What is Wrong with Referendums? A Reply to Geert Wilders

Recently (2015-11-19) Geert Wilders published an article in New York Times arguing that Europe should hold national referendums on immigration policy. But referendums are not necessarily fair, nor are they the ultimate form of democracy. Referendums have two problems: first, only insiders can vote, even on questions that largely concerns outsiders. Second, everyone has a single vote of equal weight, even in case where the importance of the outcome differs widely.

Who Can Vote?

Current "universal" voting is limited to "insiders", those who are either confined to a certain territory, or possess a certain legal status. In case of national referendums, these are typically citizens of the country; in local referendums these may be residents of a city. Outsiders cannot participate, even when voting over issues that have major consequences for them. This violates a central pillar of democracy, the ability to influence decisions that affect you.

A referendum over immigration policies is just such an example. Unless potential immigrants also participate, we cannot talk about universal democratic decision. Similar issues arise when neighborhood residents vote for restrictive zoning laws. The potential "immigrants" to the neighborhood who are adversely affected cannot participate because they are not residents. The Greek referendum of 2015 shared similar traits: only Greek citizens were voting over a decision that involved most of the EU.

Greek 2015 referendum ballot. The referendum had several problems, only Greek citizens voting over a pan-European decision was perhaps it's most serious flaw.

How Big Is the Vote?

Another problem with referendums is the "size" of vote. Traditionally, everyone has a single vote. This is true even if different people have very different stakes in the question. In this way the majority can always outvote a minority. For instance, in many places the majority may outlaw homosexuality. The Swiss minaret law is an outcome of a referendum that was flawed in this way. I don't know how many Muslims and non-Muslims actually care about minarets, but I can imagine it is a far less important issue for non-Muslims. But they could easily muster a majority. As an extreme example, imagine that Hitler put Nuremberg Laws, the Nazi laws that robbed Jews of their rights, on a national referendum. Would we consider the outcome democratic? Analogously, potential migrants may outvote the whole EU if given an equal weight.

Solutions

Unfortunately, these two problems cannot easily be corrected. Although it is not fair to exclude outsiders from decision–making, and give equal say for those with unequal stakes, we cannot calculate the fair vote size. Referendum is justified when the electorate has roughly equal stakes and outsiders are little affected. If this is not the case, one should not call for a referendum.

Instead, we may strive toward inclusive representative bodies that also involve outsiders. In case of the current refugee crisis it should include representatives from both EU, and refugee origin and transition countries. Such conferences, potentially meeting regularly, would ensure that insiders have more rights but outsiders will also have a say.

Britain in EU: More Powers to National Parliaments?

More power to national parliaments is a democracy–enhancing move only if the national decision-making occurs in areas that have little impact on the others. If the opposite is true, it diminishes the control we have over the important decisions.

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David Cameroon has announced his requests to the EU. One of them is a larger role for national parliaments in shaping EU regulations. Although national parliaments may be the most democratic institutions we have, the areas where such a "repatriation of powers" occurs must be chosen carefully. Otherwise it may weaken the democracy instead. There are two main reasons.

Just a common market—or an "ever closer union"?

Interdependence

First, and most importantly, only some decisions can be made by national parliaments. Many decisions can not, such as international treaties, trade agreements and international law. Almost by definition this type of legislation is not made by individual states. Analogously, parliaments do not vote on what the other countries do, be it introduction of incompatible regulations, or conducting irresponsible fiscal policy in the hope that we will bail them out later. Neither have we much room to vote about technical standards, such as Apple's new operating system or airport security procedures.

A number of major problems EU currently faces cannot be solved at national level. For instance, the refugee inflow must either be received, or stopped, at the EU border. The current country-based decision making essentially allows Hungarian parliament to decide over number of refugees in Serbia and Croatia, and, if German "national parliament" decides to close it's borders, it has severe impact on Greece and Italy. Analogously, the "single market", one of the pillars of EU, is a form of extended free-trade agreement, a large number of common standards for product labeling, food safety, and labor treatment. By definition, agreement is something we cannot do alone.

