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Issue No. 19 (November 2000) -- Mark Satin, Editor
election will shame
Did you feel as ashamed of being an American as I did watching the presidential debates this fall?
Here we are, with 45 million Americans lacking medical care and other necessities, with after-tax income of the middle 60% (the “middle class”) plummeting to its lowest point since 1977 -- and neither candidate had the fortitude to raise the overriding issue: How to better share our wealth in the information age.
Both candidates talked cynically about prescription drug coverage for mostly middle-class seniors (a huge voting bloc in Florida). They argued emptily about social security lockboxes vs. social security fiddling-at-the-margins, tax cuts for the “right people” (sorry, singles) vs. tax cuts mostly for the rich.
And all the media “watchdogs” -- from the New York Times to Slate to MSNBC -- let them get away with this soul-destroying superficiality. In top-drawer journalism today, being cleverly with-it isn’t everything, it’s the only thing.
The whole spectacle literally made me sick.
Maybe the election will shame the American people into thinking about how to appropriately share their wealth in the new world we’re entering . . . a world in which an “overclass” of 20% of the population (professionals, managers, entrepreneurs) threatens to essentially secede from the rest of society.
For those of us with the fortitude to think about sharing America’s wealth in new ways, a galaxy of imaginative proposals beckons. . . .
For the first time in four decades, Americans have been talking about how to intelligently share their wealth.
Just beneath the radar screens of the mainstream media, from the hallowed halls of Harvard to the scruffy halls of ACORN offices, scholars and activists have been revising old wealth-sharing ideas or proposing new ones.
At least six such ideas are ready to fly . . . if their champions can get them off the ground.
Toward a basic income
The guaranteed income was a hot new idea in the 1960s, assiduously promoted by Robert Theobald and other young turks. But it never went anywhere.
Today’s basic income proponents are more market-friendly than most of their Sixties counterparts. And they’re using arguments that are more pragmatic (even their term-of-choice, “basic income,” is less incendiary than the term “guaranteed income”).
For the last three years, Research Associate Karl Widerquist has been doing yeoman work on the basic income at the Jerome Levy Economics Institute in Annandale-on-Hudson, N.Y.
In his policy papers (#245 and #289 at www.levy.org), Widerquist provides reams of evidence that “interest in [the basic income] is again gaining” -- in part because it’s seen as a poverty-precluding mechanism. The new advocates are calling for smallish basic incomes that would deter (or at least ease) poverty, not middle-class-like guaranteed incomes.
One typical proposal calls for a basic annual income of $8,000 for each adult and $2,000 for each child. Another calls for $4,000 per person.
Perhaps the best-known member of the new generation of basic income advocates is Philippe Van Parijs. Educated at Oxford and Berkeley, he started working on the topic on a commune in 1977 . . . and is still working on it as a professor-activist at Louvain University in Belgium.
Like Widerquist, Van Parijs is long past imagining that a basic income would turn us all into wonderful people. He’s interested in freedom, efficiency, and ecology, not in the New Person.
“The freedom we need to be concerned with is not just the freedom to choose among [products],” he says in his scholarly clarion call, Real Freedom for All (1995). “It is the freedom to choose among the various lives one might wish to lead.”
A good capitalist, Van Parijs thinks the basic income can make the high-job-turnover, information age economy more efficient: “With a basic income, individuals could go through repeated and protracted periods [during which they learned] new skills. [And] there would be less [need for government programs like] minimum wage legislation.”
Van Parijs also sees the basic income as fundamental for ecologists. To the extent the basic income “encourages simple living,” he says, it would slow down the “spread of significant environmental externalities.”
In the U.S., the Green Party supports the basic income. Its platform calls for “a graduated supplemental income, or a negative income tax, that would maintain all individual adult incomes above the poverty level, regardless of employment or marital status” (www.gp.org).
Toward "universal capitalism"
Universal capitalism does what the basic income would do, provide us with substantial amounts of money each year -- but with one major twist.
While basic income advocates would raise the money through the tax system, U.C. advocates would raise the money by using the credit system to provide us with proceeds from corporate stock.
