Can we leverage common assets to reduce inequality?
Everybody talks a lot about economic inequality, but there don’t seem to be many credible proposals out there, let alone ones that have political legs. French economist Thomas Pikkety documented the deep structural nature of inequality in Capital in the 21st Century, but the best solution he could come up with was a global wealth tax. Good luck with that!
What a pleasure, then, to read Peter Barnes’ new book and discover some sensible, practical ideas. Barnes is a writer, entrepreneur and long-time friend; we worked together a decade ago with the late Jonathan Rowe in exploring the great potential commons in re-imagining politics, policy, economics and culture. The author of pioneering policy ideas in Who Owns the Sky? and Capitalism 3.0, Barnes has just published With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don’t Pay Enough (Berrett-Koehler Publishers).
The book aims to reduce inequality not through the tax system or education and training, but by inventing new commons-based institutions that can generate nonlabor income for everyone. The secret of the wealthy, of course, is that they don’t depend on salaries or wages, but on investment income from their equity assets.
So how might commoners pull off this trick? By generating income from common assets. The money won’t come from government spending or redistribution, or from new taxes on business. It will come from commoners seizing control of the shared equity assets they already own – the atmosphere, airwaves, the sovereign right to create money (now enjoyed by banks), and the public institutions that make stock markets and copyrights possible.
These equity assets belong to all of us. Unfortunately, most of the benefits from these assets have been privatized by banks, oil companies, telecom companies, the culture industries, depriving us of income to which we, as common property holders, are entitled.
Barnes proposes renting out various common assets to businesses that wish to use them. This is a well-accepted principle – to pay for something owned by someone else. Why should companies get a free ride on public assets? Barnes proposes charging corporations for the use of the airwaves, the pollution sink of the atmosphere, and the right to monopoly protections such as copyrights, trademarks and patents. Revenues from our common assets could be channeled into independent, non-governmental trust funds that would then regularly generate dividends for everyone.
Barnes introduces us to these ingenious ideas with an astonishing clarity and concision, and with a passion for fairness that would make most economists squirm. Despite delving into some arcane fields of economics, social policy and law, his sentences are brisk and lucid, and his scholarship lightly worn (but with sufficient endnotes). He takes us to a zone of policy originality that even Joseph Stiglitz, Paul Krugman, Robert Reich and Amartya Sen haven’t dared to visit.
The beauty of Barnes’ proposals is that revenues for commoners would be generated without political stigma. The money cannot be criticized as reckless government spending or money taken from others through government distribution. Nor could it be criticized as an unfair giveaway to the “undeserving poor." Revenues earned from common assets would be considered a birthright entitlement – a revenue stream to which commoners are entitled by dint of their citizenship. One person, one share. This is part of the great political achievement of Barnes’ proposals – they have wide appeal across the ideological spectrum.
“Co-owned wealth is the underappreciated complement to privately owned wealth,” writes Barnes. “It consists of assets created not by individuals or corporations but by nature or society as a whole. This little-noticed cornucopia includes our atmosphere and ecosystems, our sciences and technologies, our legal and financial systems, and the value that arises from our economic system itself. Such co-owned wealth is hugely valuable but at the moment is barely recognized.”
Barnes is not intent on toppling capitalism, but rather on effecting serious structural changes to make it work more fairly and effectively for commoners. This takes him on a quest for the “Money River,” a term that he borrows from a Kurt Vonnegut novel: “Forget about hard work and the merit system and honesty and all that crap, and get to where the Money River is,” declares a character in Vonnegut’s God Bless You, Mr. Rosewater.
For most businesses and wealthy people, the Money River flows from ownership of equity assets, preferably assets that others have been freely subsidized by the government or taxpayers. These are the equity assets that produce “extractive rents” – undeserved profits that stem from monopoly ownership or unfair, noncompetitive control of an asset.
Barnes points out, for example, that Bill Gates’ $72 billion fortune, is not just a case of a smart guy who worked really hard (although he sure did). His fortune stems mostly from the network effects of Microsoft software that stymies competition, its market power in getting Microsoft software preinstalled on all computers, and the copyright protection that the government gives Microsoft for free.
The dirty little secret of capitalism is that huge amounts of investors’ income derive from unearned “rents,” not from free and open competition. Seen in this respect, Barnes writes, “Gates’ fortune wasn’t earned by him but rather was taken by him from wealth that rightfully belongs to everyone.”
