Fair Shares

The New Republic, October 21, 1972

Legislators cannot invent too many devices for subdividing property.

—Thomas Jefferson

SOMETIMES, LATE AT NIGHT, I think of the American economy as an immensely complicated electronic switchboard, with wires running every which way. At the bottom of the switchboard are two terminals for each American, one for receiving electrical impulses (i.e., income), the other for emitting impulses (i.e., expenditures). When current races through the switchboard, the economy is in full swing. The higher the voltage, the higher the GNP.

Now, not all the terminals are equal. The vast majority of us are connected to single copper strands, but a small minority — the ones who own the most wealth — are attached to thick coaxial cables. Their cables fan out in all directions, hooking up with numerous black boxes (corporations, banks) which in turn are tied into millions of individual expenditure terminals.

A number of insights can be drawn from this cybernetic imagery. First, the beauty of wealth is that it sucks money through your input cable from all over the place. Say you own a share of GM stock. Every time an person, anywhere on the planet, purchases a GM product, a tiny electrical impulse will find its way through the wires and black boxes and emerges at your income terminal. The more wealth you own, the more impulses will arrive at your income terminal from more places.

Another observation that can be made, based upon statistical studies of wealth distribution, is that though the arrangement of wires within the switchboard can occasionally shift, the distribution tends to remain remarkably rigid. This means that, even while there are upsurges and down-surges of voltage, the great bulk of energy within the system flows along the same circuits to the same terminals in roughly the same proportion.

The trouble with most economic policymaking in recent years is that it has concentrated too much on increasing the voltage of our economy and not enough on distributing its energy. This concern for high voltage has not been for naught; it has guided us to an economy that provides jobs, physical comfort and some opportunity for upward mobility to millions. But it is a strange and unsatisfactory kind of affluence that it has given us. While a small minority siphons off more money than it knows what to do with, a fifth of the population remains perennially poor, and millions more teeter on the edge of poverty. Ever-increasing production has not, by itself, corrected this and is unlikely to do so in the future; it is more likely to choke us to death on junk and waste. Instead of the old Kennedy exhortation — we can do better — we need a new prod: can’t we share better?

THERE IS A LOT to be shared. The total personally owned wealth in the United States is about $4 trillion. That amounts to around $20,000 for every man, woman and child, or about $70,000 for the average family. Yet only about one family in twenty-five owns that much.

On top of this personally owned wealth base, the economy poured out $800 billion in personal income in 1970. That works out to approximately $14,000 per family, but three out of four families got less.

Various improvements have been tried. Billions of dollars have been spent on education, at least partially in the belief that education would narrow the gap between rich and poor. Billions more have been spent on housing, health, anti-poverty and welfare programs, to compensate for, if not correct, the private economy’s distributive failings. There is a nominally progressive income tax, and even a mild inheritance tax. Yet about the only things that have measurably lessened economic inequality during this century were the Depression and World War II, neither of which commends itself as an experience worth repeating.

What’s the matter, then? On the one hand, ownership of wealth is rewarded more generously by the economy (remember that switchboard) than is labor. This would not in itself be a bad thing were it not for the other half of the problem: ownership of productive wealth is highly concentrated in the hands of a few, and seems inclined to stay that way. This analysis of the problem points to three types of non-socialist remedies: either reward labor as generously or more generously than wealth, figure out a new basis for rewarding people who don’t own wealth, or distribute wealth itself more equitably. A socialist alternative, which is beyond the scope of this article, would abolish private ownership of the means of production, substitute state ownership and distribute income on the basis of labor and/or need.

Let’s look at the three non-socialist remedies. The first approach, increasing the rewards for labor, suggests several possibilities, including collective bargaining for higher wages. This is the path the trade union movement has chosen, and it has achieved some gains. The share of national income that went to labor in 1970 (75 percent) was considerably higher than its share in 1929 (59 percent). This increase has something to do with the mushrooming number of government jobs, as well as with greater union bargaining strength, but there can be no doubt that the relative position of unionized labor has markedly improved since the 1930s. But this approach leaves out millions of workers who are not in unionized industries, and whom the unions seem either unwilling or unable to organize.

Attempts to increase the rewards of underpaid workers through minimum wage laws, while useful, help only to a limited degree. Massive public service employment, at wage levels designed to drive up the wage structure of private industry, would be more helpful, but would still not significantly increase labor’s reward relative to wealth’s.

Conceivably the tax code could be a vehicle for equalizing the rewards of labor and ownership, but at present the tax laws aggravate the inequities created by the private economy. Income earned from labor is stiffly taxed by the federal government, while unearned income from wealth enjoys a vast array of preferences and loopholes. Comprehensive tax reform could remedy this by providing what tax economists call horizontal equity — equal taxation of income regardless of source— as well as vertical progressivity. In addition, the states and federal government could impose an annual tax on wealth itself, similar to the tax on real property, but progressive rather than flat rate. Several Western European countries, notably Sweden, impose such a tax, and a number of American states tax intangible property (stocks, bonds, bank deposits, etc.), albeit very lightly.

