Why is there poverty in a society that can obviously produce wealth?
Before we answer this, let's take a step back and look at history, and the effects which are felt today
The origin of Monopoly vs the original intended game
Did you know that the monopoly game we play today isn't used as intended.
The inventor of the game Lizzie Magie created the board game as 2 sets to show the repercussions of 2 different systems.
The game we know today: Monopoly
Monopoly as we know it today, is derived from the anti-monopolist game: The Landlord's Game is a board game patented in 1904 by Elizabeth Magie as U.S. Patent 748,626. It is a realty and taxation game with two sets of rules originally, “monopolist” and “anti-monopolist,”. Passionately against the railroad, steel and oil monopolists of her time, the game was a way to promote the economic theories of Henry George—in particular his ideas about taxation. And to demonstrate that an economy that rewards individuals is better than one where monopolies hold all the wealth. To demonstrate the evils of accumulating vast sums of wealth at the expense of others. She told a reporter in 1906,
“In a short time, I hope a very short time, men and women will discover that they are poor because Carnegie and Rockefeller, maybe, have more than they know what to do with.”
Thinking that her tool for teaching about economic inequality would finally reach the masses, in 1935 Magie, sold her patent to Parker Brothers (eventually Hasbro in 1991) for $500, . However, Monopoly (named after the economic concept of monopoly—the domination of a market by a single entity) Parker Brothers in version which was published in 1935, did not include the less capitalistic taxation rule, which resulted in a more aggressive game. Completely defeating the purpose of the games intended use.
The Landlords game
An educational tool to illustrate the negative aspects of concentrating land in private monopolies.
Magie created two sets of rules: The rules you're more familiar with : to create monopolies and crush opponents. And the less commonly known: an anti-monopolist set in which all were rewarded when wealth was created.
“It may be described as government without taxation,” F. W. Garrison wrote in his 1913 Atlantic article “The Case for the Single Tax,” “for, if the Georgian contention is true, the rent of land belongs not to the individual who would be required to surrender it, but to the community as a whole.”
Georgism / Geosim asks which taxes are the most beneficial vs most harmful to society?
Allow people to keep the wealth they produce themselves, (reap the fruits of your hard labour), economic value derived from land should be taxed. (land is different as it's not a man made invention or like other products coz it's supply is limited --it's a natural and limited resource and it's one which everyone needs).
What's wrong with current system:
Current system, those who work harder, are taxed more. Someone who owns more land they don't get taxed even though they might be making an income on it. For example, let's say City council needs to build park for people living in the city. The tenants are willing to pay more due to the park. Land in city increases in value because of park, landlords then increase the rent. Landlords win because of increased value due to the park, which justifies increasing of rent. So higher return on their land. City Council loses, they put money in park with nothing in return. The tenants, they're getting a park, but they're paying for it, so cost is put on them.
If someone works extra hard, or creates an invention that benefits many, then it should be only fair that these people should be able to reap the fruits of their hard labour. But Henry George believed that the landlord doesn't go out and actively improve the value of the land.. Society pays for the park, constructs the park and the landlords simply reap the benefits of others' hard labour.
In general if people create wealth, they should be allowed to keep their wealth. So if society creates wealth it should keep its wealth.
The problem is the city is not being run like a business. A business would never make an investment that doesn't give a return. So to make it profitable for the city council to build this park, city gets a return due to the tax. The better the investment --the better the park is, the more it makes the land increase in value, the money the city gets back in land tax. So now we're running the city like a business. As city gets money back, it can use this money to build better infrastructure to build more parks. Now it becomes profitable for everyone living in the city to make the city better. Everyone is winning when the city is run like a business. (Denmark, Australia New Zealand all follow Henry George's Advice/Philosophy) --they all have some sort of land value tax implemented.
Georges' theory on how cities should be run:
Henry George (economist) Henry George is best known for his argument that cities should be funded by a tax on land rent instead of tax on labour.
To sum it up: Georgism is the philosophy that all land belongs equally to society. Those who want to claim ownership should pay the rest of the community to respect that domain. What is earned is kept, What is unearned is shared.
George believed there was a significant difference between common and collective property, but George preferred taxing unimproved land value and leaving the property ownership largely in private hands. George believes that shifting to land value tax and leaving land in private control would be less disruptive and controversial than other methods, since land titles have already been granted.
Perfectly inelastic supply
A supply and demand diagram illustrating the effects of land value taxation in which the burden of the tax is solely on the landowner when the tax is levied.
