Should foreigners be allowed to buy agricultural land in Australia?

Cartoon by Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au

I am surprised by the frequency with which concerns about foreign ownership of land in Australia are being expressed to me by friends who have fairly sensible views on most other issues. It is almost as though rationality disappears whenever foreign ownership and agricultural land become linked in their minds.

My response has been along the lines that foreign ownership of land in Australia isn’t something we should be worried about because it has been occurring since the beginning of European settlement and, these days, accounts for a small proportion of total agricultural land. (ABS data indicate that about 99% of Australian farm businesses are fully Australian owned and about 90% of farmland is fully Australian owned.) 

That usually provokes the assertion that Chinese ownership is new and worrying. 

When I suggest that the new owners can’t take the land home with them, I am asked to justify why foreigners should be able to buy land in Australia, when Australians are not allowed to buy land in their countries. My reply has been that Australia should adopt economic policies that serve the interests of Australians rather than following the policies that other countries adopt. 

At that point I am asked to explain how foreign ownership of agricultural land in Australia serves Australian interests.

That might seem like a reasonable question to ask, but it is actually a debating trick that puts the onus of proof in the wrong place. The basis of a market economy is that economic transactions are undertaken because they are mutually beneficial to sellers and buyers. If some third party considers that a particular kind of transaction should not take place, the onus should be on that party to make the case. 

If an Australian wants to buy the property at a lower price, that is not a legitimate argument for preventing the property from being sold to a foreigner. If their sole objection to the transaction is that the purchaser is foreign, why is that relevant?

Unfortunately, the views I have presented above tend not to have been particularly persuasive. My friends seem to want me to explain how Australians can benefit from foreign ownership of agricultural land. Well, now I have now calmed down a little, I will try to do that.

The most obvious way Australians benefit from foreign land ownership is from associated investments which create increased employment opportunities, and generate additional wealth, some of which adds to government revenues and enables more services to be provided to Australians. 

So, what about the situation where the foreign owner does not undertake any new investment? In that situation it is quite likely that the former owner will invest the proceeds of the sale in ways that will generate additional income. It is also likely that the new owner will find ways to use the resources more productively, perhaps by using better management practices. The fact that a new owner is prepared to pay more than the former owner’s reserve price usually implies that the new owner can see potential to generate more income from the property than the former owner.

Is there any more reason to question the benefits to Australians of foreign investment in agricultural land than any other foreign investment, or of new investment in agricultural land by Australians? I don’t think so, but various arguments to the contrary are raised. It has been suggested that ownership that is encouraged by foreign governments to improve food security may endanger future food security of Australians. It has also been suggested that enclaves of foreign ownership could have a deleterious cultural impact on rural communities. The people who promote those views seem to overlook the fact that foreign ownership or agricultural land in Australia is a small proportion of the total.

The opponents of foreign ownership of agricultural land also raise such issues as whether foreign firms pay tax, whether they are able to import foreign labour more easily, and whether they can be trusted to comply with Australian labour and environmental regulations. Those arguments seem to me to be scraping the barrel. It is hard to see why Australian tax and regulatory authorities should have any greater difficulty in dealing with foreigners than with Australians.

As far as I can see there is no case for foreign ownership of agricultural land in Australia to be subjected to more stringent regulation than any other foreign investment in this country.

How should researchers combine different aspects of happiness into a single measure?

A recent paper by Gus O’Donnell and Andrew Oswald considers the question of how to combine measures of different aspects of subjective well-being into a single overall measure.

The authors focused specifically on the four aspects of well-being measured in annual surveys by the UK Office of National Statistics. These are:

• how satisfied you are with your life nowadays;
• to what extent you feel that the things you do in your life are worthwhile;
• how happy you felt yesterday; and
• how anxious you felt yesterday.

All aspects are measured on an 11 point scale from 0 to 10.

The approach taken by O’Donnell and Oswald in their exploratory study implies that all aspects of happiness should be weighted according to their “social importance” as determined by the average weight given to them by citizens in opinion surveys. The specific method they employ involves asking people to allocate 100 points across the four measures. For example, if all four measures were considered to be equally important, 25% would be allocated to each measure.

This method of developing weights seems to me to be much better suited to combining well-being indicators such as those included in the OECD’s Better Life index (e.g. income, education, health, environment) than to combining survey data relating to different aspects of subjective well-being.

I feel uneasy about the method adopted because I don’t think individual citizens are equipped to make judgments about the “social importance” of the feelings of others. For example, the majority view about the “social importance” of feelings of anxiety might understate the impact of anxiety on the well-being of people who suffer from anxiety.

