land.
Citizen involvement in the assessment process is most feasible for land, whose
value can be verified by reference to comparable transactions. And correct land
assessment is necessary to close the loopholes through which income tax is
avoided, because so much of what passes for business income is actually
disguised land rent.
Had Russia established accurate land assessment as its first
institutional priority, the oligarchs could not have formed. You cannot
accumulate an oil field or a city block as speculative capital when the annual
levy on its rental value makes idle holding prohibitively expensive. The
rational response to LVT is always to use the land productively or sell it to
someone who will. The mechanism that allowed a handful of insiders to acquire
Russia’s territorial inheritance for a fraction of its value simply would not
have been available.
With a functioning revenue base, the Russian state could
have maintained basic services through the transition. Pensions would have been
paid. Hospitals would have remained staffed. Schools would have continued to
function. The catastrophic mortality spike of the 1990s, driven substantially
by the collapse of the health system and the despair of a population that felt
it had been robbed, would have been far less severe. Hundreds of thousands of
lives would have been saved.
The mid-1990s: enterprise without rent seeking
The second great difference would have been in the structure
of economic incentives. The abolition of taxes on income, wages and enterprise,
the other half of the Harrison-Gaffney proposal, would have been transformative
for exactly the people that shock therapy left behind.
Russia in 1990 had an educated, technically capable
population that had been starved of the opportunity to apply its skills in a
market context. Engineers, scientists, mathematicians, programmers,
manufacturers, agronomists: there were millions of Russians who had the
knowledge and the drive to build genuinely productive enterprises if the
conditions were right. The conditions that actually emerged were not right. The
tax system that replaced the Soviet one was predatory, complex and arbitrarily
enforced. Starting a business meant dealing with a bureaucracy that had been
trained to obstruct and now discovered it could extract. The rational response
for anyone with capital was not to invest in production but to acquire assets
whose value was rising regardless: land, resources, property.
In a Georgist system, the incentive structure would have
been inverted. Working and employing people would have been untaxed. Building
factories, writing software, growing food, providing services: all of this
would have happened in a zero-tax environment. The only cost would have been
the rental value of the land on which the enterprise sat, which would have been
payable regardless of whether the land was used productively or left idle. This
is the mechanism Gaffney identifies as the key to preventing speculative
holding: you cannot afford to sit on land doing nothing when the annual levy
reflects its full rental value. You either use it or you sell it to someone who
will.
This distinction between taxing land and taxing buildings
has profound spatial consequences. Under the conventional property tax system
that Russia effectively inherited, owners are penalised for improving their
buildings, because improvements raise the assessed value and therefore the tax
bill. The rational response is to let buildings deteriorate. This is precisely
what happened across Russian cities in the 1990s and beyond: the extraordinary
decay of the built environment in cities with enormous underlying land values,
a direct product of a tax system that penalised improvement and rewarded
stagnation.
Under LVT, this logic is reversed. You can build as high as
you like, renovate as thoroughly as you choose, convert a derelict factory into
a technology campus, and your tax bill does not increase because you have
improved the building. Your tax bill reflects only the value of the site, which
is determined by its location and the public investment that surrounds it, not
by what you have done with it. The result is what Gaffney calls the highest and
best use of land: cities that are dense, well-maintained, economically vibrant
and spatially efficient, rather than the sprawling, decaying patchwork of
neglected sites and isolated towers of wealth that characterise Moscow and most
other post-Soviet cities today.
Harrison describes the Demolition Test as a way of
understanding this dynamic. If a building is demolished to salvage the land
beneath it, the building’s contribution to the property’s value was zero or
negative. The entire value was in the site. This insight, applied
systematically to Russia’s urban landscape, would have driven the redevelopment
of the derelict Soviet-era industrial zones, the dilapidated housing blocks,
the vast areas of under-used urban land that represent an enormous
misallocation of one of Russia’s most valuable resources: its cities. Cities
like St Petersburg, with their extraordinary architectural heritage and
cultural density, could have become something genuinely remarkable: a modern
Athens built on the foundations of imperial grandeur, funded by the captured
rental value of one of the most culturally significant urban environments in
the world.
The late 1990s and early 2000s: the Putin question
Here is the most consequential counterfactual of all. Would
Vladimir Putin have come to power in a Russia organised on Georgist lines?
