Transcript The Chinese People`s Permanent Trust Fund

TOWARDS A LAW AND ECONOMICS
OF PUBLIC PROPERTY:
CHINA AND BEYOND
Zhiyuan Cui
2007 Clark Lecture at Cornell Law School
China’s New “Law on Property”
passed on March 15, 2007, effective Oct. 1, 2007
Article 3: coexistence of the state, collective and
private ownership of property
Article 4: the property right of the state, collective
and individual are protected by law
Chapter V. Equal protection of state, collective and
private ownership of property
各地“钉子户”纷纷支持吴苹夫妇
Two Challenging Questions
First, the economics question: what is the
point of having public property for the
efficiency of the overall market economy?
Second, the law question: if there are
efficiency gains of public property, how
should the public property be protected?
By “property rule” or by “liability rule”?
Or by some mix of both rules?
My answer to the first question is very simple:
(1) When government can generate significant market
returns from public property, it can afford to rely
less on income tax, this, in turn, will encourage
private incentive to work and to invest.
(2) Market revenue from public ownership will reduce
the issuance of public debts by the government, thereby
lowering the interest rate (the “open market” operation
of the central bank provides the base rate for the whole
economy). It will stimulate private investment.
The 16th Amendment of
the US Constitution
Article. XVI. [Proposed 1909; Ratified 1913] :
“The Congress shall have power to lay and
collect taxes on incomes, from whatever
source derived, without apportionment
among the several States, and without
regard to any census or enumeration”.
The Struggle for the 16th Amendment
“One of the results of this legislation will
be to diminish the antipathies that now
exist between the classes. In the end it
will be found cheaper to pay low taxes on
large estates than to hire private
watchmen and private policemen to
guard them.”
-- Benton McMillin, Drafter of the Federal
Income Tax Proposal, January 29, 1894
Public Assets Disposal and Cornell
University
• Cornell Historian Paul Wallace Gates’ book:
“The Wisconsin Pine Lands of Cornell
University: A Study in Land Policy and
Absentee Ownership”
• The Homestead Act 0f 1862 and the Land
Grant Colleage
• Land Scripts
California Proposition 13 (1978)
Section 1.
(a) The maximum amount of any ad valorem tax on real property
shall not exceed one percent (1%) of the full cash value of such property. The
one percent (1%) tax to be collected by the counties and apportioned
according to law to the districts within the counties.
Unintended consequence of tax cut:
At the end of 2005, in the United States 105 municipal utilities were providing cable
television, 75 were leasing fiber-optic networks, 132 were Internet service providers,
272 offered municipal data networking, 47 provided long-distance telephone service,
and 57 provided local phone service. More than 50 cities—including Philadelphia,
San Francisco, and Tucson—have also developed or are beginning to develop
publicly owned municipal WiFi systems
Municipal Enterprises: Basic Statistics
http://www.community-wealth.org/strategies/panel/municipal/index.html
Municipal enterprises per city in 2001 National League of Cities study
4.49
Municipal power company income, 2002
$39.5
billion
Estimated 2002 general fund contributions of municipal power companies
$2.3
billion
Municipal utilities providing telecom services, 2001
230
Municipal utilities providing telecom services, 2003
357
Lease revenue contributed to general fund in City of San Diego, FY2004
$31.4
million
Income of Washington D.C. Metro from transit-oriented development, 2003
$8
million
Number of city-owned hotels opened since 1995
9
Source: The Heritage Foundation
Public Land Revenue in Hong Kong
The Hong Kong government was able to capture
39% of land-value increments occurring between
1970 and 1991 from land leased in 1970s. Land
revenue from the initial auctions, rather than from
lease modifications and renewals, was the most
important source of land revenue. This captured
value financed an average of 55% of the annual
infrastructure investment during the same period.
-- Hong Yu-Hung, “Can Leasing Public Land be
an Alternative Source of Local Public Finance?”
Henry George
• Socialization of Land Rent (Reclaim any land
value increase not due to landlord’s efforts)
• 1886 Liberal Party split over the Irish Home Rule,
larger number of landowners defected
• Lloyd George 1909 “People’s Budget” introduced
land value tax (LVT), against hoarding land in
anticipation of future higher value
• China’s current regulation: 2006.9.5
• Beijing Developers hoarded over 50% of the land
they leased from the government
Henry George (1839-1897)
John Dewey on Henry George
“it would require less than the
fingers of the two hands to
enumerate those who, from Plato
down, ranked with Henry George
among the world’s social
philosophers”.
Joseph Stiglitz’s
“Henry George Theorem”
“In a simple spatial economy, where the spatial
concentration of economic activity is due to a pure
local public good and where population size is
optimal, aggregate land rents equal expenditure
on the pure public good. This result has been
dubbed the Henry George Theorem (HGT), since
a confiscatory tax on land rents is not only
efficient, it is also the “single tax” necessary to
finance the pure public good”
Dr. Sun Yat-sen (1866-1925)
Revenue from Land Leasing: Selected Cities, China
City
Period
Revenue Raised
Shanghai
1992-2004
More than RMB 100 billion,
used for capital spending
Shenzhen
Throughout 1990s
Approximately 80% of total local
government revenues
Beijing
1995-96
RMB6.9 billion (approximately 60%
of local capital spending)
Chengdu
2002-2003
RMB 4.7 billion (approximately 45%
of local capital spending)
Hangzhou
2002
RMB 6 billion (more than 20% of
total government revenues)
Guangdong
Province
1992
RMB 9.4 billion (45% of total
revenue of provincial government
and municipalities)
Source: George E. Peterson, “Land Leasing And Land Sale As An Infrastructure-Financing Option”,
World Bank Policy Research Working Paper 4043, Nov. 2006
James Meade
(1907-1995)
K is the value of the total real
■ 衡量财产的社会所有化尺度
KS
K
KS  D
K
KS
 42%
K
KS  D
 14%
K
property of the community
KS is the part of this total which is
directly managed by the State
D is the value of the national debt
owed by the State and other public
authorities to the private sector of the
economy
In the United Kingdom in 1959
K=50,000 Million, KS=21,000 million, D=28,000 Million
Meade’s “Social Dividend”
The second feature of Meade’s program of
“liberal socialism” is “social dividend:” every
citizen is paid a tax-free Social Dividend
according to the citizen’s age and family status
but without any other conditions.