"The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by Nature be attained. No citizen will have an advantage over any other citizen save as is given by his industry, skill, and intelligence; and each will obtain what he fairly earns. Then, but not till then, will labor get its full reward, and capital its natural return".
— Henry George, Progress and Poverty, Book VIII, Chapter 3
But is Georgism the answer? Before looking for answers, what kind of systems exist out there?
There are various schools of thought we need to reflect on today
If viewed as a spectrum of extremes of government control, inequality on opposite ends and with left/right positioning- the order would be:
Extreme left:Communism>Socialism>Centre Liberalism>Georgism(outdated to a certain extent)<Capitalism Conservatives<Fascism Extreme Right
Fascism: Neither left or right, severe inequality. totalitarian state-marked by extreme violence to achieve political ends. Nationalistic with the goal being racial or cultural purity. Citizens are expected to have unwavering faith in a single ruling party ( a dictator). State only allows businesses which promotes or serves the national interest. Foreign trade is banned with the goal of being self sufficient and resources dedicated to military growth.
Capitalism: keep profit from the excess generated by workers. this incentivises people to come up with ways to generate wealth for themselves. This creates a climate of competition between businesses and within institutions between people. That "competitive" advantage just reinforces the belief that in order to request higher wages/ or sell my product at a higher rate, it would be at the expense of other workers or companies. The economic system is based on a zero sum game, for one to win the other has to lose. The underlying ideology is flawed. As we usually believe that wealth will trickle down from the top, but it turns out that companies don't follow this kind of thinking, they rather look for ways to reduce labour costs even retrenching workers in order to increase their personal profits. This economic system is not generating wealth for the rest of society.. it generates wealth for 1% who started out with the wealth in the first place. And built more wealth off the hard work of the people they pay so little to. It's no different from slavery.
Karl Marx saw that capitalism created a divide between the rich and poor, and resulted in the exploitation of the worker. Socialism: being that the government owns and operates the means for production. Citizens earn a wage, but only receive what they need. The aim being to eliminate inequality and classes. Marx promoted the socialist model he envisioned it would morph and develop into communism. --issues: no reward for what you produce as an individual therefore lack of inventiveness, no need to think outside the box. this results in low production and mass poverty. Other issues is corruption, where those in power abuse their position and work to consolidate their power instead of give it up. Forever a class struggle? Karl Marx believed that material progress makes those who exploit ---the proletariat situation gets worse then eventually they wake up and overthrow capitalists-- Marx saw it as inevitable evolution. Marx looked at value being created in the means of production. Or the effort which goes into developing that product.
Georgism: view is more one of looking at value based on what others are prepared to pay for it. Georgism isn't the same as socialism, as it's a view that everyone should be able to create their own wealth. If they've put the work into inventing something, the wealth it creates should belong to them.. If anything this is more a view closer to the Capitalist thinking. The issue Georgists have is more one on how social spending should be financed. And that not all land rent should be captured. These tax payments would replace tax on labour/income and capital earnings, and would represent the “rent” those who use the land owe to the public. The thinking behind this is that land, just like air and water belong to us all, it wasn't invented by anyone, therefore we shouldn't have to pay for it. But because it belongs to everyone if we want to "own" it we need to pay the public for the use of it, The Georgist philosophy is that all of nature has rights of it's own. Meaning that unlike products and services which are man made and can be bought or sold, land can not be viewed in the same way. As no one made the land. And as it is a finite resource, we can therefore add tax on the size of land being used or wasted. The right to ownership of that land means that rent needs to be paid to the government via land tax. Which thus covers the costs that government requires for social spending. Issues: Not all business rely on land in this current digital system, so this model doesn't work in totality. Also, if the wealthy monopolise, as they generally do, then all wealth of land belongs to those who can afford it, leaving the poor once again in ownership of nothing. And if the big polluters are the biggest owners, we'd eventually have no air to breathe, water to drink or land to live on. Yes, the poor wouldn't be taxed and only the wealthy taxed, but there seems no place for the working class and poor to build wealth at all.
Communism, the working class own everything and the collective produces as a whole. What they produce gets shared according to need. This is problematic, because how do you ensure that this process of distribution is completely fair. And how do you prevent corruption from seeping into this model as well?
Models which have been known to work are a mixture of capitalism and socialism where individuals are rewarded for excess production. And to redistribute wealth fairly amongst the collective, heavy taxation system works in parallel. So although everyone is not equal, the standard of living is a level that all citizens can enjoy and social /class differences aren't as extreme as in the capitalist countries.