Almost certainly not, or at least not in any form resembling
the Putin who actually emerged. Putin’s political project was, at its core, a
project of centralised rent management. He rose to power because the oligarchic
system that preceded him was unstable: too many competing rent-extractors, too
little central coordination, too much risk that the whole edifice would be
challenged from below by a population that had been robbed. Putin offered a
reorganisation of the extraction system around a single point of control rather
than its replacement by something that served the public interest.
In a country where resource rents flowed to the state and
were used to fund public services, where land speculation was taxed out of
existence, where enterprise and labour were untaxed, the social conditions that
produced Putinism would not have existed. There would have been no oligarchs to
manage, because the oligarchic fortunes could not have been assembled in the
first place. There would have been no destitute and humiliated population
hungry for a strongman who promised to restore national pride, because the
transition would not have been a humiliation. There would have been no
systematic corruption of the state apparatus, because the incentive to corrupt
officials, the opportunity to acquire public assets for private gain, would
have been structurally absent.
Harrison draws an analogy with the seventeenth-century
English landowners who hijacked Parliament to shift the tax burden from their
estates onto the wages of working people. The Russian oligarchs were the
functional equivalent: rent-seekers who manipulated the regulatory and
political machinery to appropriate the economic rent of the nation’s resources
for private gain. LVT is, among other things, a structural neutraliser of this
class. You cannot build a political empire on land rents that flow to the public
rather than to you. You cannot use resource revenues as a tool of political
patronage if those revenues are captured by a transparent public levy rather
than routed through your personal holding company. The material basis of
oligarchy is land rent. Remove it, and the oligarchs cannot form.
Russia Today: The Country That Might Have Been
Project the alternative forward to the present and the
picture is striking.
Russia would, in all probability, be among the most
prosperous countries on earth by any per capita measure. Its natural wealth,
managed in the public interest rather than looted for private gain, would have
generated a sovereign wealth fund comparable to Norway’s but vastly larger,
reflecting the scale of Russia’s resource base relative to its population.
Russian citizens would receive, as a matter of right, a dividend from the rents
of their collective natural inheritance, a direct payment representing their
share of the value created by the territory they inhabit. Alaska has done
something like this since 1976 with its Permanent Fund. Norway has done it with
its oil fund. Both are instructive but partial precedents. A Russia that had
done both, collecting resource rents and using them to replace all taxation of
productive activity, would have been something qualitatively different from
either.
The spatial redistribution of income that Harrison
identifies as one of the most pernicious features of the tax state would have
been reversed. Under the current system, the taxes paid by workers in
resource-rich peripheral regions like Siberia are effectively transferred to
the centre, crystallising as rising land values in Moscow for the benefit of
those who own the capital’s real estate. Under LVT, the value created by
Siberian resources would have been captured at source, distributed to the
public and recycled into the infrastructure and services of the regions where
it was generated. The extraordinary lopsidedness of Russian development, the
hyper-concentration of wealth and opportunity in Moscow at the expense of
everywhere else, would have been structurally prevented.
The technology sector that never emerged in the actual
Russia would, in the alternative history, be a global force. Russia’s
mathematical culture is genuinely exceptional, a product of the Soviet emphasis
on scientific education that survived the transition as human capital even as
the institutional framework that supported it collapsed. The scientists,
engineers and mathematicians who emigrated to America, Germany, Israel and the
UK in the 1990s, drawn by the combination of economic despair at home and professional
opportunity abroad, would in the main have stayed. In a zero-income-tax
environment, with a stable state and functioning institutions, the returns to
genuine productive effort would have been extraordinary. The technology boom
that Silicon Valley experienced in the 1990s, built partly on the labour of
Russian immigrant engineers, might instead have happened in St Petersburg or
Novosibirsk.
Russian agriculture, the largest temperate agricultural base
in the world, would be feeding much of Asia and the Middle East productively
and sustainably, rather than being carved up between politically connected
insiders whose primary interest is in the capital value of the land rather than
its productive use. Under LVT, the incentive to hold agricultural land
speculatively, banking on price appreciation while leaving it underproductive,
is eliminated. The land must earn its keep or be sold to someone who will make
it do so. Russian agricultural output, already enormous, would be considerably
larger, more efficient and more sustainably managed.
A Capability Threshold Rather Than Bare Survival
There is a dimension to the Harrison-Gaffney proposal that
goes beyond economic efficiency, though the efficiency gains alone would have
been transformative. It is a dimension that concerns what the Equalities Review
panel called the capability threshold: not merely what people have, but what
they are able to do and be.
