I used the example of a privately owned bridge to illustrate privatised tax collection a few weeks ago, and I left a comment in response to others as follows:
... the road from Hereford to Hay-on-Wye is a total of 23 miles, of which fifty yards is this confounded bridge... if it's acceptable for the bridge owner to charge 80p for the crossing, why not sell off the other 23 miles in half-mile chunks (worth £4 million each) and allow each new private owner to charge a toll of 80p?
In fact, why not split it into fifty yard chunks and allow each owner to charge a toll of 80p? The value to the driver of that distance has nothing to do with how expensive the road/bridge was to build and everything to do with the value to him of getting from A to B (and back again). Each bit of that road has the same "ransom value".
Happily, I stumbled across a real life example of such privatised tax collection in yesterday's Metro:
China: It seems that capitalism is really taking root in the communist country. Canny farmers have cut a track through their crops, so that drivers can pay them 20p to bypass a £1 toll road. "We make more money from out toll road than we ever did from farming," said one of the budding entrepreneurs in Liujiang. "Hundreds of cars come through every day."
Let's assume that the road is government owned, so the £1 is a tax. How is the 20p not also a tax, albeit a privately-collected one?
Question: How much would the farmers be able to charge if the government scrapped the toll on the official road?
Answer = nothing (unless the official toll-free road is hopelessly congested).
So this isn't really capitalism at all (creating, working, investing, etc) it's merely skimming off the location value of the field, which just happens to be located between two towns between which people need to commute (without these towns, there'd be no commuters and hence nobody to collect tolls from) and which just happens to be next to a toll road.
Thursday 7 July 2011
For Whom The Bridge Tolls (coda)
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22 comments:
Another case in point is the Dartford bridge. From what I gather the fee is not a Toll but infact a government Tax.
"nothing (unless the official toll-free road is hopelessly congested). Real world example. M6 Toll road, which I use and pay the toll because the M6 is just as you say, so congested.
"and everything to do with the value to him of getting from A to B (and back again)"
But that is true for any form of transport infrastructure: if no-one wanted to move themselves or goods from A to B, then there would be no road, railway or canal from A to B, thus, by your definition, all charges for transport are "privately collected taxes".
Den, it's a fine distinction, but I call it all "tax".
L, yup, M6 toll road is a good example. But I bet there's still a fair bit of rental income included in their tolls (see below).
B: 'by your definition, all charges for transport are "privately collected taxes".'
Nope, most certainly not.
It costs (for sake of argument) much the same to fly an aeroplane from London to New York as from London to some desolate Greek airport in the middle of nowhere.
But the potential profits from the NY flight is much higher, as evidence by the enormous value of the Lnond/NY slots (tens of millions of pounds). That value is rental income or privately collected tax.
And there are some airports that are so far off the beaten track that they actually pay Easyjet and so on to land there - these slots have a negative value.
Similarly, the rent you pay for a house consists of a) fair return on bricks and mortar, running costs etc (not a tax) plus b) location rent (a privately colleted tax).
This is why there are more taxi firms operating in towns than in the country. Overheads (cars, fuel) are pretty similar wherever they choose to locate but they can get more £/min in a town than in the country. The taxi fare covers the firms' overheads and profits. In an open market competition pushes down prices so that the firms can only gain profits from a good service rather than just being there. If a new law is enforced that only allows one Taxi firm per town, the firm in question can now up their prices since consumers have no other Taxi options. This addition to the fare is the monopoly profit and is payment received and kept without any exchange of goods or service. Which is a pretty good definition of a private tax.
DNA, I'm glad you said that.
I used taxi permits to illustrate the concept of privately collected taxes aka rent a a while ago.
I honestly hadn't seen that post it did seem like a good analogy.
Mark, perhaps you'll indulge me in persisting with the bridge illustration, I'm feeling a bit creative this evening. Here are a few options for ways a government can handle the issue:
A.
Allow more bridges to be built.
B.
Tax and redistribute the monopoly element of the Bridge toll, allowing the bridge operator to cover their costs and make a reasonable profit.
C.
Allow people to buy a stake in the Bridge operator. Thus putting more money into the operation, the monopoly situation means that the operator does not need to spend this money on investment or improving efficiency of the bridge it can all go to directly increasing the value of the company. Stakeholders get a discount on the bridge toll dependent on how much equity they own. For stakeholders any rise in tolls is countered by the rising value of their equity. In lieu of B the government charges a modest stamp duty for each stake purchase*. Non-stakeholders are incentivised to buy in to get their discount on the toll. Exisiting stake holders benefit as the value of their stake is pushed up with the increasing demand for equity. Since everybody is apparently benefiting from this situation the government can relax lending constraints to allow people to borrow lots of money to buy the now expensive equity and further push up the value of the company. Given the success of the situation, the increased revenue the government gets from each equity exchange need not be spent on infrastructure (such as bridges) it can be spent on creating public sector jobs ,preferably on the other side of the bridge.
*This is favourable since a cash for equity exchange is "real" whereas monopoly profits are "imputed".
DNA, I'll go with B if I may?
Unless the bridge is really congested, there's no need to build more (A). Over-supply of bridges is as much a waste of resources as people stuck in traffic jams. C seems a bit like Home-Owner-Ism to me.
*sigh* I just don't think you're cut out for government Mark.
I mean, what could possibly go wrong with C.
;)
Many moons ago, I was caught on a minor road somewhere north of Rugby and there was a tailback for about half a mile.
It was a convenient way for people to get through and now they were stymied. Why? There was a little man collecting a ludicrously small toll from each car, to cross a bridge which wasn't even a full bridge.
"Tax and redistribute the monopoly element of the Bridge toll, allowing the bridge operator to cover their costs and make a reasonable profit."