In his important essay “The Quest for Universal Capitalism in the U.S.” (in 21st Century Economics, 1999), Villanova University economist Kenneth Taylor traces the modern U.C. idea back to the the work of Louis Kelso in the Fifties.
“Given that labor is a diminishing factor of production related to capital,” Taylor says, summarizing Kelso, “economic democracy can be achieved only by increasing the number of individuals who . . . earn income through their ownership of capital.”
Key problem for U.C. advocates is how to put capital in people’s hands. There are many possibilities.
Stuart Speiser, dean of today’s U.C. advocates, would have the government mandate the cooperation of the nation’s 2,000 largest corporations.
To raise any and all new capital, these corporations would be required to “issue shares of [their] stock at market value,” Speiser told this reporter. “Each year these shares would be pooled in a sort of mutual fund. . . .
“A government-guaranteed long-term loan program would be [established] to pay for the shares. In effect, you would be using the credit power of [the 2,000 corporations] to acquire shares of stock -- just as the corporations now use their credit power to acquire further capital ownership for their shareholders! . . .
“Shares would be parceled out to [all eligible households]. Every household would receive a piece of every company; there would be no losers if one of the 2,000 companies did poorly.”
Many scholar-activists in the Society for the Advancement of Socio-Economics (RAM #7) support something like Speiser’s plan. But most of them wouldn’t mandate corporate participation -- they’d make it so attractive that most big corporations would choose to participate.
Robert Ashford, co-author of Binary Economics (1999), is a spokesperson for the socio-economics movement. He’s proposed a government-run Constituency Trust that would acquire new stock from up to 3,000 major corporations . . . and provide cash payments from the dividends to all Americans.
Although Ashford’s plan leaves more wiggle-room for corporations than Speiser’s, the guiding idea is the same. If corporations can acquire capital “on the market-tested expectation that the capital acquired will buy itself,” says Ashford, then with a little government ingenuity, all Americans should be able to collectively acquire corporate stock by paying for it “out of the earnings of the assets acquired.”
Business consultant Jeff Gates, author of Democracy at Risk (2000), would use a wealth tax to fund universal capitalism. His model: Huey Long’s “Share Our Wealth” proposal from the Thirties.
Long wanted to impose a “capital levy” on family fortunes in excess of $5 million. Gates wants to impose a levy on fortunes in excess of $62 million ($5 million in 1999 dollars).
Long wanted to turn that wealth in the form of corporate stock “over to a corporation that, in turn, would issue its stock for distribution ‘among the peoples according to any plan deemed suitable by the Congress.’” Gates wants to do the same.
And he’s in it for the long haul: He’s just set up the Shared Capitalism Institute in Atlanta to promote his proposals (www.sharedcapitalism.org).
Toward a "living wage"
Some of the six wealth-sharing proposals are already gaining ground at the local level. Take the “living wage.”
Recently, a living wage movement has arisen in cities and counties from coast to coast. Living wage laws (albeit timid and primitive ones) have been passed in Boston, Minneapolis, Portland (Ore.), and elsewhere, and living wage campaigns are underway in at least 70 other places.
The movement comes fully equipped. It has a sort of bible in The Living Wage: Building a Fair Economy (1998), by Robert Pollin and Stephanie Luce, both at U. Mass.-Amherst. It has the backing of staffers at the Economic Policy Institute, a respected Washington, D.C. think tank (www.epinet.org).
Most important of all, perhaps, it’s been taken up by the Association of Community Organizations for Reform Now (ACORN), the largest organization of low-income people in the U.S. today, with 100,000 members in 30 cities (www.livingwagecampaign.org).
The “basic premise” of the living wage campaign is nicely set forth by Pollin and Luce: “[A]nyone in this country who works for a living should not have to raise a family in poverty.”
To that end, activists have been fighting for what they call “living wage ordinances” at the municipal level.
“A living wage ordinance requires employers to pay wages that are above federal or state minimum wage levels,” says EPI labor economist Jared Bernstein.
“Only a specific set of workers is covered by living wage ordinances, usually those employed by businesses that have a contract with a city or county government, or those that receive economic development subsidies from the locality.”
