Solutions in Sweden

By Dan Sullivan

A small but dynamic group of advocates for land value tax in Sweden belong to the Enhet (Oneness) Party. They are centrist but radical, and are looking for ways to reconcile the best of socialism and capitalism while escaping the pitfalls of both systems. This quest has drawn them to approaches that treat the earth as  commons while respecting private property in the fruits of labor. Now they are looking for mechanisms that will allow Sweden or its communities to charge for pollution, mineral extraction, and occupation of valuable land, while reducing taxes that hamper production and exchange. They called me to Sweden to talk about the history of such efforts, including participation at an event hosted by the Municipality of Motala, in which there were several speakers. These talks were captured by either video or audio recordings and will be put online. They have also started looking into the range of options for capturing land rent in Sweden based on these presentations. They also sponsored presentations on monetary reform, based on the similar principal that the issuance of money is a social function, not to be entrusted to private banks. This has some bearing on what approach to take with their land reform efforts.

National LVT, Local LVT options, or Land Trusts?

I am told (by Richard Danilda?) that when the land value tax proposal was popular, at the turn of the last century, Danish farmers demanded LVT but Swedish farmers were solid in their opposition. It would be interesting to examine why that was the case. It could be that there was more tenant farming in Denmark, in which case tenant farmers would only gain, or it might be that supporters dealt with farmers differently in each country. In any case, Swedish supporters have said that a national LVT campaign would not be politically viable option until a local LVT or a land trust has proven itself. Just as a local LVT can demonstrate the potential advantages of a national LVT, so can a land trust demonstrate the advantages of a local LVT.

Each objective requires a different kind of campaign. A local LVT option requires a political campaign, while starting a land trust requires a sales campaign to potential investors. As there seems to be more interest in the land trust approach, I will briefly sketch what seems to be necessary for winning a local option for land value tax and then write at greater length on creating land trusts in Sweden.

Successful Local LVT Campaigns

Once enabling legislation was won, all of the successful LVT campaigns in Pennsylvania downplayed the ideological arguments and focused on winning support, showing who would pay more and less, and what the economic effects would be. In Pittsburgh, for example, the first effort at winning LVT was supported by a number of civic organizations and was never a prominent political issue.Similar approaches had been successful in Australia in the 1950s - '70s. For an excellent account of how Pittsburgh won its original shift to land value tax, I recommend "Pittsburgh's Land Value Tax: It's History and Experience" by Percy Williams.

However, winning enabling legislation has been more difficult. Pittsburgh had to seek state permission, and the real battle was at the state level. Also, bills to enable LVT in Pennsylvania's third-class cities languished for years until the principal sponsor, State Senator Bernard McGinnis,  who was well liked in both parties, was about to leave office. According to Steve Cord, past president of the Henry George Foundation of America, the state legislature passed the bill as a favor to "old Barney." Other states are now considering enabling legislation, but only because it now has a solid track record in Pennsylvania.

Swedes could refer to LVT's track record in Pennsylvania, just as we had referred to earlier track records in Australia. However, people tend to be unimpressed with distant examples. In any case, successful LVT campaigns have carefully avoided partisan politics. It is very difficult to pass LVT without support from across the political spectrum.

In any case, taking the tax route probably requires permissive legislation from the Swedish Parliament, and would then require municipalities to act on that legislation. Given the post opposition from Swedish farmers, it would be wise to seek permission only for urban areas. Even this would require a patient and sustained effort.

The Georgist Land Trust Alternative

A land trust is a privately created community in which land is leased to the occupants rather than sold. A Georgist land trust is one in which the rent is reassessed annually, and a large share of the rent is used to provide public services and to rebate taxes that fall on the productivity of those occupants. A detailed model for such a trust in the context of US cities is online at http://savingcommunities.org/issues/landtrust

A Trust Model for Sweden

I this paper I discuss setting up such a trust in Sweden, which has some unusual circumstances. Basically, I see two promising scenarios for such a trust: An urban trust where there has been a loss of industry, and a farm/village trust in a rural area, especially one with smaller farms and an interest in top-quality produce.

Swedish Concerns

Sweden has very high prices, partly due to its even higher wages. This is good for Swedish working people, but it has led to concerns about imports exceeding exports. That is, while high-wage Swedes can easily afford to buy foreign products, lower-wage foreigners cannot so easily afford to buy Swedish products. As a result, the value of the Kroner has declined. A trust that will either encourage exports or encourage the purchase of domestic products will be of service to Sweden.

Particularly, Swedes seem to be very heath conscious, but poorer Swedes do not choose to pay the higher prices for domestically grown "ecological' (organic) foods. A farm/village trust could encourage the growing and marketing of such foods, both within the village and to surrounding areas. An urban trust, on the other hand, would be more tied to general commerce and light industry.

Rent control is common in Sweden, which could be problematic for a predominantly residential trust. A premise of the trust is that rebating taxes makes the land more valuable, which in turn increases land rents. How increased land rents would interact with controlled apartment rents has to be studied in terms of how it would affect residential units within a land trust. This creates an incentive for the trust to focus on non-residential occupancy.

European Union rules do not allow Sweden to reduce its internal VAT rates without crediting producers within other EU countries who export to Sweden. However, the land trust can pay VAT taxes generated by its occupants without forcing a crediting to other EU producers.

Locating and Acquiring Land

The trust model relies on incentives that put land into a higher use. This means acquiring a small number of large parcels and leasing a large number of small parcels. The ideal location is one that is grossly underused due to problems that the trust can solve, or that have hidden potential that the trust can tap. An urban trust provide space for small machine shops where a large mill or factory has shut down, such as the Saab plant in Trollhattan, and a rural trust can provide for a village and a number of commercial gardens where a large farm has been sitting idle.

