Management Accounting Standards (MAS) have evolved from when they were first used by businesses such as railway companies during the Industrial Revolution to attract investment, mostly from wealthy landowners. Investors were attracted by the prospect of increases in the price of the companies’ shares.

In the 1970s the importance of “share value” and “return on investment” was boosted by the “Friedman Doctrine.” Milton Friedman declared that “corporate executives are employees of the business’s owners (shareholders). Their primary obligation is generally to make as much money as possible for the shareholders. A business’s sole social responsibility is to use its resources to increase its profits”

This “Doctrine” has had calamitous consequences for several large companies such an ICI.  The annual report of ICI in 1987 said that “ICI aims to be the world’s leading chemical company, serving customers internationally through the innovative and responsible application of chemistry and related science.  Through achievement of our aim, we will enhance the wealth and wellbeing of our shareholders, our employees, our customers and the communities which we serve and in which we operate”.

Following a change in Chief Executive, the ICI report of 1994 said “Our objective is to maximise value for our shareholders by focussing on businesses where we have market leadership. A technological edge and a world competitive cost base.” ICI’s share price peaked in 1997 but in 2007 what remained of the once great business was acquired by a Dutch company.

Since privatisation, water companies have put returns to shareholders above supplying their customers, maintaining pipework and preventing the pollution of rivers. They have even borrowed money to pay dividends. Such an insane business model was doomed to fail.

When company directors focus on share price and returns to shareholders they tend to cut their costs of production through reducing staff numbers, fail to maintain the quality of their products through cutting corners and are reluctant to invest in research and development; customers are lost, the share price falls and the company fails.

Warren Buffet paid dividends to shareholders only once. He realised that doing so reduced the amount of money his company was able to invest in making more money, which was his main aim. If shareholders wanted money from Berkshire Hathaway they had to sell shares.

Family owned businesses, not being concerned with the needs of shareholder investors are free to concentrate on the quality of their products and are able to invest their profits in research and development, often without borrowing, to ensure their success. Taylor’s Yorkshire Tea, based in Harrogate, is a good example.

Management Accounting Standards should not be used to provide the headline measure of Farm Business Incomes. The return on investment in the inflated price of land does not represent their taxable earnings.

Embedded inequality, subsistence wages, impoverished public services, unsustainable debt, land speculation, forced economic migration and homelessness can be history…IF we so choose.

Is it any wonder our public revenue is inadequate? The owners of rent-yielding assets extract one fifth of the gross UK income for doing…nothing. That equates to a staggering 40% of what should be flowing into the UK public purse by collecting AGR/LVT.

But if we fail to recognise the problem is ‘Rent-seeking’ we will make little progress.

It is wrong to believe that we should revert to live as we did before the pandemic. The statistics of its incidence show that the poorest people have suffered far more than the rich and a mindless quest to ‘return to normality’ will result in further widening of the gap in health and welfare between rich and poor.

Our antiquated, complicated and unfair tax system is responsible for inequality. The rich minority are given generous tax concessions whilst the poor are obliged to pay the biggest proportion of incomes in VAT, the most regressive of all the taxes.

The government needs money to pay for goods and services such as education, the police, the NHS, and pensions. Current taxes, collected mostly from Income Tax, NIC and VAT, are insufficient to avoid budget deficits and increases in the national debt. It is impossible to increase these taxes without causing more reductions in employment and trade. Sufficient funds could be provided without economic and social harm if the tax system is radically reformed.

Income Tax, NIC and VAT are charged on what people have earned for the work they do. But there is a large potential source of revenue which goes to a minority of the population that they do not earn.

That is the annual rental value of the land they own, known as Annual Ground Rent or Land Value Tax. (AGR/LVT) The most valuable land is in urban areas because that is where most people want to live and work. Most house owners do not realise that they are landowners.
The large increase in the price of houses over the last four decades is in the price of the land on which they are built, not the price of the houses themselves.

The increases in land prices are not produced by those who own their houses, they come from the demands of those who need somewhere to live and the services provided locally, such as schools, public parks and hospitals.

The total annual ground rental value of the land and other natural resources in the UK is sufficient to provide all the funds for the necessary functions of government.

Instead of encouraging investment in landed property with subsidies and exemptions from tax, a responsible government would gradually rebalance the economy towards productive enterprise by removing the burdens of taxation from earned incomes and increasing them on unearned incomes.

Houses will never become affordable to young people by building more houses. No matter how fast you build, banks can create new credit even faster. Their fractional reserve facility allows them to create money from nothing to meet the demand from house buyers.

AGR/LVT will enable economic prosperity to occur and inequality to be reduced by allowing people to keep all they earn. There will be no need to continue seeking increases in GDP, which is a poor indicator of economic well- being and encourages the wasteful use of scarce resources.

Duncan Pickard SLRG, June 2020.

Common Weal has published Resilience Economics: An Economic Model for Scotland’s Economy.

https://commonweal.scot/…/2020…/Resilience%20Economics_0.pdf

The authors present an overview of the current and historic problems Scotland has endured and a call for a better future using a wide range of economic ideas to build a Scotland that serves its people. It is a long document tracing the history of economic ideas and many of their flaws; but seeking to show how alternative ideas promise to help form a resilient Scotland.