Why aren’t living wage activists simply fighting for a higher national minimum wage? For Pollin and Luce, it’s a matter of tactics: At the national level, “the capacity of business to mobilize money and lobbying clout carries greater weight.”
But for other activists (including the more “radical middle” ones), it’s a matter of principle. Since socio-economic conditions vary significantly from place to place, it’s less disruptive -- and more “ecological” -- to call for different living wages in different places.
“Many campaigns have defined the living wage as equivalent to the poverty line for a family of four -- currently $8.20 an hour,” says ACORN’s Jen Kern. “But ordinances have passed ranging from $6.25 to $11.42 an hour.
“[And, i]ncreasingly, living wage coalitions are proposing other community standards . . . such as health benefits, vacation days, community hiring goals, public disclosure, community advisory boards, environmental standards. . . .”
Toward public-sector jobs
With passion, clarity, and scholarly panache, the National Jobs for All Coalition (www.njfac.org) has taken the lead in calling for public-sector jobs for all able-bodied, unemployed Americans.
Michael Yates, an economist at the University of Pittsburgh-Johnstown, captures the Coalition’s mission nicely when he says it’s “dedicated to the propositions that meaningful employment is a precondition for a fulfilling life and that every person capable of working should have a right to a job.”
The Coalition may have started out as a rag-tag assemblage of the usual far-left suspects. But it’s blossomed into a truly broad-based coalition, with former Labor Secretaries Ray Marshall and Robert Reich on the Advisory Board, and professional organizations like the American Public Health Association and the National Association of Social Workers lending their support.
“Whenever there are fewer job vacancies than unemployed workers,” the Coalition says in its major policy statement, “an employment program should be established with federal or state funding to guarantee jobs for welfare recipients and all other unemployed persons. . . .
“The mix of full and part-time jobs should attempt to reflect the qualifications of the unemployed and to provide useful services to the community.”
A galaxy of policy papers issued by the Coalition (all available at its website) fleshes out these goals.
“Much needs to be done that a public employment program can do,” says Cal State-San Bernardino economics prof Nancy Rose in paper #16. “[For example,] repairing crumbling roads and bridges, building a high-speed railroad system, [supervising] recreation programs for teens, and adding teachers’ aides to classrooms.”
We could create jobs for all without a massive overall increase in government spending, says Rutgers-Camden law prof Philip Harvey in the brilliant paper #14.
“Such a program would [cost about $225 billion a year],” Harvey explains. “$225 billion is not chicken feed. Yet, according to my calculations, this cost would be offset almost entirely by lower government costs and increased revenues resulting as people moved from unemployment to jobs.
“Begin with taxes. About 20% of program costs would be immediately recouped through increased income tax and Social Security tax payments by program participants. Another 60% would be covered by funds [otherwise spent] on unemployment compensation and means-tested income assistance. . . .
“The job program’s remaining funding deficit would average only 20% of total program costs -- $43 billion per year. [And that] amount assumes that everything the program produces would be given away for free!
“If anything at all were charged for the goods and services produced, the program’s funding needs would be reduced, very possibly to less than zero.”
Toward employer subsidies
One alternative to the living wage movement and providing public jobs is giving subsidies to private employers. In return for subsidies, employers would agree to increase low wages, hire previously unemployed workers, or both.
Amazingly, this rather obvious idea is just getting off the ground. Its most prominent spokespeople are Edmund Phelps, chaired professor of economics at Columbia U., and Robert Haveman, chaired professor of economics at U. of Wisconsin-Madison.
Phelps is a world-famous economist (he may yet win the Nobel Prize for his concept of the “natural rate” of unemployment), but rather than waste his old age gathering accolades, he launched a new project in the mid-1990s -- developing what he calls “a scheme to subsidize employment of low-wage labor in order to pull up the wage rates and employment rates of the working poor.”
One key aspect of the scheme, Phelps says in his elegant book Rewarding Work (1997), “is that the government makes periodic contributions to reward employment of workers in eligible low-wage jobs at qualified enterprises.”
Essentially, Phelps wants the government to provide $3-an-hour subsidies to workers earning $4 an hour, $2.29-an-hour subsidies to workers earning $5, $1.65 to workers earning $6, and so on up the line.
