The role of land value capture in the reconstruction of Ukraine

The  ALTER (libdemsalter.org.uk) fringe at Bournemouth will be held from 13.00 in the Sherborne Suite, Bournemouth Marriott Highcliff Hotel on Saturday 23rd September 2023.
The fringe is focused on the white paper published by the News | Albright Stonebridge Group that asserts Land Value Capture can finance Ukraine’s reconstruction, reduce corruption and boost productivity.

The white paper notes the following key takeaways:

• A broad consensus of economists throughout history have supported land value capture – collecting the increase in land value that results from public spending on infrastructure and other services – as the optimal method of financing public infrastructure.

• Land value capture should both increase economic productivity and generate enough revenue to significantly contribute to Ukraine’s reconstruction costs, making financing reconstruction considerably easier.

• The need for reconstruction funding, ongoing land reform efforts, and an openness to new policy solutions make Ukraine an ideal place to implement land value capture, especially in areas prioritized for major reconstruction.

• Ukraine could use the following tools for land value capture:
o Ground Leases: Issuing leases for land already owned or newly acquired by the state at rates periodically adjusted to the full market rental value of the land.
o Covenants: Acquiring land currently in private hands, re-developing the surrounding area, and then selling the land with a covenant attached that obligates all future owners to pay an annual land value charge.
o Land Value Tax: Imposing a property tax only on the rental value of the land, not counting the value of buildings or other improvements on the land, adjusted annually.

• Without land value capture, reconstruction investment will likely yield only a temporary increase in productivity and exacerbate the concentration of power among the nation’s elite.

Deloitte Insights Ukraine reconstruction plan has published research  into Historical lessons for post-war reconstruction of Ukraine concluding:

The reconstruction of Ukraine is so important to Ukraine, Europe, and the world that it has already begun. Therefore, other nations and donor organizations need to begin putting the above principles into practice. They can get started by:
1. Acting now.
2. Creating a central, multilateral administering body.
3. Crystalizing a “leap forward” vision. .

“This is a pivotal moment for Ukraine. Without help, it would struggle economically as well as militarily. But if Ukraine and international donors can learn lessons from history, a successful reconstruction program can help Ukraine leapfrog to a brighter and more prosperous future”,

The panel will include senior economists and academics including Dr Vince Cable, former secretary of state and leader of the Liberal Democrat party, Professor John Muellbauer, Nuffield College Oxford University and Ukrainian academic, Dr Lena Fedoruk, University of West London Each of the three panellists will present for 15-20 mins with 30 mins for questions at the end.
Please do join us for what promises to be a lively and interesting debate on this highly topical and critical International issue.

* Joe is a member of Hounslow Liberal Democrats and Chair of ALTER.

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19 Comments

  • Sandy Smith 10th Sep '23 - 3:26pm

    I’m not sure that starting reconstruction efforts in the midst of war in the best idea. Surely the first priority is to reach a durable peace settlement – then reconstruction can begin.

  • The conference agenda includes a speech to members on Monday, 25 September by the the Leader of Ukraine’s Holos Party – Kira Rudik. That is followed the same day by policy motion F33 Standing with Ukraine. I believe Layla Moran has a fringe on Ukraine on the Sunday lunchtime with Ms Rudik and the journalist John Sweeney as well.
    Planning for rebuilding Britain during WW2 did not wait for the end of the war. Much of the ground work was done during the course of the war including the Beveridge report in 1942 .
    “Many British families faced difficulties in finding suitable places to turn into a home. Although St Paul’s Cathedral had survived the blitz, hundreds of thousands of houses across the UK had been destroyed and damaged. The British economy faced crippling debts to the USA and a balance of payments crisis. The austerity measures, shortages and more severe rationing that followed VE day meant rebuilding Britain proved a much slower process than many had imagined. During the war, damages to houses were addressed – tiles and slates were replaced, tarpaulins and plumbing improved and more than two million houses repaired by 1944 – but the doodlebugs of 1944 and 1945 destroyed more homes” The Road To Rebuilding Britain