The Tax State, as it actually operated in Russia, reduced a
population that had endured seventy years of Soviet collectivism to something
approaching bare biological survival. The immiseration of the 1990s was not
simply an economic event. It was a civilisational one. A generation of Russians
discovered that the skills, the qualifications, the professional identities
they had built under one system were worth almost nothing under the replacement
system, because the replacement system rewarded the ownership of assets rather
than the application of knowledge. The doctor, the engineer, the scientist, the
teacher: all of them found themselves below the level at which their
capabilities could be exercised meaningfully. The result was not merely poverty
but a kind of anthropological despair, a loss of social participation, cultural
competence and autonomous agency that produced the mortality crisis, the
alcoholism epidemic and the demographic collapse of the 1990s.
A Georgist Russia would have elevated its population above
this threshold systematically and structurally, not through state handouts but
through the design of the incentive system itself. By leaving the full product
of labour in the hands of those who laboured, it would have ensured a basic
level of social participation. By funding public services from the public value
of the territory rather than from the wages of workers, it would have decoupled
access to healthcare, education and infrastructure from the ability to pay
income tax. By refusing to penalise improvement, whether of buildings, of
skills, or of productive capacity, it would have created a genuine environment
for what the Equalities Review called an autonomous part in society: the
ability to shape one’s own life rather than being shaped by the extractive
requirements of those who own the ground beneath one’s feet.
This is what Harrison means when he contrasts the Social
Contract with the Leviathan. The Leviathan state survives by cannibalising its
own labour force. It takes the wages of the productive to fund services that
raise the value of land for the owning class. The Social Contract state, by
contrast, is grounded in the recognition that the value of the earth belongs to
those who inhabit it collectively, and that the purpose of public revenue is to
return that value to the community rather than to funnel it through the state
into private hands. A Russia built on that principle would not have been a
utopia. It would have been a country in which the interests of the state and
the interests of ordinary citizens were genuinely aligned, perhaps for the
first time in Russian history.
The Moral Reckoning: The George-Argyll Debate and the
Russian Soul
There is a moral dimension to all of this that purely
economic analysis tends to flatten, and it matters in the Russian context more
than most.
Henry George’s debate with the Duke of Argyll, conducted in
the pages of the nineteenth century press, established the fundamental moral
question that the Russian transition failed to answer. The Duke argued that
social laws must be read as expressions of divine beneficence: the natural
order rewards those who own the earth because ownership entails stewardship.
George replied that this was a reduction to iniquity: the monopolisation of the
earth by a small class denies the equal right of all human beings to the use of
the planet on which they were born, and forces those excluded from ownership
into a reckless struggle for survival born entirely of manufactured scarcity.
The Russian experience between 1991 and the present is the
most comprehensive empirical test of the Duke’s position that the modern world
has produced. A small class acquired the earth and its resources. The rest were
left to scramble. The result was not beneficent stewardship but predatory
extraction, not prosperity but immiseration, not social order but a criminal
state dressed in nationalist clothing. The natural order, as the Duke described
it, produced Putin.
George’s alternative, which is Harrison and Gaffney’s
alternative, rests on a different reading of social law. The earth’s value is
created collectively, by the presence and activity of communities. It therefore
belongs collectively to those communities. To allow any individual or group to
appropriate that value without compensating the community is not merely
economically inefficient. It is a moral wrong, the original theft on which all
subsequent inequality is built. Harrison traces this theft back five thousand
years, to the moment when the first cheats moved in on the Neolithic transition
to farming and began extracting the surplus that should have funded the common
good. Russia in 1991 re-enacted that transition, with extraordinary speed and
on an extraordinary scale, in full view of economists who understood exactly
what was happening and were largely ignored.
The moral stakes are not merely historical. A society where
land tenure entails duties to the community rather than rights against it is,
in the deepest sense, a balanced society: one in which the interests of
individuals and the interests of the collective are not perpetually in
conflict, because the system has been designed to align them. The Russia that
actually emerged is the opposite: a society in permanent internal war between
those who extract and those who are extracted from, managed by a state that
exists to protect the extractors while performing the theatre of national
solidarity for the extracted.
