Is land expropriation without compensation the fatal flaw that upends an otherwise magnificent state of the nation address (Sona) call to national and economic revival?

Does it mean a Zimbabwe-style grabbing of our top, say, 5 000 highly capital-intensive farms and handing them over to unskilled smallholders? Or, for that matter, does it entail expropriating huge swathes of urban land for whatever whim is uppermost in the mind of the minister concerned?

Is it the final act of madness of a government which, for years, has seemingly been doing everything in its power to discourage investment of capital? Or is it a once-in-a-lifetime opportunity to move on to new planes of prosperity?

The good news is that, without a doubt it is, if properly understood, the latter.

The only understanding required is that the days of conflating land with capital, in order to obfuscate the importance of rent, are over.

So that, if our new president points out that, in order to “expropriate land without compensation” he is going to begin simply by collecting the rent on the land – since, according to the preamble to the Constitution, “South Africa belongs to all who live in it” – we will know that he is indeed as inspired as he seemed in the Sona.

What is this rent?

Forget for a moment textbook definitions and heed Adam Smith, who said it was “payment for the use of land” to which we could add “and all natural resources”.

The Physiocrats, Smith and other classical economists had a good understanding of rent as being the return to land, as wages to labour and profit or interest to capital.

Since the value of land is both due to nature and the community, it would have been logical for governments of the day to have collected the rent they facilitated, instead of economically debilitating taxation of the product of labour and capital.

There were indeed some signs, around the turn of the 19th century, that America and Britain would go that way.

Obfuscation and conflation, however, won the day (see The Corruption of Economics by Professor Mason Gaffney and Fred Harrison) thus perpetuating poverty and injustice in most countries the world over.

Regardless of whether we collect it or not, rent, or locational advantage, which is reflected in unimproved land values, remains a massive phenomenon while land prices accurately reflect the millionfold differential between land values around, say, Pofadder on the one hand and the Sandton CBD on the other.

Not only is it a no brainer to see that collecting land rent instead of taxation will incentivise efficient use of land, increasing its supply and hence making it more affordable; but relieving economic activity of the burden of taxation will be even more of a stimulus.

The writer has shown elsewhere* that, to the extent that land rents have been captured one way or another, prosperity has followed, for example, in Hong Kong, Singapore and, back in the day, Johannesburg with its world-leading system of site value only rating.

“Land value capture” is receiving widespread attention in the UK and many economists, including the likes of the Financial Times’ Martin Wolf and Joseph Stiglitz, are beginning to talk about the merits of rent as a source of revenue. We can no longer afford the luxury of sitting on the sidelines waiting for some other country, be it Britain or China, to

take a lead.

Whether we like it or not, we are being forced into pole position in the global race towards prosperity. So we can run and win, or falter and lose with predictably disastrous results.

Of course there are many questions and complications and the writer has expounded on them elsewhere.

And, yes, we need to have a national conversation about how to do it.

Our new president’s economic and other advisory bodies will have their work cut out.

But certain facts cannot be ignored.

To take without compensation man-made improvements on land, or plant and equipment thereon, is not only immoral, but economic lunacy.

Hence the importance of not conflating land and capital. Land means land, not the improvements thereon.

Moreover, collection in mining and agriculture needs careful consideration.

The erstwhile gold mines formula tax has an important role to play as a proxy for rent collection, as it garners high rents from rich mines and minimal rent from marginal mines.

Auction mechanisms may have a useful role to play in allocation of spectrum, fishing quotas, offshore oil and gas rights, etc.

President Ramaphosa rightly emphasised the potential of agriculture and recognition of rent has a vital part to play.

No longer can we afford to have vast areas under-utilised because of tenure uncertainty.

Whoever has tenure pays rent, be it individual or community. In effect, as in urban areas, use it efficiently or lose it.

Having said that, remember there will be an enormous boost to rural areas from the reversal of the multi-decade growth in taxes, which has decimated economic activity there and exacerbated the rural exodus.

Although the conversation needs to be deep and thorough, simple baby steps are ready to hand in the meantime.

The reintroduction of site value rating where it was before and rolling it out to the rest of the country is but one example.

Needless to say, the conversation will have to include a proper understanding on the part of the politicians that collection of land rent is not merely another opportunity to milk the taxpayer, but a replacement of taxation.

So, as rent is collected, taxes are reduced.

South Africa has the intellectual capacity to take a global lead in this.

Compared to the arduous task of successfully crafting a world-leading Constitution a quarter of a century ago, this will be child’s play!

But, as our president has said, each one of us has to work at it.

Each one of us reading this, whether man, woman or child, or business person, accountant or economist, needs to recognise the biggest elephant of them all in the room: rent! And figure out how to collect it! Remember, whether we like it or not, the ANC has forced us to grasp the nettle.

This is too important to leave to the politicians.

We have to decide. We have the opportunity to thrive – or else!

* Our Land, Our Rent, Our Jobs by Stephen Meintjes and Michael Jacques

Meintjes is head of research at a Johannesburg brokerage, Momentum Securities, and co-author of Our Land, Our Rent, Our Jobs; and The Trial of Chaka Dlamini - An Economic Scenario for the New South Africa

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