There are different answers I've heard to this question, some would reply:
Unproductive workers? "Those who are poor, are poor because of some fault of their own, the poor are lazy".
There's a toxic belief that anyone can succeed if they work hard and persevere, and that if you aren't "successful" in some superficial materialistic way, then it's out of some fault of your own. That you didn't work hard enough. Or that you're lazy. Some of the poorest --work the hardest.. I've found more privileged people are lazier... because they don't know or need to know how to hustle . And most importantly they don't have the pressure on them to care for others.
In general we as humans have become more productive over the years. We have machinery and equipment to augment our current jobs, saving us days, months of work sometimes.. and yet, we're still averaging over 50hours weekly. More "productive" more output, and yet, nothing changes much, we only work harder. As individuals we take steps to make our own labour more productive so that we can become more competitive. But to what end?
From my experience, the world we live in today is no different from the colour bar in Johannesburg 1930's . For those of you who won't click on the link for further details, the colour bar was legislation that was introduced to ensure that white labour unions & their supporters maintained high wages, By reserving jobs classified as skilled / semi-skilled for whites only. The only difference is that today your wages are directly influenced by your education. And you guessed it, if you can't pay for "better" education, you won't be getting "better" wages. Our lot in life is directly influenced by what we can afford or more appropriately, can't afford. We are boxed, classified, judged and graded. No different from the Caste System in India or the Social System of Egypt. Or Karl Marx view of Capitalism. The world we live in is designed to the benefit of the Capitalists. The system is rigged. It only works to the benefit for those on the top.
Others say, "there's too many people-- overpopulation is the reason we have poverty?"
According to Malthusian theory, poverty is just part of the nature of things, population growth is exponential, while growth of food supply is linear. Which eventually reduces the living standards and leads to population die off.
"Overpopulation is a syndrome of social problems caused by poverty, not the other way around like malthusian view"
Overpopulation has nothing to do with how many people are close together, we can define overpopulation as a syndrome of social problems caused by poverty. -- populations go through 4 stages-
Stage 1: life is short, food is scarce due to the difficulties of living. Infant mortality rate is high. Population remains steady. eg. traditional societies - "primitive" modes of production.
Stage 2: improved farming methods. Which increase the availability of food. Infant mortality rate declines. Increase in young people. People mature and their children survive therefore reducing mortality rate
Stage 3: In this stage, the economy develops and living standards rise for a large number of the people. Population rapidly increases, People have kids because they want to. Less likely to have children for economic reasons such as raising siblings or to help on the farm or take care of the elderly. Parents are expected to care for their children. Average age in society increases and population growth slows. eg Japan, South Korea, or many of the countries in Europe.
Stage 4: this is where Japan has moved into, where population ages and birth rate declines. Total population may decline or the growth could be sustained by immigration.
The more we look at global population patterns, the more we see that persistent poverty cannot be explained by overpopulation or by any deficiency in our ability (or lack of ability) to produce enough wealth to supply everyone with what they need.
"People are poor because they don't have money- They don't have access to the necessities we classify as basic human rights. It is no fault of their own, but because of systemic results of the past (and present) which inhibited the building of wealth They don't have money because they can't find work. They can't find work because internships are biased and companies hiring criteria is skewed to higher levels of education. Catch 22- you need money to get a higher education, and you need higher education to get money. The entire system is designed for the "ideal scenario". The system isn't designed in line with the reality of the average person in South Africa. It's designed to the benefit to those who were born with wealth." - Common Cents
The question isn't about why the poor can't produce wealth, but why the system is designed in a way that doesn't facilitate the building of wealth for everyone?
Poverty isn't related to production of wealth but rather the distribution of wealth
Maybe the Georgists were onto something, their land tax may not be the answer, but the underlying principle of simplifying tax is something to consider. Maybe the way the current tax system is designed is flawed. Did you know in South Africa, we have one of the worlds smallest middle classes, (6.8 million registered tax payers) paying the worlds tenth highest personal income tax to GDP - and continues to receive very little compared to the rest of the world? Let's put this in context... that means, As individuals we pay tax rates of 45% tax which is the same as Norway- and just a little bit less than the Netherlands who pays 49%. Seriously?
Ok, let's work this out logically for South Africa--- How much income and expenses does the Government have to do it's job?