Two basic reasons for instituting social dividend
are: (1) promotion of equality by providing
everyone with same basic unconditional income;
(2) the reduction of risks by providing some
part of income that is unaffected by variations
required by flexibility in labor market.
Alaska Constitution Article IX, Section 15
Section 15. Alaska Permanent Fund.
At least twenty-five percent of all mineral lease rentals, royalties,
royalty sale proceeds, federal mineral revenue sharing payments
and bonuses received by the State shall be placed in a permanent
fund, the principal of which shall be used only for those
income-producing investments specifically designated by law
as eligible for permanent fund investments. All income from
the permanent fund shall be deposited in the general fund unless
otherwise provided by law
[Effective February 21, 1977].
Yearly Dividend Amounts
Year
Amount
Increase (Decrease)
2006
$1106.96
30.55%
2005
$845.76
-7.82%
2004
$919.84
-16.95%
2003
$1107.56
-28.12%
2002
$1540.76
-16.73%
2001
$1850.28
-5.78%
2000
$1963.86
10.96%
1999
$1769.84
14.86%
1998
$1540.88
18.85%
1997
$1296.54
14.67%
1996
$1130.68
14.18%
1995
$990.30
0.65%
1994
$983.90
3.63%
1993
$949.46
3.67%
1992
$915.84
-1.66%
1991
$931.34
-2.23%
1990
$952.63
9.10%
1989
$873.16
5.59%
1988
$826.93
16.77%
1987
$708.19
27.31%
1986
$556.26
37.69%
1985
$404.00
21.95%
1984
$331.29
-14.21%
1983
$386.15
1982
$1000.00
TOTAL
$25,882.41
JAY HAMMOND ~ 1922-2005, A father of the Fund
Jay Hammond was Governor of Alaska from 1974 to 1982. His support was
instrumental in encouraging the Legislature and the people of Alaska to pass a
constitutional amendment creating the Permanent Fund in 1976. While in office,
he also signed into law the bill creating the Alaska Permanent Fund Corporation,
to ensure the Fund was managed independent of political pressures.
Governor Jay Hammond signs the bill creating the Alaska Permanent Fund Corporation in 1980.
The Chinese People’s Permanent Trust Fund
(preliminary proposal)
In 2005, 166 central government-owned enterprises in non-financial sectors produced RMB 600
billion profits. Taking 50% of the profit, i.e., RMB300 billion to form the Chinese People’s
Permanent Trust Fund (CPPTF), and investing this 300 billion in bond and stock market. If the
Fund can produce 10% earnings annually, it will be 30 billion yuan. (The other 300 billion can be
made available for these enterprises)
Taking 50% of this 30 billion earnings, 15 billion, to distribute to all the people in China, each
person can get 10 yuan. The remaining 15 billion, which equals 1% of central government’s budget
in 2004, can be used for social and economic program upon the approval by the People’s Congress.
The first year’s 10 yuan for each person is a very small amount; however, if in the 2nd, 3rd, and 4th,
etc. each year there will be 200-300 billion profits available for the CPPTF, the principal of the
Fund can reach 1000 billion in a couple of years. Suppose that from the 2nd to 5th year, each year
there is 300 billion yuan added to the Fund, then by the end of the 5th year, the principal of
the Fund will be 1,500 billion. Even a 5% annual rate can produce 75 billion earnings. The 50% of
75 billion, 37.5 billion can be distributed to the Chinese people as social dividend. As time goes by,
the principal of the Fund will continue to accumulate, and the earnings grow.
If the profits of central government-owned financial institutions and the income from public land
auction are added to the Fund, the social dividend to the people will be substantial in 10 years
(it will become significant to people in the countryside).
Calabresi & Melamed’s “Four Rules” (1972)
Method of Protection
Resident
Injunction/
Property Rule
Rule 1
Damages/
Liability Rule
Rule 2
Polluter
Rule 3
Rule 4
Initial Entitlement
Rule 1: a court might issue an injunction against a Polluter;
Rule 2: a court might find nuisance but permit pollution to continue
if the Polluter chose to pay damages;
Rule 3: a court might find the pollution not to be a nuisance and permit
the Polluter to continue without paying damages;
Rule 4: a court might permit a Polluter to continue unless the Resident
chose to pay the Polluter damages in order to enjoin further pollution.
Method of Protection
Initial Entitlement
Property Rule
Liability Rule
The State
Rule 1
(Yunyang Case)
Rule 2
Spontaneous
Privatizor
Rule 3
(Russia
Privatization)
Rule 4
(pay privatizer
not to privatize:
Luneng case?)
Rule 3/ “Original Sin”
• Chubias: “They are stealing absolutely
everything and it is impossible to stop them.
But let them steal and take their property.
They will then become owners and decent
administrators of their property.”
• Mrs. Thatcher: TINA (There is no
alternative)
Thing v.s Wealth
• Bernard Rudden: “Things as Thing and
Things as Wealth”
• Public Property as Thing and as Wealth
• We can create public property or public
asset : “Sky Trust” (auction of pollution
permit)
• More public property, more private
property
• “Numerus Clausus” debate