More powerful national parliaments in this type of decisions will weaken EU without strengthening the member–states. We will notice more small inconveniences, such that you cannot use certain mobile services in another EU country, or your business has to hassle with incompatible regulations across the border. Negotiations among 28 sovereign states are far more slow and costly than central decisionmaking, and there is little incentive to overcome even small special interests in the name of a common good. National politicians are elected to stand for "national interests", and all 28 national interests are seldom aligned with the common one. The underlying problem is interdependency, our decisions may influence others even if the others do not belong to our "nation". Such decisions should be done by inclusive higher level bodies, such as European Parliament.

Enfranchisement of EU Migrants

The other, and currently less important reason, is enfranchisement of EU migrants. This is a large group of people who cannot vote in national elections but is subject to the corresponding national legislation. This is simply not fair. I think the first-best solution would be to give EU migrants voting rights rather soon after moving to another country (say, in 2 years). But until it happens, decision–making by EU institutions offers this group more say about their lives.

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Finally, even EU is too small for many important decisions. Many contemporary problems, such as global trade agreements, climate change, or the puzzle of Middle–East, cannot be solved at EU level either. We need global governance more than ever before. How to achieve this in a democratic way is one of the big challenges of our time.

Tax Breaks for Protecting Landscape

Untouched nature is increasingly scarce.  This is even more true close to big population centers where such areas are of high value. Below I talk mostly of  forests but the ideas are more general.

Old forest.  Many snags and coarse woody debris offer habitat for a wide range of organisms.  Such forests are often suitable for recreational use as there is little undergrowth due to dense canopy above.  Conifer forests of Rattlesnake Ledge, WA

Land is typically taxed based on it's market value.  This approach is simple—it only depends on the size and location of the plot (although determining the value may be tricky).  However, it does not encourage the landowners to preserve the valuable habitats, nor does it encourage it to keep the land open to public.  It implicitly tells that the property owner is the sole decision-maker and does not have to take into account the others' interests.  But natural landscape is valuable not just for the landowner but also for other users, such as leisure trekkers or picnickers, and for many living organisms other than homo sapiens.  In economics parlance, natural landscape possesses positive externalities.

Keeping land open for everyone—for both nature and humans—should be an attractive option.  It can be encouraged by making land tax dependent on the type of usage.  Valuable natural habitats where the public has open access should be free of tax.  In other words, we should not tax land possession but only the "exclusion" of land, using it in a way that does not permit the others (including nature) to benefit from it.

Private property: Harvested natural forest is replaced by a plantation.  The area is made inaccessible both for humans and for large animals.  (Former) temporal forest in Veskimõisa, EE.

This approach will bring a number of changes:

• The landowners should only pay land tax on such a property that is either not open (like gardens and courtyards) or not natural (like fields).  Forests, natural meadows, and other habitats should be considered as "natural land".  If everyone has free access to these areas and human interference is kept at minimum, the land should be tax-free.  I mean "free access" in legal sense, the owner should not have any obligation to facilitate it through specific infrastructure.
• In case the landlord takes some of the natural area into non-natural use (say, by logging), then it will immediately be subject to tax.  The tax will decrease over time as the nature take over and the natural/leisure value of the area increases.
• Analogously, if land that was previously used for non-natural or restricted purpose is left untouched, the tax will fall over years as the value of it grows.
• If land tax is based on the market value, it implicitly (albeit imperfectly) takes into account how the human value of land depends on location.  Land near the population centers is expensive, and hence the potential land tax will be high.  Such a tax exemption encourages creation of publicly open natural areas close to cities more than it does that in far-lying locations.
• In order to be eligible for a lower tax rate, the natural value of the land must be re-assessed. The landowner should apply for re-evaluation, perhaps no more frequently than once in 5-10 years.  Such evaluation reports should be made public to decrease the room for corruption.
• Perhaps the largest problem with this proposal is the need to asses the non-market value of land.  It is a vague concept and leaves room for interpretation.  Simpler but less precise rules may be preferred instead.

