The $80,000 Solution

by Gar Alperovitz

STAKEHOLDER SOCIETY • by Bruce Ackerman and Anne Alstott • Yale University Press • 288 pp • $26 • April 1999

Years ago, conservative economist Joseph Schumpeter intimated that socialists should show more appreciation for one of their system's least conspicuous features: its ability to function without taxation. He meant that the social ownership of capital, whatever other problems it presented, offered the public direct title to economic surpluses, whether in the form of profits, dividends, interest, rents, or anything else. Today, with the decline of the tax-and-spend welfare state, the idea at the core of Schumpeter's insight is slowly coming back into vogue. With it, the effort to make use of capital is returning to the political-intellectual agenda of the moderate and radical left. I believe this may ultimately have profound historical consequences.

In recent years, the notion that sufficient progressive political power could be amassed to tax and spend one's way to an equitable society has been steadily ground up by reality. The general conservatism of American politics, Democratic as well as Republican, provides but one illustration of this trend. Organized labor's decline from 35 percent of the workforce to 14 percent is another indicator, and the ease with which suburban and corporate elites dominate a racially split political system still another. American progressives and European social democrats once assumed that capital would be left to the capitalists, while unions, community organizations, and the state would somehow amass enough power to not only keep corporate influence in check but also alleviate poverty and inequality. That inequality in wealth and income continues to rise suggests that this assumption in many ways has failed.

Moreover, all the interesting questions begin with the opposite assumption--namely, that allowing the corporations and capitalists to control the bulk of a society's wealth inevitably brings with it power relations that undermine progressive hopes. Anyone familiar with U.S. campaign financing should have an idea of what some of those power relations look like. At the same time, the failure of the leading alternative to corporate capitalism--state socialism--has only raised the stakes on a difficult but inescapable question: If it is all but impossible to assemble sufficient political power to mitigate the harshest outcomes of corporate capitalism, are there any alternatives to current economic arrangements? And even if theory suggests some promising new directions, are any of them politically viable?

Even at the theoretical level, there are only a few logical alternatives to corporate capitalism--especially if you eliminate state socialism: The workers can own capital (as in guild socialism and some forms of syndicalism); geographic communities can own capital (as in communitarian socialism or the Israeli kibbutz); the people in general can own capital as individualist entrepreneurs, each with his or her own small business; or specifically defined subsets of the people can own capital (as in the post--Civil War suggestion that freed slaves be given "40 acres and a mule"--or, before that, the idea that homesteaders could lay claim to the western lands they were willing to farm).

In their new book, Yale law professors Bruce Ackerman and Anne Alstott offer a plan to distribute capital among a particular "subset of the people." Their plan, they argue, derives from both liberal and libertarian ideas. Ackerman, whose previous scholarly work divided American history into distinct "constitutional regimes," is perhaps best known for his recent testimony before Congress that the impeachment decisions of one elected Congress do not carry over into the next. Alstott's main work has been in the fields of tax and social-welfare policies. Their proposal is very simple: On completing high school and reaching maturity (age eighteen), every American would receive as a matter of right a capital allotment of $80,000 from the federal government. For those who choose to invest the capital in further education (rather than, say, a small business), the money would become available in $20,000 annual allotments beginning immediately; for others, it would become available, again in annual allotments, beginning at age twenty-one and ending at age twenty-four. (The presumption is that spacing out the payments would allow time for people to weigh their choices before spending the money, and the withheld funds would earn interest in the intervening years.) Note carefully that the subset of people targeted to receive capital is not the poor, not farmers, not the old, and not the very young: It is young adults entering maturity.

The cost of this plan--roughly $255 billion a year in 1997--would initially be financed by a 2 percent annual tax on the assets of the top 40 percent of wealth owners. Once the system was up and running, Ackerman and Alstott speculate, it could be financed through a trusteeship tax on estates: At death, most recipients would be expected to pay back their $80,000 plus interest--which would come to about $250,000. (Much of The Stakeholder Society is devoted to specifying technical details of how the scheme would work, and answering numerous objections that have already been raised. There is also a somewhat secondary discussion of how to alter Social Security to make it a "citizen pension" financed by wealth taxes.)

Clearly, Ackerman and Alstott think the best thing a young person can do with a capital stake of $80,000 is invest it in a college education (indeed, the $80,000 figure derives from their estimate of the cost of four years of college). What makes this a libertarian idea is that individuals can do what they like with their $80,000 share--no strings whatsoever are attached. You can spend your money on education; you can spend it on becoming a partner in a small grocery store; you can spend it on illegal drugs. The point is that receiving a capital stake is not at all the same as receiving a paycheck: Not only does it offer a measure of economic security but it also offers a brief moment of opportunity to invest in something productive. The free use of capital, they hold, is the key to individual responsibility. The authors also hope that providing individuals with a significant amount of capital will help nurture the kind of alert citizenry a democracy requires: It will "enable all Americans to enjoy the promise of economic freedom that our existing property system now offers to an increasingly concentrated elite."

