Excluding land from economic debate devalues its public good

Rising land values suck the purchasing power out of the economy

- NAZEER SONDAY

IN TRYING to understand the economic rationale why the City of Cape Town and the Western Cape government are colluding with developers to pave over the 3 000ha Philippi Horticultural Area foodland (PHA), an irrational economic theory becomes evident.

How else can one explain the planned eradication of the most productive horticultural land per hectare in the country employing tens of thousands, providing food, water and ecosystem services for luxury housing, more shopping centres, private schools and even a private prison? A new analysis by authors Josh Ryan-Collins et al in their book Rethinking the Economics of Land and Housing offers relevant insight.

In classical economic theory, land was up there with labour and capital. Unlike labour and capital, land has unique properties. Its value does not diminish. Its productive use holds value for the whole community even if they don't directly work or own it. Land impacts on the accessibility and affordability of food and housing. Yet strangely, as Ryan-Collins points out in his book How land disappeared from economic theory, it is not regarded in any way as part of modern economic theory. This amounts to the biggest swindle in history.

The last three decades in South Africa have personified 'the great productivity puzzle' known as jobless growth. Why has productivity (and the related average income) flat-lined, even as wealth has been increasing.

The puzzle is explained by the fact that the majority of the growth in wealth has come from capital gains; rather than increased profits derived from productive investments, or savings via earned income. Money that should be invested in the productive economy - farming and manufacturing - is tied up in property development and speculation.