The authors have reported results from the use of their method of obtaining weights from four different samples: economics students, MBA students, professional economists, and a wider group of citizens chosen using web-based methods. All groups gave anxiety the lowest average weight, but apart from that there is not much common ground in the views of the different groups. The wider group of citizens gave happiness the greatest weight, but the other groups all gave life satisfaction the greatest weight. The economics and MBA students gave “doing worthwhile things” a much higher weight than happiness, but professional economists gave it about the same weight as happiness.

It seems to me that a better way to proceed would be to attempt to estimate the well-being of individuals by using weighting systems that individuals consider to be relevant to their own lives. There are potentially several ways to do that.

First, there is the approach adopted by Daniel Benjamin et al in their paper, “Beyond Happiness and Satisfaction”, discussed on this blog, in which people were asked to choose between hypothetical situations using different measures of happiness and a range of different ratings.

Another possible approach would to ask survey respondents questions along the following lines: “If you were offered an opportunity that would add a 1 point improvement in your feeling that the things you do in life are worthwhile, how much life satisfaction would you be willing to forgo in order to obtain that benefit?” When I ask myself that question the answer I obtained seemed to make sense, but my mind went blank when I ask myself how much life satisfaction I would be willing to forgo in order to obtain a 1 point increase in happiness. The same happened when I asked myself how much happiness I would be willing to forgo in order to obtain a 1 point increase in life satisfaction. So I can hardly recommend that approach!

The third approach is to simply ask survey respondents to allocate 100 points across the four measures according to the weight that they consider should give to the different measures in assessing changes over time in their own personal well-being. That approach has the virtue of being simple and directly related to estimation of relevant weights.

In order to obtain an accurate overall impression of subjective well-being at a national level it is important to know to what extent the weights that individuals consider to be relevant to assessment of their own personal well-being vary according to the circumstances of their lives.

What would self-actualizing politics look like?

It is difficult to observe democratic politics without getting the impression that it brings out the worst in people. We frequently see politicians elbowing each other out of the way as they struggle to gain power and influence. We often see them make promises they are not likely to be able to keep. We see some of them endlessly repeating slogans whose only virtue is that they once appealed to our basest instincts. We see others stating the obvious with great gravitas. We see quite a few advancing their personal interests at the expense of the people they are meant to serve.

So, how come there has been so much economic and social progress in the western democracies over the last century or so? If democratic politics brings out the worst in people, wouldn’t you expect outcomes to have been are a lot worse than they have been?

The findings of Christian Welzel’s research - which I reviewed on this blog- suggests that as a consequence of economic development people in an increasing number of countries have been able to climb an emancipation ladder (Welzel refers to it as a utility ladder of freedoms) analogous to Abraham Maslow’s hierarchy of needs. As economic development has proceeded in an increasing number of societies, people in those societies have tended to adopt emancipative values reflecting concern about such matters as personal autonomy, respect for the choices people make in their personal lives, having a say in community decisions, and equality of opportunity.

In an article published in Policy in 2014 I considered whether emancipative values might be morphing into an ‘entitlement culture’ that could threaten economic freedom and material living standards. My research left me feeling optimistic that if such a tendency exists, there is a good chance that it will be remedied by democratic political processes.

If my optimism about the future outcomes of democratic politics in high-income countries is well grounded the impression that politics brings out the worst in people cannot be entirely accurate. Actually, that cynical impression doesn’t even stand up to scrutiny when I consider the behaviour of some politicians I have met.

Those thoughts came to mind when I was reading Michael Hall’s Political Coaching:Self-Actualizing Politics and Politicians, published last year. Michael is a psychologist who writes about and teaches an approach to personal development strongly related to Maslow’s hierarchy of needs. I have read many of his books and attended a couple of his seminars, so I thought it might be interesting to see how he applied his ideas to politics.

Michael describes the political ideal as follows:

“Politics is designed to cultivate the good life. We create politics so that people in our social group can live the kind and quality of lives that they wish to live – to satisfy the basic human needs and then to fulfil the highest of human dreams and potentials. The design of politics is to create a human system whereby people can develop their own powers and freely use those powers in appropriate ways that simultaneously facilitates their highest and best and that supports the same for all in the community” (p15).

Immediately afterwards he acknowledges that the ideal he has described is not what immediately comes to mind when most people think of politics.

Michael argues that politics is inevitable because humans are social beings. The problem is not with the existence of politics but with how we do our politics. That depends on the quality of our relationships with each other, which in turn depend on our understandings, beliefs, meanings and experiences. He implies that a change in political culture can only occur if more people engaged in politics become self-actualizing.

