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Sounds From The Deep

Written on . Posted in History.

This article was originally printed in Monitor of “Public Service and Local Government” September 1983. It is a light-hearted approach to understanding site values.

Author:  Henry Law

Where do you think is the most lucrative busking pitch on the London Underground, and how much would you expect to take in an hour – say between three and four in the afternoon? It would be interesting to know, but probably the best pitches are at Oxford Circus and Marble Arch, and at a rough guess, the takings are about £20. In the second rank are Green Park and Knightsbridge, with takings of perhaps £15, followed by South Kensington and Finsbury Park (£10), with Hammersmith and Highbury at £5. Most likely, it is not worth the effort for less than £5. No one would go busking at Dollis Hill for 5Op!

London Transport forbidden fruits

Now it happens that London Transport forbids busking, but the rule is not strictly enforced and an unofficial organisation has grown up to allocate the prime pitches. There is talk of introducing official permits, and a rough and ready fixed charge will be good enough for the purpose. Consider this; could you devise a system that was perfectly fair?

The problem. of course, is that the lucky fellow at Oxford Circus will take four times as much as the poor chap at Highbury. The fixed charge actually makes matters worse, as proportionally, it bears hardest on those playing at the worst pitches. A better idea is for a percentage cut of the takings, especially if the percentage is larger for takings over ten pounds, but even this is not as clever as it seems. For one thing, someone would have to check how much was in the collection hats, and a tricky operator might hide some of the cash when no-one was looking. Taking a percentage destroys the incentive to play really well, and is unfair on the virtuoso who could charm the loose change from everyone who passed.

There is another snag about percentages; Highbury is a “marginal” site. If the player at the marginal pitch does not keep all he takes. he is left with less than the £5 minimum which makes it worth his while. Charging at the margin will put the pitches out of use and the buskers out of work.

Fair play

Since the difference in the takings depends mainly on the pitch, why not vary the charges according to the pitch? Only at the margin does the pitch offer no advantage, and surpluses elsewhere are due to geography rather than musicianship. Marginal pitches such as Highbury would be ‘free’, as no charge could be made to play there, whilst South Kensington would be £5, Green Park £10 and the prime pitch at Oxford Circus would be £15 (shaded areas in diagram). In effect, this is collecting a “rent”, and it means that everyone earns the same for the same work, wherever they are. What could be fairer’? It does not rule out the chance to take more by good performing, and it keeps out the duds, who couldn’t recover the price of the pitch.     An important point is that this “rental value” exists whether it is collected or not. It could be claimed by the authorities. but if not, it might be farmed by a gang of heavies or a new breed of ticket tout.

Ignored

We have here a simple example of the workings of what is arguably the most important law in economics, Ricardo’s Law of Rent. It states that rent is the surplus due to the advantages of the site over the marginal site.

Although the Law of Rent has been known since at least 1815, it is usually ignored by politicians and government advisors, to everyone’s loss. It means, for instance, that when rents are controlled at artificially low levels. accommodation will become scarce, there will be exorbitant demands for key money, tenants will be harassed and officials bribed. The Law of Rent can now be seen at work in the Enterprise Zone.

For identical premises, rents asked are about 60p a square foot more than immediately outside the Zones, reflecting the advantage of the concessions, which include exemption from rates, worth 40p a square foot. Thus, few of the benefits will be enjoyed by the businessmen they were intended to assist. They will instead be dissipated in higher rental values. For landowners in the Zones. it is like winning a lottery at the taxpayers’ expense.

The Law of Rent has broader implications. Just as, for busking, Oxford Circus is better than Highbury, so is South-East England a better place to set up a factory than Clydeside, an advantage reflected in the higher rents in the South-Fast. The trouble comes with the tax system. which is a combination of flat-rate charges (National Insurance contributions) and percentage cut (Income and Corporation Taxes). We saw how any charge would put a stop to busking at Highbury, the marginal pitch. For Highbury. read any depressed area; the result is just the same. Taxing the margin takes land out of use, and since idle land and unemployment are but two sides of the coin, any proper cure for unemployment must include a reform in the tax system, to reduce the burden on the marginal areas of the country.

There is also a fundamental moral issue. Since the rent of land is not the product of individual effort but the result of geographical advantage, by what right can it be claimed by the private individual? Does it not rightly belong to the community as a whole? If the rent of land were the principal source of public revenue, there would probably be little need to tax earnings at all.