Searching the document for specific proposed measures, there are none. A subsequent document is promised for these.

The attack on Neoliberalism is relentless, correct and fully argued, that cynical ideology being based, as the author mentions, “on a partial reading of Adam Smith”.

A gap in understanding is however demonstrated in the authors’ parallel and unqualified attack on the idea of the free market. That Smith revealed how the free market must be rendered benign by directing the economic rent to the community is not even discussed. The absence of any discussion of ‘Rent-seeking’, the poison lying hidden at the roots of each of the many Scottish problems listed, renders the paper deeply flawed.

Sad to say then, that despite an otherwise comprehensive discussion of many of the Scottish problems derived from 20th century economic thought, the notion that Neoclassical economics was devised with the single purpose of hiding rent extraction by a privileged minority, is not mentioned. Such a glaring oversight will, sadly, be cause for a huge sigh of relief from the free-riding, rent-seeking fraternity.

Here, SLRG’s Roger Sandilands, Emeritus Professor of Economics, Strathclyde University, reflects on the Common Weal document, ‘Resilience Economics: An Economic Model for Scotland’s Economy’:

“Apart from Adam Smith’s espousal of rent as a desirable, special, ‘peculiar’ “tax” to fund the government’s proper (though rightly limited) role in the economy and society, his other great motivation in writing The Wealth of Nations was to promote competition and eliminate artificial restraints on trade. He condemned monopoly, collusion, fraud and other unjustifiable barriers to entry into a business, whether as entrepreneur or employee.

The main message was not so much “laissez faire” in a passive sense, but rather in the active sense of (i) promoting competition by stamping out obstacles to free domestic and international trade and (ii) encouraging the mobility of labour and capital.

Producers have a vested interest in protecting their current market share. There was nothing wrong per se in trying to make a profit. Why else go into business? But the Common Weal document rails against profit as a filthy word, always associated with exploitation of workers and the environment.

This is just emotional class and ideological prejudice. Certainly it is the duty (as Adam Smith emphasised) of government to intervene to curb excess profiteering through unjustified restriction on the entry of other producers capable of offering goods and services at lower cost and price, and/or higher quality.

“Neoliberalism” is used in a very loose sense by Common Weal to caricature the mixed economy, with its elements of both private and public participation in the economy. To the extent there is a private sector seeking to maximise profit, the opponents of private profits dub the economy as immorally ‘neoliberal’, with the government accused of defending a free-for-all that harms the vulnerable and the environment.

But if we condemn all profit-seeking, even where profits are needed to compensate entrepreneurs and investors for the opportunity cost of their time and money, business disappears unless the government steps in to run it instead. Carried to excess, we should know where that leads.

Until and unless Common Weal distinguishes competitive profit-seeking from monopoly profits, and in particular until it recognises unconditional land ownership as the Mother of All Monopolies, theirs is an ill-informed agenda.

Replacing private with public enterprise across the board is not what Adam Smith espoused. Common Weal is effectively libelling Smith. He was adamant that it was the duty of government to protect the consumer not the producer. Smith’s Wealth of Nations was a tract against the prevailing philosophy of mercantilism. By focusing instead on consumers’ interests there would be much greater pressure on producers to follow consumers’ interests through increased efficiency, reduced costs and prices, and better quality, service and choice. This was enlightened, non-exploitative self-interest.

The Common Weal document appears to me to be too prejudiced against “consumerism”. Which of us does not aspire to a higher income? Why do we do that? In order to hoard money under the mattress or in a bank? Of course not. It’s to improve our own standard of living. And in the process (abstracting from consumption that significantly harms our health or the environment) we benefit our fellow citizens through the extension of the market, in directions which conform to our own freely expressed preferences and priorities. That means (as again Smith emphasised) more jobs, more income for others, more specialisation within and between firms, hence more innovation and a more dynamic economy.

However, all of this is contingent
(i) on the promotion of competition between firms and the geographical and occupational mobility of capital and workers; and
(ii) ensuring that the (increasing) rent of land is returned to society in general that has created those rents. They should be our primordial community value, upon which all other community values rest. Only thus can we create a more equitable and dynamic economy and society, thus truly creating a more sustainable and resilient common weal.”

Writer Bill Paterson calls for the revenue reform desperately needed in Scotland:

AGR/LVT.

https://www.scottishreview.net/BillPaterson527a.html?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=8427-399012-COVID-19%3A+we+need+leaders+who+put+the+welfare+of+all+people+first

You’d need a good reason to consider moving tax from wages to site rents. The good reason is the avoidable DEADWEIGHT LOSS of at least £500 billion a year suffered by the UK.

Scotland’s share of those annual losses is at least £38 billion, of which some £12.8bn can be cancelled by Holyrood using existing devolved powers to replace Income Tax with AGR/LVT.

The progressive justice and fairness of Annual Ground Rent (aka LVT) is avoided like the plague by vested interests in control at Westminster. But why should Holyrood follow like a lapdog, sticking with the harmful taxes that work against the interests of Scots?

And could we not use an extra £12.8bn/yr of SHARED prosperity right now?

MSPs could add £12.8bn to Scotland’s economy today with a tax reform that would nut embedded inequality, fairly.

That additional £12.8 billion would be shared each year between Scotland’s public and private sectors.