To discourage cheating, he’d have the subsidies “take the form of tax credits against the firm’s payroll tax, corporate income tax, or other tax liabilities.”
Professor Haveman proposed a comparable scheme in the Boston Review (Summer 1997, available online at bostonreview.mit.edu). “[I]t would make hiring low-skilled workers a more profitable and attractive proposition than it is now,” he explains.
“The first component is an . . . Employment Subsidy. It would provide financial incentives to employers who hire low-skilled workers over and above the numbers they would otherwise hire [-- say, a tax credit] equal to 50% of the first $10,000 of wages paid to the 50 workers hired in a firm above 102% of the firm’s previous year’s employment. . . .
“The [other component is a] wage rate subsidy program . . . for low-skilled and hence low-wage workers. Some portion of their wages would be subsidized by the government.”
Perhaps because Phelps’s and Haveman’s ideas don’t have the anti-establishment ring of the other ideas above, no U.S. activist organization is championing them yet.
However, the Organization for Economic Cooperation and Development, based in Paris, recently sponsored a talk by Haveman and papers by Phelps, John Greenwood, and other advocates of what everyone there was calling an incipient global movement “to make work pay” (www.oecd.org).
Toward "self-help accounts"
The most imaginative new wealth-sharing proposal is for a system of what I like to call “self-help accounts” (and others like to call “individual development accounts,” “endowment accounts,” “stakeholder accounts,” “citizen asset trust funds . . .”).
Heart of the proposal is to give all Americans a substantial amount of money at one or more key points in their lives. If done right, every American would have at least one chance to succeed in life. And other kinds of social spending might decline dramatically.
Michael Sherraden, professor of social development at Washington University in St. Louis, should probably be credited with the genesis of this idea.
Like most of the other thinkers I’ve quoted above, he’s in the establishment but not entirely of it. One of his books studies non-military service in nine nations; his pioneering book on self-help accounts, Assets and the Poor (1991), opens with an epigraph from Billie Holiday (“Mama may have, Papa may have, / But God bless the child that’s got his own”).
“Individual development accounts (IDAs) would be . . . earnings-bearing, tax-benefited [and] initiated as early as birth,” Sherraden says. Anyone could participate.
“[D]eposits would be permitted only under certain circumstances and would have specified limits. For example, [f]or each completed grade of primary and secondary schooling, a deposit of up to $500 would be permitted. . . .
“Certain IDA deposits would be subsidized for impoverished families [though] some level of matching funds would always be required from the poor. . . . Most subsidies would come from the federal government[; h]owever, federal subsidies could be matched at state and local levels, and participation by the not-for-profit and for-profit sectors would be actively encouraged. . . .
“Young people would be given information about their IDA accounts from a very early age [and] financial planning would be incorporated into the public school curriculum. As a result, education in the handling of financial assets . . . would be democratized. . . .
“IDA accounts would be set up only for long-term goals [-- post-secondary education, job training, starting a business, retirement planning, etc.]. If withdrawn for other than designated purposes, all subsidized deposits and the earnings on those deposits would revert to the [government].”
Many of the more recent proposals for self-help accounts have been less restrictive than Sherraden’s. Take the proposal by Harvard economist Richard Freeman in his book The New Inequality (1999).
“Imagine,” says Freeman, “if instead of being promised at birth that you will get a Social Security pension decades in the future, you were given a [citizen asset] trust fund based on bonds or stocks whose returns would constitute your social transfer.
“Such a fund would give citizens a share of the nation’s capital endowment. . . . The incompetent poor would then be more like the incompetent rich: they would have income from assets that would let them live at some basic level, without depending on [further] income transfers.”
In an article in the American Prospect (July-Aug. 1998, www.prospect.org/archives), economist Robert Kuttner comes up with a satisfying mix of Sherradean oversight and Freemanian generosity.
“[E]very American child would get $5,000 at birth,” Kuttner says. “In other words, each American child would have a nest-egg of real wealth.