If a plan like this ever were enacted, it would obviously provide both the middle class and the poor with much-wanted funds. In its politics if not its underlying theory, the proposal might be regarded, then, as a corollary of Clintonian efforts to extend government benefits such as college-tuition tax credits or unpaid family leave to as many people as possible. The problem is that Ackerman and Alstott's plan would also call for a massive increase in redistributive taxation. The blithe optimism with which the authors suggest that the top 40 percent of wealth holders might allow themselves to be tapped for a quarter trillion dollars every year is wondrous to behold.

Ultimately, what is most interesting about the book is neither the boldness of the $80,000 proposal nor the heroic political assumptions. Rather, it is the historical realities that produced it: The argument arises out of the failure of traditional tax-and-spend policies to make any real dent in inequality. If the economic system continues to produce inequalities that the political system cannot significantly alter, we are likely to see many more efforts to find "some other way."

The truth is there is really no direction to go except toward rethinking the ownership of productive capital. Just such a rethinking is, in fact, already well under way among various scholars, journalists, and political figures--and it is finally beginning to break through into wider public discussion. Take, for example, John Roemer, a sophisticated, mathematically oriented Marxist economist who teaches at the University of California at Davis. His proposal for "coupon socialism" would address inequality by giving all citizens a right to corporate dividends and profit flows. (Every adult would receive a number of nontransferable "coupons" entitling him or her to own shares in the nation's businesses through a mutual fund--like arrangement.) U. Mass.-Amherst's Sam Bowles and Herbert Gintis--along with many others--have come forward with detailed proposals in which workers actually own the firms that employ them. They have also proposed variations that open the ownership of competitive enterprises to consumers, local communities, and what might be called other small publics.

Many other proposals are in the air. The liberal columnist and author Robert Kuttner has proposed that newborn babies should be given a capital allotment ($5,000 each, plus $1,000 a year for low-income children, so as to produce a stake of $50,000 by age eighteen). Jessica Gordon Nembhard, a senior economist at Morgan State University, and Curtis Haynes, Jr., a professor of economics at Buffalo State College, build on the ideas of W.E.B. DuBois to make a case for cooperative, neighborhood-based capital ownership in black communities. Michael Sherraden, director of the Center for Social Development at Washington University in Saint Louis, has proposed matching poor people's savings with government funds. (A direct subsidy would be provided to "individual development accounts" established by low-income recipients in order to meet various financial goals--on the theory that this would be no different in principle from the pension-related tax deductions allowed to middle-class people who can afford to save greater amounts.) Michael Shuman, former co-director of the Institute for Policy Studies, proposes the Green Bay Packers, which is owned by the citizens of Green Bay, Wisconsin, as a precedent for other community-ownership possibilities. Even Bill Clinton has begun to explore the capital ownership option: He wants to invest up to 25 percent of the Social Security trust fund in the stock market--and invest other sources of public capital to help workers and people with low incomes set up individual retirement accounts. One could easily go on.

All of these proposals have at least something to do with reality. There are some three thousand community-development corporations operating around the country in inner-city neighborhoods. Co-ops, worker-owned firms, land trusts, small-scale municipal enterprises, and other hybrid community-based efforts have flowered in recent years. In the state of Alaska--distant echoes of Roemer--the Alaska Permanent Fund currently provides each citizen, as a matter of right, about $1,000 a year derived from the public ownership and investment of oil royalties. Remarkably, it is estimated that there are more U.S. workers enrolled in worker-ownership plans of some kind than in private-sector labor unions. Depending on the definition used, employee-ownership efforts include 8.7 million to 15.7 million workers--while labor unions claim 9.5 million members. A widely used mechanism is the so-called ESOP, or employee stock ownership plan--a far-from-participatory structure that is nonetheless likely to attract more attention as increasing numbers of worker-owners move toward holding a majority stake in their firms.

These new approaches are clearly not flawless. Moreover, experiences abroad--from the Israeli kibbutz to clumsy attempts by the Czech government and others to distribute ownership in formerly state-owned industries--raise sobering questions. Nevertheless, very large U.S. firms like United Airlines are currently functioning successfully under worker ownership, and a number of studies point to productivity gains in worker-owned firms--especially when worker ownership comes with an effort to increase worker participation in management. And when we stop to consider the history of several thousand municipal electric companies that have operated efficiently under public ownership, it is evident that free-market ideology has clouded creative ideas from view. Above all, it is important to note that many of these new institutional forms do not depend on progressive taxation.

All of this takes us back to Schumpeter: Even as we experience the fallout of failing political strategies, the really interesting project is to think through the architecture of what can only be called a different system. The modern corporation was itself a new invention a hundred years ago. If ever achieved, the "something different" of the new century--involving capital-ownership structures different from both free-market capitalism and state socialism--would have to be built on both theoretical investigations and the lessons of experience. It is not too early to begin thinking about how to mix worker, community, individual, and public or quasi-public forms of capital ownership. Indeed, the slow but steady expansion of enterprises devoted to separating capital from corporate capitalism cries out for such thinking. Books like The Stakeholder Society, viewed as contributions to an emerging dialogue rather than as immediately realizable proposals, help us to rise to this large and very difficult challenge. If there is a genuine "Third Way," it begins right here. •

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