Non-working
So we have youth (15-24) unemployment rate at 66.5%. 2021 we had the highest jobless rate since 2008, at 34.9% (7.9 million unemployed). 27.8million ( +- 46% ) of population on social grants. (I'm adding stats, so we have a baseline view of what we have to work with, I don't mean to dehumanise by reducing people numbers.-- we can cover full extent of people in a different article...but the purpose of this article is broader SA perspective)
Working
Labour force 22.5million. Employed: 14.5million. Employment rate 36%. Total number of taxpayers 6.8million
Total Revenue of each country
South Africa: total tax revenue 2021 -R1.547 trillion*.
Norway : total tax revenue 2021-1,242 billion Norwegian kroner.
Netherlands: total tax revenue 2021 -71.814 USD bn
*All income for South African Gov 2021:
PIT: Net PIT up by R67.3 billion (13.8%) to R555.8 billion
CIT: Net CIT up by R119.2 billion (58.3%) to R323.6 billion
VAT: Net VAT up by R59.5 billion (18.0%) to R390.7 billion
Import Duties up by R10.7 billion (22.6%) to R58.0 billion
Domestic Specific Excise Duties up by R17.3 billion (53.5%) to R49.6 billion
Total Gov Spending
South Africa : R1.97 Trillion
Norway :203 billion Norwegian kroner
Netherlands : 49613.00 billion USD
SA, Norway & Netherlands data provided for further calculations at a later date. But feel free to complete your own calculations by converting everything to SA Rands, calculating total contributions for tax, country size and total expenses.. so you can compare what it takes to actually create a society that works in a balanced way. Then compare SA spending against that of Netherlands and Norway.
Now I'm not saying that the poor, unemployed or that the children should be taxed. But if you look at the current way the system is working, increasing taxes for the working class isn't helping. That's one of the reasons small businesses don't survive. Not only because of the difficulty of admin in business, but the numerous taxes on personal and business side. There isn't even a chance to grow as every bit is just PAYE and VAT and not to mention made up penalties to further make you wish you were dead. And this wouldn't be such an issue if the Taxes we paid turned South Africa into Netherlands. But it isn't.
Despite our high taxes, the state of SA is in shambles with lack of service delivery. The amount of unemployed keeps growing along with inequality. The only thing decreasing is the number of middle class.
Then we have the rich -- the 1% of SA population 354,000. What if we had a progressive wealth tax, which would apply only to South Africans with a net wealth above R3.6 million, arranged in different brackets:
Individuals with less than R3.6 million would be exempt
wealth between R3.6 million and R27 million – taxed at a 3% rate,
R27 million to R119 million at 5%,
wealth above R119 million at 7%.
A billionaire : 6.7% tax rate
So, the wealthy will be taxed 45% for personal income + wealth tax?
This is the reality-- the rich pay enough taxes if they don't look for loop holes and avoid paying what they should (and although they are the smallest group, they could help more- I am assuming they would be taxed as person and business the way the rest of us are taxed--if so, then why aren't things working?), the poor can't pay taxes, the middle class carry the load for everyone (more burdens are always placed on them --or rather they feel it more--and I see a whole lot more legislation coming into play to further exploit us), and the taxes that do come in are not used efficiently. Or let's say, the taxes don't reach the projects that's meant to turn SA into Netherlands. Hence small businesses and individuals are over burdened, they can't escape living hand to mouth as the cost of living increases. It becomes harder and harder to maintain a decent standard of living, the poor get poorer, the middle class become poor, and the tax group which is supporting the country gets smaller.. And what does gov do? They start increasing taxes for that smallest group. Increase prices of everything. In turn the wealth gap and inequality within society just keeps increasing. And the cycle continues.
How economic inequality harms society
When you look at the above graph, you can see that social issues are greater in counties with higher income inequality. Japan vs Sweden have 2 different economic systems, and yet, they're both doing something right to ensure smaller wealth gap and higher taxation for fairer wealth distribution. (Also, they have lower corruption)
Psychosocial effects of inequality
Higher inequality results in:
more superiority/ inferiority
more status competition and consumerism
status insecurity
worry about how they are seen or judged
more social evaluation anxiety (threats to self-esteem & social status
It's a vicious toxic cycle> status competition drives consumerism in our society which leads to status insecurity and further reinforces need for external validation
Social proof is the curse of our society
Chronic stress from social sources
Georges' remedy for the relief of social distress:
from greater economy in government
from the better education of the working classes and improved habits of industry and thrift
from combination of workmen for the advance of wages
from the co-operation of labour and capital
from governmental direction and interference
from a more general distribution of land
IS IT RIGHT?
WILL IT WORK?
What Georgism is trying to rectify
Simpler tax, easier business
Share natural wealth
discourages inefficient use of the land
discourage landlords from keeping houses empty to push up rent prices
discourages monopolies , but if they occur (which always happens) those who want to own the land pay highest taxes, and the burden of additional taxes isn't on the rest of society. This in theory is supposed to greatly reduce economic inequality.