  • Japan knows a thing or two about post-war reconstruction. The Japanese post-war economic miracle has many useful lessons for Ukraine.
    Japanese Foreign Minister Yoshimasa Hayashi and Ukrainian President Volodymyr Zelenskiy met on Saturday and agreed to begin discussions on security guarantees and cooperate on reconstructing Ukraine’s economy Japan foreign minister discusses reconstruction, security with Ukraine’s Zelenskiy
    “The security guarantee discussions come after the G7 group of countries, of which Japan is a member, said in July that its members would begin bilateral security guarantee talks with Ukraine.”
    “Hayashi also pledged support from both the public and private sectors in Japan to reconstruct Ukraine’s economy in the surprise visit to Ukraine, where he was accompanied by executives of Japanese firms, including Hiroshi Mikitani, founder and chief executive Rakuten Group, the ministry said”.
    The UK has also pledged support for the reconstruction effort and held a summit that brings together Ukrainians with businesses and humanitarian experts for an infrastructure summit in London to kickstart talks on how to help Ukraine ‘rebuild in peace’UK pledges support to help Ukraine rebuild post conflict “…it is important to talk about a post-conflict Ukraine, and today we are making our commitment clear to help it rebuild in peace.” The FT had a follow-up article this month detailing how recovery efforts have already begun Local government holds the key to rebuilding Ukraine

  • Steve Trevethan 11th Sep '23 - 7:44am

    And what might be done about the sunk costs of this conflict?

    Might they have been/ could be reduced by energetic, realistic negotiation?

    Might reconstruction costs be reduced by a cease fire?

  • Steve Trevethan 11th Sep '23 - 8:06am

    Here are some thoughts on possibilities to shorten/end this conflict and so reduce its costs.

    https://www.counterpunch.org/2023/09/11/evaluating-three-peace-plans-for-the-ukraine-war/

  • Stephen William Trev 11th Sep '23 - 8:15am

    “Our ability to profit from land at the expense of our communities is firmly entrenched in our economic system, and as a result existing land is priced far above its actual value, the cost of living is significantly higher than it should be. This forces human beings to extend themselves and their economic activities far beyond levels actually necessary to support their ongoing existence.” [Martin Adams: Land a New Paradigm for a Thriving World]

  • Peter Martin 11th Sep '23 - 10:44am

    “Japan knows a thing or two about post-war reconstruction. The Japanese post-war economic miracle has many useful lessons for Ukraine”

    Germany, Japan, South Korea etc rebuilt their economies due to the United States, and and other countries opening up their economies to them. There was a realisation that Keynes had been right after WW1. At the same time the USA wanted to show the superiority of Western capitalism and so was on its best behaviour. These countries continue to run extensive trade surpluses which, of course, require other countries to run large deficits.

    The “useful lesson” that Germany, in particular, needs to learn is that there is no need for it to do that any longer. The country has recovered from the war and debts have been repaid. When the Ukrainian conflict is over, hopefully in the not so distant future, it needs to adopt the same policy that the USA did and import more than it exports to help the Ukrainian economy rebuild too.

    There are some signs that the purse strings are loosening in Germany even though they might be doing the right thing for the wrong reasons. The problem is that any change in emphasis, due to the rigidity of the EU single currency needs to be co-ordinated throughout the eurozone and this doesn’t look to be happening.

    https://www.politico.eu/article/tensions-flare-over-the-eus-new-irresponsible-big-spender-germany/

  • Jenny Barnes 11th Sep '23 - 11:01am

    @steve. None of those peace plans look plausible to me. More likely is that the US gradually escalates the weapons available to Ukraine. ATACMS rocket artillery, F16s.
    I don’t see how Putin could be trusted not to do something similar again.
    Russian air power is already unable to attain air superiority over Ukraine, with F16s the Ukraine could get local air superiority over potential breakthroughs. War likely continues at least another 2 years, with Russian military strength degrading to the point where they would be unable to mount another such attack for at least a decade. Then let’s see where we are.