“For low-income children, the government would add $1,000 every year of childhood. Middle-income families would get a tax deduction for annual contributions of up to $1,000 per child. [W]ith normal investment returns and compounding, about $50,000 would accumulate by the time the child turned 18.
“[H]alf of this accumulated money could be spent on college tuition. . . . At age 30 or beyond, two-thirds of the residue could be spent on home ownership and/or lifetime education and job training. . . . Beginning at age 60, the residue could be withdrawn to supplement other savings for retirement. . . .
“This program of endowment accounts, which would cost on the order of $50-75 billion a year, could be financed by the projected budget surplus, supplemented by a lifting of the cap on income subject to Social Security tax and a surtax on very large incomes and estates.”
No U.S. activist organization has made self-help accounts its “cause,” though that’s probably just a matter of time.
Sherraden has started an ambitious pro-IDA think tank at Washington U. called the Center for Social Development, Freeman’s book includes a preface by the founder of the New Party (www.newparty.org), and the Corporation for Enterprise Development has had considerable success promoting stripped-down, experimental versions of Sherraden’s IDA at the local level (www.cfed.org).
Community in the balance
It should go without saying that none of the proposals above is perfect. Each needs work.
The first two proposals (basic income, universal capitalism) are extremely generous -- some might say too generous. They’d give us income or wealth simply because we’re alive -- by right of existence -- “because we’re all fellow humans.”
On the one hand, these proposals would give each of us maximum freedom. On the other hand, they’d strip us of responsibility for standing on our own two feet.
And we shouldn’t overlook the results of the notorious HEW-sponsored “pilot tests” of the guaranteed income in Seattle and Denver in the 1970s. Philip K. Robins et al., eds., A Guaranteed Annual Income (1980), is the standard account, and I’ve got to admit it makes sobering reading.
The guaranteed income encouraged people to stop working altogether -- not just at first, but in increasing percentages as the years went by. It encouraged poor people to have more children. And instead of stabilizing families (the great hope of HEW’s bureaucrats), it triggered more separations and divorces.
(Of course, from people’s own perspectives, all these behaviors may have enhanced their happiness.)
The other four proposals -- for a living wage, public jobs, employer subsidies, and self-help accounts -- are different from the basic income and universal capitalism in a fundamental way: They wouldn’t give us something for nothing.
They’d give us income or jobs in exchange for some expression of citizenship (making intelligent life choices or being willing to work); they’d give us income or jobs “because we’re all fellow citizens.”
But they have their own problems.
In The Stakeholder Society (1999), Bruce Ackerman and Anne Alstott -- proposers of the largest self-help account of all (see RAM #1) -- touch the Achilles’ heel of the living wage proposal when they say, “While modest [wage] hikes might not be too harmful, the big increase needed to make a real difference -- say, a raise of three dollars an hour -- could have catastrophic consequences on the demand for low-skilled labor.”
Ackerman and Alstott are no more enamored of the proposal for making government the employer of last resort: “[T]here is simply too great a danger that a jobs program would promote corruption and political patronage.”
Living wage and public jobs advocates have deep concerns about employer subsidy proposals.
“These subsidies are public policy acquiescence to the private sector’s unwillingness to pay a living wage,” say Arnie Graf and Jonathan Lange of the Industrial Areas Foundation (in an afterword to the Haveman article, above). “[T]he public subsidizes the corporate sector while millions of workers remain marginalized in a calcified low wage labor market!”
Even the self-help account proposals are open to criticism. Freeman’s super-generous version borders on being a guaranteed income; Sherraden’s and Kuttner’s more constrained versions must deal with Ackerman and Alstott’s disdain for “programs that require [people] to justify their lives to a government bureaucrat.”
If you want to be cute about it, you can call the first two proposals in this article “radical,” the second two “radical left” and the last two “radical middle.” It’s safe to say I prefer the last two.
But I prefer any of them to any of the wealth-sharing proposals we heard during the election campaign (free prescription drugs and the like).
The Democrats’ and Republicans’ proposals -- miserly, short-sighted, cynical -- helped divide the electorate into competing groups and poison the sense of community in this country. Any of the six wealth-sharing proposals above could kick-start us toward a common future.
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