Natural resources are a strong incentive to restrict public access.  Diamond area in South Africa, 1940s.

Who are the winners and the losers?  First, I don't think this measure would be massively used and hence the effects will be small. If it will, however, it may harm the logging and wood processing industry. Second, if the tax income from certain plots decreases, it must rise elsewhere (not just on land).  So it amounts to trading more nature for higher taxes.  Obviously, the winners are those who benefit from the nature and the losers are those who do not.  Finally, the largest gains are experienced by property owners who already keep their natural land open for everyone.

Managing Forests for Everyone

The forested private land is largely managed as a profitable asset—the harvesting, planting, and other management is done from the viewpoint of the landowner.  As is often the case, this approach leaves a number of other interested parties with little say about their environment.

Mature forests are an excellent recreational landscape.  They also form a habitat for many species.  Forest near Kaagvere, Estonia, in December 2013.

Forests are a major component of landscape and environment.  This means there are many people (but also other living organisms) with stakes in the forests.  Below, I focus on recreational landscape users, but most of my arguments are valid for the other users as well, including the non-human ones.  The main problem lies here—while landowners profit almost exclusively from logging, the others will mostly enjoy the landscape where the forests are left intact.  (I will ignore such interest groups who profit from logging, such as forest industry.) This is a textbook case of negative externalities.

The most straightforward solution is to let all the recreational landscape users pay the landowners according to their valuation of the intact forests.  Obviously, such an income flow will cease after the forest is cut, and will count as a cost of clearcutting.  Unfortunately, this approach will not work—it offers a perfect opportunity to shirk and hide your private valuation, and it would be extremely costly to locate the landowners and to pay each of them a few euros every time you walk through the forest.  It would also put all the burden of adjustment to the recreational visitors.

A public-sector version of the same idea would look like this: determine the average value of various types of landscape, and pay the landowners accordingly, but only if they maintain it in that particular state.  Such rules can also take the form of individual contracts between the government and landowners with no new legislation introduced.  The payment should be financed through some sort of general taxes, such as payroll tax.  This approach is technically feasible.  Here landowners win, the society bears all the burden.

A third option is to introduce the same reform while shifting the burden to the landholders.  The government taxes the land according to "non-likeability" of the landscape.  If the property is not suitable for recreational use, you pay a lot.  If it is a nice natural area open for everyone, you pay little.  If forest is cut, the land tax increases accordingly.  (In case of well-functioning financial markets, this is equivalent to logging tax.)

This proposal is not free of problems either.  As all the burden is shifted to the landowners, this leads to falling land prices and hence a decreasing property value.  Second, the "non-likeability" is hard to determine.  It is possible to evaluate certain types of landscapes, but not everything. Even more, the policymakers need simple rules to avoid misunderstandings and too much potential for corruption.  Third, it does not take into account the potential value of the landscape.  Some landscape types are inherently more valuable, and even more, we can only enjoy what is at a reasonable distance from us.  The value of places far away is smaller.  The correct approach is not to tax the "non-likeability", but the difference between the potential and the current value.  Can policymakers handle that?

Middle-aged temperate forest in Northern Europe.  The left-hand side of the road is scheduled to be cut soon.  (And sorry for the cellphone photo...)

Pulling the three ideas together, I think a reasonable way forward is to combine the second and the third possibility.  One should differentiate land tax according to a simple scale of landscape value, for instance forest age.  Young forests (0-15 years) will be subject to high taxes, the mature ones (100+) will have low tax.  This data can be collected and handled.  Second, the municipalities should buy recreational land and also make contracts with the landholders to stipulate mutually best management.  This combined approach would shift part of the costs to the landowners, and part to the society. The taxes should be established step-by-step over many years.  However, although feasible, this policy is not free of problems either—the landholders around rich municipalities (big cities) win while those far away loose.