  • Reconstruction efforts are already underway in de-occupied areas like Irpin. . The destruction of the Khahovka dam left over a million people in Kherson and surrounding areas without a water supply. New water pipes had to be laid as an emergency measure. Two 250 ton power generators were destroyed in Kherson City by retreating Russian troops and electrical power stations all over the country have been targeted and destroyed by Russian missile attacks.
    The restoration of damaged water, sewage, power generation, rail and road infrastructure, schools and hospitals can’t wait for a ceasefire or armistice . People need essential services restored now, children need to be able to go to school after years of pandemic disruption.
    Without active support small businesses will disappear permanently and refugees may never return if the economic life of Ukraine is not restored to meet the needs of daily life even as fighting continues on the frontline.
    How all this is achieved now and in the future will determine whether Ukraine emerges from this conflict burdened with unrepayable debt with its economy under the control of oligarchs and a rentier class, or a vibrant democracy that can look forward to a prosperous future as part of the European family of nations.

  • Peter Martin,

    Key to post-war recovery in West Germany and Japan was dealing with accumulated debt. This effectively meant wiping out domestic savings. In West Germany the debate centred around currency reform so that the amount of currency could be in line with the amount of goods, and the abolition of price controls. Both were thought necessary to end repressed inflation (similar to what Argentina has experienced). The currency reform would end inflation; price decontrol would end repression. This German variant became known as Ordoliberalism and promoted the concept of the social market economy, which calls for a strong role for the state with respect to the market.
    “The basic idea of the currency reform was to substitute a much smaller number of deutsche marks (DM), the new legal currency, for reichsmarks. The money supply would thus contract substantially so that even at the controlled prices, now stated in deutsche marks, there would be fewer shortages. The currency reform was highly complex, with many people taking a substantial reduction in their net wealth. The net result was about a 93 percent contraction in the money supply” German Economic Miracle
    Along with currency reform and decontrol of prices, the government also cut tax rates. “What looked like a miracle to many observers was really no such thing. It was expected by Ludwig Erhard and by others of the Freiburg school who understood the damage that can be done by inflation coupled with price controls and high tax rates, and the large productivity gains that can be unleashed by ending inflation, removing controls, and cutting high marginal tax rates.” Coupled with the currency reform was the London Agreement on German external debts. The stabilization of inflation was a major benefit for the German economy. West Germany’s new currency, the Deutsche Mark, was highly unstable until 1953. After the signing of the London agreement, it stabilized due to the debt relief.
    This worked to restore the German economy. Today, Germany has higher taxes than the UK and a strong system of social security, public health services and affordable accommodation.

  • Peter Martin 11th Sep '23 - 8:10pm

    @ Joe,

    I’m not quite sure what is the underlying point of your previous post. I suppose we could do something similar and define a new pound to be worth, say 100 old ones, You’re claiming this would reduce the “money supply”? By 99%? I’d say it was just moving a decimal point along by two places.

    Of course, it would matter how much workers were going to be paid. If it meant a worker who was currently paid £20 p.h. was going to be paid 20 new pence p.h. nothing would really change. However, if they were going to be paid 2 new pounds per hour then it would signify a significant shift in potential purchasing power in favour of working people and a loss of purchasing power for those who had savings, pension plans etc.

    This is essentially what would have happened in post war Germany. Workers were in short supply, there was plenty of work that needed doing and the priority of the Govt was to get it done. It meant turning those who might have thought they were comfortably off into those who needed to work to survive. It was claimed that the new currency fixed the inflation problem but it didn’t if you calculate it in Reichsmarks rather than Deutschmarks.