I think the book is at its best in discussing principles for positive political conversations (Chapter 11). These principles include: showing willingness to listen to opposing views; approaching issues in a spirit of respectful inquiry; trying to understanding where other people are coming from; and looking for positive intentions and values in opposing views.

Unfortunately, Michael Hall doesn’t discuss the potential role of social media in promoting more positive political conversations and a better political culture. In my view social media has potential to make a large contribution to lifting the quality of political debate. However, that will not happen until more participants who are capable of lifting the quality of discussions actually seek to do so. I should be making more of an effort to lift my own performance in that regard.

What does economics tell us about making New Year's resolutions?

Opportunity cost was the first thing that came to mind the other day after the thought occurred that I should perhaps consider making a New Year’s resolution. That was probably because I just happened to be paying attention on the day the concept of opportunity cost was explained when I was at university many years ago. 

Opportunity cost is just a label. If you haven’t had the benefit of studying economics you might still be aware that the time and effort you spend making resolutions and trying to keep them could possibly be spent doing something more enjoyable. You may also be aware that there are emotional costs associated with making resolutions and then failing to keep them.

On the other hand, by now some of you will be thinking that opportunity costs are just excuses for inaction. You might want to urge me to consider the potential satisfaction of making resolutions that might enable me to become a healthier or better person.

That is why my mind now turns to the law of diminishing marginal utility. That law says, more or less, that as you obtain more of any good, the additional happiness you obtain from each additional unit tends to diminish. Every wine drinker should know that a larger increment of happiness is likely to be obtained from the first glass of wine than from the second, and a larger increment of happiness from the second than from the third, and so on. If the truth of that observation is not obvious to you on New Year’s eve, it might well become very obvious on New Year’s day.

It seems to me that the law of diminishing marginal utility applies to New Year’s resolutions in much the same way as to other goods. For example, a person who swears a great deal might gain some satisfaction if she can refrain from using foul language in the presence of children. The further increment she obtains from refraining from swearing in front of people whom she knows to be disgusted by the behaviour, might be somewhat smaller. The increments in satisfaction could be expected to become progressively smaller as she adds further classes of people or situations.

All this brings to mind the image of a scissors diagram, regarded as a thing of great beauty by many economists of my vintage. The downward sloping line in the diagram below represents the declining marginal utility of resolutions and the upward sloping lines represent the rising marginal cost of resolutions (expressed in utility terms). If you are having difficulty viewing the quantity of resolutions as a homogenous good, think of the horizontal axis as measuring the extent to which you might consider reducing your use of a particular swear word over the next year. 

I have drawn two cost curves in the diagram to illustrate how the optimal investment in resolutions would change if it became less costly to make and keep resolutions. The initial optimum is at point A, where our subject makes a relatively small investment in New Year’s resolutions. If it became less costly to make resolutions, the optimum would move to point B. At that point she would make more resolutions - and her total utility would be higher.

So, what does economics have to tell us about how to reduce the costs associated with New Year’s resolutions? An obvious place to look is behavioral economics. It is not difficult to find articles on the internet suggesting how we can use behavioral economics to help us to stick to our resolutions. Much of the underlying research is more in the field of psychology than economics, such as the work of Roy Baumeister on willpower (which I discussed here).

In my view the area of economics that has most potential to help us to understand and reduce the costs associated with making and keeping resolutions is ‘identity economics’. The key idea of identity economics – as explained in a book of that name by George Akerlof and Rachel Kranton - is that individuals gain satisfaction when their actions conform to the norms and ideals of their identity. In the way Kranton and Akerlof develop the concept, identity is determined to a large extent by the groups to which individuals belong. 

However, when you think about your own identity, as an autonomous individual, you are free to think of it as being defined by the qualities you value most highly - or identify with. (There is some relevant discussion in a recent post in which I reviewed Russ Harris’s book, The Happiness Trap.) Recent research by Anthony Burrow and Nathan Spreng, which suggests that having a purpose in life tends to impede impulsivity, points to the potential benefits of keeping in mind the qualities we value most highly.

This brings to mind the potential to draw a possibilities diagram showing trade-offs between some of the things I value. On one axis is excellence and on the other axis is tranquility. I will leave it to your imagination.

Postscript

On reflection, it doesn’t seem to make much sense to think in terms of trade-offs between excellence and tranquility. It might make more sense to think in terms of a trade-off between satisfaction with professional achievement and satisfaction with relationships, as shown below. An investment in emotional health might expand the possibilities available.