Let us not forget that the prospect of making a profit on the original bridge in question was so poor that the government had to offer a tax waiver as an incentive to build it in the first place. Masonry bridges might go years without needing much money spending on them (but when they do, they cost plenty), but a wooden bridge needs constant regular maintenance.
DNA, "what could possibly go wrong with C?" You Gerogists are such a miserable lot! If you're so jealous of the shareholders in Bridge plc, why don't you just stop whining and buy some shares in Bridge plc.
JH, that's the big downside of tolls as a way of collecting tax - the collection costs (= time wasted in the tailback) exceed the revenues.
B, that's a delicious extra detail. But you Georgists are such a miserable lot! Without that subsidy the bridge would never have been built - so how would people get across the river?
It's being so miserable as keeps us going! Well, that and the complimentary suppers.
"So this isn't really capitalism at all (creating, working, investing, etc) it's merely skimming off the location value of the field, which just happens to be located between two towns between which people need to commute (without these towns, there'd be no commuters and hence nobody to collect tolls from) and which just happens to be next to a toll road."
The problem with this argument is that the creation of the State-funded road can only happen once the State has acquired land on which to build that road.
If there is no state-funded road and someone chooses to build a road (or just clear a rough track) and charge a toll, it is very much capitalism because it is, in your words, "creating, working, investing, etc".
Is that a privately collected tax? Or is it the provision of a service out of the resources available to the landowner in return for a fee? I would suggest it is the latter.
Lying behind your analysis is the presumption that because the State got in first so anyone who competes with the State is doing the State's work and collecting taxes. I don't accept that proposition.
The State road might be built before or after the private road yet the physical situation is the same once both are in place.
If the private road comes first and the State then muscles-in to take a bit of the action by acquiring nearby land and building a competing toll road does that amount to confiscation of private property? If not, why not?
The private landowner who had the idea of building a road is making money out of it and then the State comes in to compete and take part of his profits. Does that turn the landowner's capitalism into privately collected taxes? If not, why not?
TFB: "Is that a privately collected tax? Or is it the provision of a service out of the resources available to the landowner in return for a fee? I would suggest it is the latter."
Wrong. Part of their income relates to the cost/risk of building the road, and the bulk is the former - privatised tax collection.
Let's look at the order of events:
1. Land owners form a government to protect their land ownership.
2. The government creates and protects land titles.
(the precise running order of 1 and 2 doesn't make much difference - land ownership and state are synonymous)
3. Therefore, any activity which depends on land ownership for the bulk of it's profits (like clearing a track through a field) can only be done with the protection of the state, ergo it is privatised tax collection (above and beyond a fair return on the non-location based stuff).
Your premise is faulty; the £1 toll is not a tax, it's a charge for a service (use of the road). The toll-payer derives a benefit from paying the toll, which a non-toll-payer does not. He has the choice between paying the toll thus receiving the benefit, and not paying thus not receiving it.
Ian B, my premise is absolutely spot on as per usual.
Imagine that your local council sells me the pavement and road in front of your house, and I have to maintain the pavement and road at my own expense but I can charge people what I like for using it.
How would you feel if I charge you a toll of £50 for every day on which you wish to use the pavement or road? How is that not a tax? How is that not me exploiting a state-protected monopoly position?
Would you find it reassuring if I told you that you are paying for a benefit received, that this is proper capitalism and if you don't want to pay it you can always stay indoors? Or if you are jealous of my profitability, that you can always buy shares in my recently floated plc which now owns pavements and roads?
So if I take a bus into town, the fare I pay is actually a tax?
Ian B - try applying commonsense.
I explained all this yesterday (comment above 7 July, 13.49).
I could run a bus service from nowhere to nowhere, where nobody lives at either end, my total ticket sales are £nil and my running costs are £50,000. This bus route has an embedded value of £nil.
Or I could run the same bus service from a suburb into the middle of town for the same running costs and sell tickets for £250,000 a year. The first £50,000 of my income is wages or profits; the balance is pure location value, monopoly profit, rent or 'privately collected tax' (the three categories overlap to such a degree as to be identical).
If some other franchise wants to run that service, I would demand a payment of £1 million for the monopoly rights to run that service (the right to run a particular service is rationed and restricted by the local council).
For sure, if the council decided that any Tom, Dick or Harry can run a bus service anywhere he likes, then other operators would pile in to the urban service and my super-profits would be competed away to nothing, and the franchise would have no value.
Ian B, just to close off the circle, what if the local council realises that the operator can make £200,000 annual super-profit from the route and decides to charge him £190,000 licence fee in future?
I think we would both agree that this is publicly collected tax/rent, but why does it make any difference in economic terms who collects it?
Either way, the bus passenger is paying for the same service, and embedded in each £1 bus fare is about 80 pence in rent/tax. And whether the bus operator makes £10,000 net profit or £200,000 net profit makes no difference in behavioural terms - if something is profitable, then somebody will be willing to do it.
"Imagine that your local council sells me the pavement and road in front of your house,"
When I lived in London, I owned the pavement and the road in front of my house - it said so on my deeds. I couldn't charge anyone for using it though, as far as I could make out.
"I could run a bus service from nowhere to nowhere, where nobody lives at either end,"
Reminds me of what an Irish navvy is supposed to have said about the Leek & Manifold Light Railway; "'Tis a grand little railway, but it starts nowhere and ends the same place".
B: "When I lived in London, I owned the pavement and the road in front of my house - it said so on my deeds."
You missed a right old trick then - you could have sold the house but retained the pavement, and then charged the new owners of the house money every time they wanted to step on it.
Interestingly, most roads and pavements don't actually 'belong' to the council, they belong(ed) to whoever built the houses and the road and pavement is then merely adopted by the council.
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