Barnes has noted that entrepreneurs who take their private companies public immediately reap a huge windfall, often as much as 30% or more. This is a “liquidity premium” made possible by the huge apparatus of regulatory institutions, laws, courts and other public bodies, which give investors the confidence to invest in a stranger’s enterprise. It’s a very large expense that the rest of us are paying for, but which entrepreneurs enjoy for free.
So what if commoners could control their own renewable equity assets and charge businesses to use them? Barnes calculates that we could have “dividends for all” if we could collect fair-market value from businesses that wish to pollute the atmosphere, by establishing “cap-and-dividend” carbon trading schemes. We could charge those who wish to use the electro-magnetic spectrum for broadcasting. Why should banks be able to create 90% of the money supply for free, through fractional-reserve bank lending? Why not let this benefit accrue to the public? Why should investors be able to make speculative investments in a massive casino maintained through government regulation and oversight? Why not charge a small percentage of these costs to investors?
Barnes calculates that charging for these private uses of common assets could produce between $1 trillion and $1.48 trillion, which in turn could generate dividends for of family of four of $13,428 and $19,812. Now there’s a big step toward reducing inequality!
Barnes ideas are based on the highly successful example of the Alaska Permanent Fund, which since 1980 has established a trust fund with over $4 billion, which produces yearly dividends of $1,000 or more for every resident of Alaska ($4,000 for families of four).
Even Sarah Palin and conservatives like Bill O'Reilly are ardent supporters of the Alaska Permanent Fund because the Fund is about controlling what we already own, not taking it from someone else. It’s about predistribution of our own assets, not redistribution from someone else. And because such funds are treated as universal entitlements – not something that only the poor receive – there is no social division or resentment from this source of income.
Barnes astutely points out that “co-owned wealth dividends would have one further benefit: they’d keep our economy humming by maintaining consumer purchasing power.” It is this last point that may give some commoners pause. Do we really want to rev up the market machine and its growth dynamics? Part of the answer is that dividends are less about fueling growth than in stabilizing basic livelihoods and subsistence.
Barnes is also aware of the dangers of monetizing nature, which can lead to harmful market governance of genes, water or seedlines, for example. But certain shared resources can be prudently be monetized, he insists. “What keeps it a commons is not whether it is monetized or not, but how the rent is shared. If the rent is privatized, that’s wrong. If the rent is shared equally, that’s OK. Indeed, it’s better than OK — it’s virtuous. And necessary.”
Barnes argues that monetizing some common wealth “is essential to fixing capitalism’s two biggest flaws: destruction of nature and widening inequality. None of the moral objections stand up to this high utility value.”
Unlike traditional monetizers of nature, who wish to create markets in order to maximize short-term gains, however, Barnes has another motive entirely. He wishes to “make visible” in market transactions a wide variety of non-human species, ecosystems, future generations, and society itself (as a whole),” so that their interests can be “heard” in the market. As Barnes recently reflected:
This tragic flaw of markets [the lack of voice for nature, future generations and society as a whole] must somehow be fixed. In theory it could be fixed by government regulation and taxation, but given that government itself is almost entirely in the sway of living suppliers and demanders, such a “solution” will never work or last. Far better to make the market fix itself by introducing agents for the currently unrepresented.
This requires populating the market with entities legally accountable to future generations, other species (when appropriate) and all living persons equally — what I have elsewhere called “common wealth trusts.” As legal scholar Carole Rose has put it, these entities might be thought of as “property on the outside and commons on the inside.” Outwardly, the market would see them (and have to respect them) like corporations, but inwardly they’d be coded to protect their assets for future generations and share current income (if there is any) equally.
If this were done, one result would be the monetization of common wealth that is currently unmonetized. I have no problem with this. In fact, it is essential to the whole process.
In Capitalism 3.0, I called this process of legally embodying common wealth propertization — which should not be confused with privatization, which is the giving or selling of common wealth to private owners. Propertization keeps common wealth common, while at the same time protecting it from private takeover. An example is the community land trust.
In my view, propertization of selected pieces of common wealth, if done to scale, can fix capitalism’s two most tragic flaws: its relentless destruction of nature and equally relentless widening of inequality. By making the invisible visible, it can make the invisible hand both smarter and fairer.
Chase down a copy of With Liberty and Dividends for All. It will challenge many of your assumptions about what can feasibly be accomplished within the existing capitalist system and, indeed, within the framework of the commons. The reverberations from this short, readable and profoundly original book will be heard for years to come.
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