Land tax would be applied to all common property eg. land, air and sea
Tax on pollution would then apply too
removal of land speculation - land speculation is always the course of economic downturns. It exacerbates pollution, sprawl and waste. Removing this weight from the economy would eliminate the choice of 2 evils: inflation and unemployment
The scourge of upward distribution
Basically poverty exists, because the tax system is difficult, unfair and designed for the benefit of those on the top. (Or is it actually this way? Is the system only a mess right now because of corruption-- or is it catch 22 where corruption is mostly occurring within these wealthy groups, which happen to be the same groups who determine how the system should work? )Putting the greatest burden on the working class and the poor. It's like the current system took the worst bits from different ideologies to create the worst system possible for the middle working class and the poor, but the best system for the 1%. It's obvious which ideology governs our policy making then!? For example instead of the communist view of the collective sharing of production and wealth by the working class, Instead majority of all taxes are placed upon working class, that's the only collective share we all have. It's almost impossible to be a small business owner and grow your business because any little bit that could be considered profit, just gets taxed. You increase productivity, do everything you can to cut costs, and still profit never happens, because all you do is pay for increasing prices in expenses and taxes. Never allowing businesses to save or invest and build real wealth. The system is designed to push people into debt like loans and credit.
Basically, the world we live in today is based on a flawed model by a game that was sold using only half the rules intended. The men who chose to share the game with the world, hid the most important aspect of the game.... namely that there are multiple ways this game can be played. And to show that there actually is a better way this game can be played. And you're just using the most harmful monopoly rules right now. The system today was designed for the benefit of the few, and not for the benefit of everyone.
Monopoly sold 278,000 copies in its first year and more than 1,750,000 the next, completely out of sync with Magie and her critique of American greed, unfortunately came to mean the opposite of what she’d intended. Over the years, it has taught generations to get excited when someone goes bankrupt. To take as much as you can at the expense of others. That to win, everyone else has to lose.
The saddest part of this bit of history, is that the inventor of the game, Magie, 8 years before she died, In the 1940 census, she listed her occupation as a “maker of games / income: 0.” Not only did she not benefit from the royalties of her idea, (which she probably forfeited thinking that she was doing good by letting someone else take her concept to the world). Only to have the idea ruined by those who distorted the game, ruining every child's view of how money works or how business should be done. You may think what does it matter, it's just a game?! But tell me, how do you view business? Do you see "business success" in terms of wealth creation as a competitive, zero sum game, one in which for you to win, the rest must lose? Or do you see business as a collaborative cooperative process that works to the benefit of everyone?
Now I'm not saying that Georgism is the way to go, but I am saying that maybe we should look at alternative ways for the Government to be paid to do it's job and ways to define the value we all bring to the table. And most importantly reevaluating the rights the land has above all else. People think that if they buy land, they can do whatever they want to exploit and extract. But that's not how it works. Georgism, based on how I've understood it (from the little bit I've read), might be problematic, as it might result in land only being owned by the wealthy and not necessarily those who have the long term preservation of our environment as their main goals... and could mean that only the biggest extractive industries of land would own it. So it's the same as carbon tax. It just means those who are destroying the earth think they can destroy it further as they'll simply just pay the fine. This completely defeats the purpose. As the root cause problem isn't addressed. This would mean that the earth would be destroyed sooner than it's already degrading.
That land doesn't actually belong to you. And the destruction of it impacts us all. So land shouldn't be viewed as you can mess it up just because you own it. The fact that you own it, means that you should protect it and treasure it. Look after it and ensure it's abundance so that everyone can progress because of it. Even if by just growing more trees. Or feeding more people in your community because of it. Or putting it to any use that doesn't further inhibit the progress of our descendants futures, by spoiling the earth and everything around it, (the air, water, wildlife, communities which live there) today by your outdated processes.
In any business, if the processes you have in place cause more problems than the profit they bring, (and this cost needs to be calculated not only today, but future negative impact too) then you need to figure out why it's not working. It could be the people, the products, the process... it could even be you that's the problem. If the current system as it stands does nothing but disadvantage the many for the benefit of a few, then the current system needs to change.
Prevention is far better than cure.
There's much more I want to say on Taxes, but this article is long enough, I will save my tax thoughts for another day...There are 100's of different types of democracies, maybe the one we have needs to be reevaluated. Happy Workers Day 🙄
Comments