The Geopolitical Consequences
The implications extend far beyond Russia’s borders, because
a Georgist Russia would have had entirely different relationships with its
neighbours and with the world.
The wars in Chechnya, Georgia, Ukraine and Syria are all, in
different ways, products of the system that actually emerged. A petrostate
requires high energy prices to fund itself. High energy prices require
geopolitical instability in competing producing regions. Geopolitical
instability provides cover for the kind of military adventurism that
consolidates domestic support around a nationalist leader. Putin’s foreign
policy is inseparable from his domestic political economy. A Russia that did
not depend on resource rents for political survival, because those rents were
transparently collected and distributed as public revenue rather than
channelled through the Kremlin, would have had no structural incentive for any
of it.
The protectionism in the name of patriotism that Harrison
identifies as one of the symptoms of a failed Tax State would not have been
necessary. When a state’s fiscal health depends on the extraction and export of
raw materials, the temptation to use that dependency as a geopolitical weapon
is irresistible. The gas shutoffs to Ukraine, the energy leverage over Europe,
the use of Gazprom as an instrument of foreign policy: all of these required a
state whose revenue depended on controlling resource flows. A state funded by
land value taxation has no such instrument and no such incentive. Its interest
is in the productive use of its territory, not in the geopolitical manipulation
of what lies beneath it.
Ukraine, in this alternative history, would have had an
entirely different relationship with Moscow. The specific grievance that drove
the Maidan revolution and ultimately the catastrophic war of 2022 was the
corruption and rent-extraction embedded in the relationship between the Russian
and Ukrainian elites, crystallised in the gas transit arrangements that tied
the two countries together in mutual predation. A Russia that had collectivised
its gas rents into a sovereign wealth fund rather than routing them through a
network of Kremlin-connected companies would not have had the same grip on
Ukrainian politics. The gas leverage simply would not have existed in the same
form. Ukraine and Russia might have developed as genuinely complementary
economies, the agricultural and industrial capacity of Ukraine combining with
the resource wealth and technological potential of Russia in a relationship of
mutual benefit rather than mutual exploitation.
More broadly, a prosperous, stable, non-predatory Russia
would have been a different kind of partner for Europe and for the world. The
integration of Russia into a pan-European economic and security architecture,
which was a genuine possibility in the early 1990s, was derailed precisely by
the character of the system that emerged. A sovereign social contract Russia,
one grounded in the recognition that the public value of its territory belonged
to all its citizens, would not have been the security threat that the actual
Russia became. The new Cold War might not have happened. The wars that have
cost hundreds of thousands of lives and displaced millions more might not have
been fought.
Why the Advice Was Not Taken
This is the most painful part of the story, because the
failure was not inevitable. Harrison and Gaffney were there. They had the
access. They made the case. Why did it fail?
Several reasons operated simultaneously. The first was
intellectual, and it goes back to the Strategem. The neo-classical framework
that dominated every major economics department in the world by 1990 simply did
not contain the concepts needed to see what Harrison and Gaffney were pointing
to. The distinction between land and capital, the recognition of economic rent
as a categorically different form of income from wages or profit, the
understanding that the privatisation of resource rents is structurally different
from the privatisation of produced capital: none of these ideas were accessible
to economists trained in the mainstream tradition. They had been systematically
removed from the curriculum, and the removal had been so thorough that most
mainstream economists were not even aware of the gap.
The second reason was interest. The privatisation programme
created enormous fortunes very quickly. The people who benefited from it were,
within a very short time, among the most powerful in Russia and in the West,
because Western banks and investment firms were deeply involved in the
privatisation process and profited enormously from it. They had every incentive
to ensure that the intellectual framework that justified their gains remained
dominant. This is not conspiracy in the paranoid sense. It is the straightforward
operation of power. Those who benefit from a system fund the ideas that justify
it. The Georgist tradition had no wealthy backers and a great many wealthy
opponents.
The third reason was timing. The Soviet collapse happened
fast. The window in which genuine structural reform was possible was narrow,
measured in months rather than years. Harrison and Gaffney arrived with their
proposal at a moment when the reformers around Gorbachev were genuinely open to
new ideas, but that openness did not survive the political turbulence of 1991.
By the time Yeltsin was firmly in power and the privatisation programme was
under way, the interests that would later harden into oligarchy were already
forming, and they were not interested in a system that would have prevented
their formation.