The trust will have to either sell shares to acquire the land, or interest the holders of the land to exchange that land for shares in the trust. The trust will only distribute a small share of the rent as dividends, but a small share of the rent in a thriving industrial center can be worth more than 100% of an idle plant, and a small share of a successful village surrounded by commercial gardens can be worth a lot more than an idle farm.

Setting Up the Trust

Leaseholders and occupants will eventually control how the trust operates, but the shareholders control the initial setup. The trust charter will determine what portion of the rent goes to the shareholders, what portion goes to a fund for additional land purchases, and what portion is returned to the trust community for infrastructure and tax rebates. It will also set up the governing mechanisms. Once the trust is operational and has reached a threshold for leaseholders and occupants, the only roles for the shareholders will be to insure that the rent is properly assessed and collected, and to acquire more land with a fund set aside for that purpose.

Providing Services and Rebating Taxes

Trustees can determine what direction the land trust will take through positive incentives, without making rigid rules or prohibiting behaviors. An industrial trust that wants to maximize employment can rebate a portion of payroll taxes. A farm/village trust that wants to encourage organic gardening can pay the costs of certification and can rebate VAT taxes on organic produce.  These incentives work by attracting what the trustees want, rather than discouraging or prohibiting what they don't want. Because Sweden is a high-tax, high-service country, the emphasis would probably be on rebating taxes. However, there are local service charges that might be better covered from land rents.

Optional Governing Systems

The trust can create better governing systems that encourage deliberation over the standard political contests for power. Some examples are detailed in my general paper on land trusts. A jury system allows for better deliberation when the population of electors gets large, and allows a balance between one dollar / one vote and one person /one vote. It also allows for the trust to have representation for employee occupants as well as residential occupants.

See http://savingcommunities.org/issues/landtrust/#internal

Creating Rent Credits as a Money Substitute

The Motala event featured speakers on monetary reform. There seems to be considerable interest in monetary reform among supporters of land value tax and land trusts, and the two reforms can be combined. Rebates can be given out in the form of rent credits rather than money. The rent credits can be circulated as money, and is redeemed by paying rent to the trust with the  credits.  People may also voluntarily accept the rent credits as partial payment for turning land over to the trust, for working on trust infrastructure, or in exchange for money provided to the trust.

Unlike mutual credit currencies, a land trust currency places no obligation on persons, but only on trust land. The land is liened, not only to guarantee security payment to the lessees, but to holders of the currency.

Because these rent credits are distributed debt-free, they somewhat increase the supply of debt-free money within the extended trust community. That is, the supply is available not only to lease holders and occupants, but to their customers, employees, contractors and suppliers. The added value that this alternative money gives to trust land more than offsets the small cost of overseeing transactions. The trust can even make interest-free construction loans, because construction will increase land values.

Why a For-Profit Trust

Trusts of this sort have proven themselves in many intentional communities. The most common problem has been that the trustees were not strongly committed to collecting the full rent, while the lessees were strongly committed to paying as little as possible. The result has been that the leases have become like deeds, creating a return to the kind of parcel-by-parcel speculation that the trust was supposed to have eliminated. Moreover, it proves nothing if a trust is given land for free and succeeds only because of the gift. A profitable trust, on the other hand, will be copied, leading to a general shift toward funding public services from land rent instead of taxes.

Attracting Investors

The trust can be highly profitable, even with investors collecting a much smaller share of the rent. Conceptually, this is summed up by the business adage, "a smaller slice of a larger pie." Even if only 20% of the rent goes to dividends (with another 20% going to additional land acquisition), 20% of the rent in a dynamic community is much more than 100% of the rent in a distressed urban area. The asset value also gain value from the purchase of additional lands, and the value of the trust itself should gain rapidly as dynamics make the trust successful.

This trust model does not end land speculation, but it divorces speculation from use. All of the land is leased out, so it always tends toward a full-market use - what assessors call "highest best use." Unlike traditional land speculation, in which the speculators profit from holding land back from the market, holders of trust shares profit from encouraging fuller, more robust use of land. And, instead of each landholder hoping that other landholders will pull up the value of his parcel, shareholders are betting on the success of the entire trust, and on the synergy that the trust model encourages.

Investors might also be attracted by the idea of being part of a dynamic social experiment that can benefit the entire economy, but there is every reason to expect the trust to be profitable in the long run as well. The best investors from the standpoint of sound leadership are persons, not institutions. The governance options in my general paper on trusts give advantages to small personal investors.

Attracting Lessees

Lessees do not have the burden of purchasing land when they are first going into business. Although their rents will increase over time, so will tax rebates, and lessees will have the benefit of neighbors as dynamic as they are. This is particularly attractive to businesses with limited funds and high potential.

Winning Cooperation from Local Governments

Mostly, the trust would want open zoning within its property. The dynamics of the trust are such that perverse land uses would be unlikely anyhow, and one of the selling points to the community is that intensive development within the trust will prevent the kind of sprawling development that worries neighbors. The idea of more jobs for local people, all within a compact area, should appeal to community leaders.

The farm/village trust should not need help with land assembly, but an urban trust might find that it does not have access to a single large parcel, and must assemble a significant number of parcels. Local governments might be able to help with that, although eminent domain should be a last resort.

The First Step

Forming a trust requires putting together a formal business prospective and promotional materials and scouting for suitable locations. This involves raising some seed money based on preliminary proposals such as this paper.