  • Peter Martin,

    the German economic miracle article linked above writes “Along with currency reform and decontrol of prices, the government also cut tax rates. To remove the repressive effect of extremely high rates, the corporate income tax rate, which had ranged from 35 percent to 65 percent, was made a flat 50 percent. Although the top rate on individual income remained at 95 percent, it applied only to income above the level of DM250,000 annually. In 1946, by contrast, the Allies had taxed all income above 60,000 reichsmarks (which translated into about DM6,000) at 95 percent. For the median-income German in 1950, with an annual income of a little less than DM2,400, the marginal tax rate was 18 percent. That same person, had he earned the reichsmark equivalent in 1948, would have been in an 85 percent tax bracket.”
    Michael Hudson makes the point in his article Debts that can’t be paid, won’t be
    “A shrinking economy yields less tax revenue and has less ability to create a surplus out of which to pay creditors. Debt repayment is not available for spending on current goods and services. So markets shrink more.
    This is not an inevitable scenario. Governments are sovereign with regard to their creditors. They still posses the alternative power to wipe out the debts – along with the savings that are their counterpart on the opposite side of the balance sheet. The German Currency Reform of 1948 remains a model. But it calls for creditors to take a loss.”

  • Martin Gray 11th Sep '23 - 9:38pm

    @Jenny….2yrs that’s a lot casualties for Ukraine to endure . The heavy weaponry supplied by the west hasn’t been immune to the Russian Lancet drone which is proving to be deadly . Despite the army’s obvious failings the Russians still have world class engineers…Those jets will be incredible vulnerable on the ground , but as you say could be a game changer .. Ultimately what happens in the whitehouse will be critical – Biden ( lurching into senility) against – time will tell ..

  • Peter Martin 12th Sep '23 - 8:01am

    @ Joe,

    I’m still unclear how all this relates to Ukraine. The population is around 44 million which is about a tenth of the EU. Add in the UK, Norway, the USA etc and it is clear that the size of the problem is quite manageable. There’s no need cancel everyone’s savings (not that they are likely to have much) by introducing a new currency in the same way they were cancelled in post war Germany.

    All this supposes that the war ends in a favourable way for Ukraine. If it doesn’t then it will end up being Russia’s problem.

  • Jenny Barnes 12th Sep '23 - 10:30am

    @martin “2yrs that’s a lot casualties for Ukraine to endure” It would be great if Putin woke up tomorrow, and said “OH, what was I thinking. I’m sorry everyone, I’ll pay for the damage.” and brought the Russian troops back from the Ukraine. But as his plan seems to be to destroy Ukraine as an independent state, I don’t think it’s likely.

  • As the Rand Corp article How to Reform and Reconstruct Ukraine After the War writes “Ukraine will be far different from recent post-war reconstruction efforts in Iraq and Afghanistan. Ukraine is a European state, and the war has been unifying, not divisive. Its rebuilding will resemble that of Western Europe after World War II, Eastern Europe after the Cold War and the Western Balkans after the violent breakup of Yugoslavia. The lessons of these episodes should inform Ukraine’s reconstruction.”
    West Germany’s rise from the ashes is discussed above. Japan had a somewhat similar reorganisation
    At the end of WWII, the American occupying force entered Yokohama to find a nation in industrial and financial collapse. At that time, the entirety of the Japanese banking sector was effectively bankrupt. However, US-backed central bank governors had an easy-fix: create new reserves and buy all the bad debt throughout the financial system. This move flushed the financial system with “good money” while simultaneously alleviating bad investments [effectively restarting bank lending to industry].
    “…The Ministry of Finance, at the top, controlled financial policy while the Bank of Japan (BOJ) controlled lending. The BOJ directed loans to industries and subsectors, effectively deciding how the post-war economy developed. While this led to fantastic growth—the economy grew by an unbelievable 17% in 1959—and financial equality, it also created intense market share competition. How The Japanese Economic Miracle Came to an End

  • Jenny Barnes 13th Sep '23 - 1:56pm

    PS from the Guardian
    “The Russian defence minister, Sergei Shoigu, said on Wednesday that his forces were maintaining “active defence” in the face of Ukraine’s counteroffensive, and that Moscow had no choice but to win.”
    https://www.theguardian.com/world/live/2023/sep/13/russia-ukraine-war-live-updates-sevastopol-shipyard-fire-crimea-missile-attack-injuries

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