The fourth reason was what Gaffney identified as the
systematic inter-class bias of assessment. Even in jurisdictions that nominally
taxed land, the assessment process was captured by the owning class, ensuring
that the heaviest burdens fell on small residential properties while the vast
holdings of the privileged went systematically undervalued. In Russia, where
the institutions that might have protected assessment integrity simply did not
exist, the likelihood of this capture happening immediately was overwhelming. A
land value tax without honest assessment is not a land value tax. It is a tax
on the poor dressed in the language of reform.
The Lesson
Fred Harrison has spent his career arguing that what
happened in Russia was not an accident or a failure of implementation. It was
the predictable result of building a nominally market economy on a foundation
of privatised rent. The resource curse, the boom-bust property cycle, the
political corruption that flows from private capture of public wealth: these
are not bugs in the system. They are features. They are what you get when the
cheats are allowed to keep the net income that properly belongs to everyone.
Russia is the most dramatic example in modern history of
what that looks like at scale, because Russia had more to lose than almost
anyone. The natural wealth was extraordinary, the human capital was
extraordinary, the moment was genuinely open. And the failure to take the road
that Harrison and Gaffney pointed to produced, within a single generation, one
of the most comprehensively ruined opportunities in economic history.
The irony is sharp and worth sitting with. Russia in 1991
had an advantage that no Western country possessed: it was starting from
scratch. It had no entrenched landowning class of the kind that had spent two
centuries in Britain successfully resisting land value taxation. It had no
mortgage industry whose business model depended on rising land prices. It had
no newspaper proprietors whose wealth was concentrated in property portfolios.
The political economy of reform, which is so difficult in countries where the
reform threatens established interests, was, for one brief and extraordinary
moment, genuinely open. The slate was clean enough to write something new.
Instead, the cheats moved in. They had been moving in,
Harrison would say, since the Neolithic. The names change. The mechanism is
always the same. The Pharaohs extracted rent from the wheat grown along the
Nile and spent it on monuments to their own insatiable appetite. The Russian
oligarchs extracted rent from the oil beneath the Siberian permafrost and spent
it on superyachts, London townhouses and football clubs. The structures are
different. The logic is identical.
Professor Mason Gaffney, who died in 2020 having spent sixty
years trying to restore the classical understanding of rent to economic
thinking, never saw his ideas given a fair hearing in the country where they
could have made the most difference. Fred Harrison, who is still working, still
writing, still warning, watches the consequences unfold across the news every
day. The war in Ukraine, the energy crisis in Europe, the creeping
authoritarianism across the post-Soviet space: all of it traceable, in his analysis,
to the single decision made in the early 1990s to allow Russia’s natural rents
to become private wealth rather than public revenue.
It was not inevitable. It was a choice. And we are all, in
ways most of us do not begin to understand, still living with the consequences
of it.
The transition from Tax State to Rent State remains the
unrealised project of our time. It was unrealised in Russia because the
Strategem had done its work too well and the window closed too fast. It remains
unrealised in Britain, in America, in Australia and across the developed world
because the same interests that buried it in the economics curriculum of the
1880s continue to bury it in the policy documents of the 2020s. A leaked
government report circulates on ministers’ WhatsApp groups with the words “land
value tax” in it. A prominent economist devotes a single paragraph to the idea
and cites as her authority a man who has spent his career ridiculing it. The
pattern is always the same: the idea appears at the edge of serious debate, is
introduced by those who will ensure it is not taken seriously, and disappears
again.
Until the public understands what is at the root of the
problem, there will be no change to the system. And until there is a change to
the system, we remain hostages to it. Russia showed us what happens when that
system is allowed to operate without restraint, from the first moment of a
nation’s formation, at the maximum possible scale. It is the sharpest possible
argument for getting the alternative right, and the most powerful possible
warning of what happens when we do not.
The parallel with an earlier moment of Russian historical
crisis is impossible to ignore, and it carries a melancholy that no amount of
economic analysis can entirely dissolve. Leo Tolstoy spent the last three
decades of his life doing, with the tools available to a nineteenth-century
novelist and moral philosopher, exactly what Fred Harrison has spent his career
doing with the tools of political economy. Both men identified the same root
cause of Russian suffering. Both argued for the same remedy. Both were ignored
at the precise moment when their argument could have changed everything.
Tolstoy’s commitment to land value taxation was not a
peripheral interest or a late-life eccentricity. It was, alongside his
religious anarchism and his rejection of violence, one of the fixed poles of
his mature thought. He corresponded directly with Henry George, whom he
regarded as one of the most important thinkers of the age, and in letter after
letter he returned to the same conviction: that the private ownership of land
was the foundational injustice from which most human misery flowed. In his 1905
essay The One Thing Needful he wrote with characteristic
directness that “the land is no one’s; it belongs to God, and to all men
equally who live upon it.” His novel Resurrection, published in
1899, built its entire moral architecture around the land question: the
protagonist Nekhlyudov, travelling through rural Russia and witnessing the
destitution of the peasantry, concludes that “the cause of the poverty of the
people is one, and well known — it is the land, which ought to be the common
property of all, has been seized by the landlords.” Tolstoy wrote to George in
1896 describing Progress and Poverty as “an extraordinary book” and telling him
that its reading had “strengthened my own conviction regarding the injustice of
land ownership.” He used his enormous public platform relentlessly on George’s
behalf, writing in A Great Iniquity that people were beginning
to understand that the government which holds the land is tyranny, and
insisting that the single tax on land values was not merely a policy preference
but a moral imperative as clear as the prohibition on slavery.
The crisis Tolstoy was writing into was the slow collapse of
Tsarist Russia: the immiseration of the peasantry, the concentration of land in
aristocratic hands, the systematic extraction of rural surplus by an owning
class that produced nothing, the growing fury of a population that had endured
serfdom for centuries and found that its formal abolition in 1861 had changed
the legal description of their condition without changing its economic
substance. The land question was the hinge on which Russian history was
turning. Get it right and Russia might evolve towards something like a just and
prosperous society. Get it wrong and the accumulated fury would find another
outlet. Tolstoy understood this with a clarity that his contemporaries in
government almost entirely lacked. He wrote in 1908, just two years before his
death, that “there is only one means by which the misery of the people can be
fundamentally improved, and that is the introduction of the single tax.” He
petitioned the Tsar directly. He published, distributed, agitated. That a man
of his cultural authority, the most famous writer in the world, could not move
the political needle on this question is itself a measure of how completely the
landowning class had embedded its interests in every structure of Russian
power.
Fourteen years after Tolstoy’s death, the Bolsheviks solved
the land question in the worst possible way, by nationalising everything,
destroying the productive capacity of Russian agriculture, and calling the
result liberation. Tens of millions died in the famines and purges that
followed. The Georgist solution Tolstoy had championed, which would have left
ownership and enterprise entirely intact while returning the rental value of
the earth to the community, was never tried. Russia resolved its first great
crisis of extraction not by reforming the system but by replacing it with
something worse.
Seventy years later, when the second system collapsed in
turn, Harrison flew to Moscow carrying the same argument that Tolstoy had spent
his life making: that the rent of the earth belongs to the people, that a state
funded from that rent rather than from the wages of labour is the foundation of
genuine justice and genuine prosperity, that the choice between private
extraction and public revenue is the choice between civilisation and its
opposite. The argument was better developed by 1990 than it had been in 1900.
It was supported by a century of additional economic evidence. It had Gaffney’s
forensic demolition of the Strategem behind it, and Harrison’s own
documentation of the 18-year cycle to give it predictive as well as normative
force. And it failed again, for the same essential reason it had failed when
Tolstoy made it: the interests that benefited from extraction were more
powerful than the ideas that challenged it, and the window in which ideas could
change institutional design was narrower than the time needed to make the
argument heard.
What connects Tolstoy and Harrison across a century is not
merely the content of the argument but the nature of the failure. In both
cases, the crisis was visible and diagnosed in advance. In both cases, the
remedy was available and articulated. In both cases, the political and
intellectual structures that might have carried the reform were captured by the
very interests the reform would have dismantled. And in both cases, the failure
to act produced consequences of staggering and entirely preventable scale.
Tolstoy’s Russia got the Bolsheviks. Yeltsin’s Russia got Putin. The cheats, as
Harrison would say, are always ready. The only question is whether the rest of
us are ready to name them.
Fred Harrison’s work on land economics and the 18-year
property cycle is available through the Land Research Trust. Mason Gaffney’s
collected papers, including his essential account of the Strategem and its
consequences, are archived at the Robert Schalkenbach Foundation. Their joint
work on the post-Soviet transition deserves to be far better known than it is.
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