The second broad approach to income sharing — devising new techniques for rewarding people who don’t own wealth — builds upon the notion that workers and consumers are entitled to a share of the unearned income that currently accrues to wealth owners alone. Corporations might be required to share profits with consumers, for example: each purchaser of a GM automobile might receive a rebate at the end of the year, much as cooperatives give rebates to their members. Or the same principle could be applied to workers, as many corporations have already done to top executives (i.e., those big bonuses managers receive when the company has a good year, and sometimes when it has a bad year). In a limited way this process has begun in the form of profit-sharing plans, which cover some eight million Americans, but the share of profits allocated to workers under such plans is generally only one-sixth the share allocated to stock holders.

As a practical matter, it might be simpler to redistribute unearned income through the federal Treasury, rather than through a multitude of corporate treasuries. This would require a tax system that, at one end, effectively tapped unearned income, and at the other end paid out appropriate amounts. This is, in principle, what George McGovern once proposed, and not too far from what conservatives such as Milton Friedman have suggested. The basis for receipt of income under this sort of system would not be wealth ownership or even labor, but citizenship and need.

In this sense such plans — including Richard Nixon’s proposed Family Assistance Plan — represent a departure from traditional capitalist principles of distribution. In another sense, they scarcely tamper with the private economy at all. They accept the existing concentration of wealth and leave the economy pretty much as it is. Then they skim off some cream and spread it around to more people.

The third approach to economic sharing is, in concept, simplicity itself. Since wealth is inherently more income-producing than labor, and since every American’s dream is to own wealth, why not distribute wealth? Exponents of this approach come from all corners of the political ring. Among them are Louis Kelso, a San Francisco attorney and financial consultant, who is either very radical or very conservative; John McClaughry, a former White House aide under President Nixon; and Robert Browne, director of the Black Economic Research Center, all of whom deserve much more attention than they have received.

Kelso’s proposal can be briefly explained. During the next twenty-odd years, the GNP of the United States will double. This “second economy” can be built atop the same narrow ownership base as the present economy, or it can be built upon a base of new wealth owners. If the economy is left to its own devices, the former will occur. If, however, everybody is enabled to acquire stock in the second economy, then within a couple of decades a genuine “people’s capitalism” will emerge. There will still be corporate profits, unearned increments and capital gains, but they will be reaped by the many rather than the few.

The means by which the new wealth-owners will acquire their stock is the same means by which they now acquire cars and color TVs: credit. The difference is that stock, unlike color TV, is self-financing — it produces income which can be used to pay back the loan. The role of the federal government in all this will be to help establish the credit mechanisms, induce existing corporations to issue new equity, and then sit back and let the economy roar. The government of Puerto Rico is starting to do this on a smaller scale.

In contrast to negative income tax plans, Kelso’s proposal requires no alteration of the capitalist distributive maxim, “to each according to his ownership and labor,” which is probably more deeply ingrained in America than “to each according to his need” could ever be. It would, however, add millions of wires to the economic switchboard and offer possibilities for worker control through majority stock ownership (although the latter is not one of Kelso’s objectives).

Future wealth ownership could also be dispersed through a proliferation of cooperatives and community-owned development corporations, assisted by federal financing and tax preferences. Just as important as dispersing future ownership is breaking up existing concentrations of wealth through steeply progressive and escape-proof wealth and inheritance taxes. In addition, we could recognize that we are no longer a nation of pioneers and establish a reasonable limit on the amount of wealth that any individual can appropriate from society within his lifetime. Such a ceiling would accord with Andrew Carnegie’s belief that persons of wealth should live unostentatiously, provide moderately for their dependents and return all surplus revenues to the community through philanthropy, except that in this case the philanthropy would be involuntary.

NEEDLESS TO SAY, very few of those who are privileged in America view their wealth as belonging to the community from whence it came. There is, and always will be, intense opposition to any and all proposals to share wealth and income more equitably. As weapons in the war against equality, the privileged wheel out a panoply of public-spirited arguments, the most respectable of which is that “incentives” must not be impaired. According to this line of reasoning, both the poor and the rich would be less inclined to serve society if affluence were better shared. In the case of the poor, it is poverty that makes them perform unpleasant work. As for the rich, it is fat dividends, stock options and capital gains that induce them to take risks, invest, accumulate more wealth, and otherwise advance the public interest. The incentives argument fits nicely with the “dead goose” argument: improving the distribution of goods will undermine the production of goods, i.e., kill the goose that lays the golden eggs.

There is some truth to the incentive argument under present conditions, but we ought to examine the argument itself, and the possibilities for changing present conditions, a bit more closely. People are motivated to perform distasteful tasks by their need to eat, but paying more for the most unpleasant jobs and reducing the hours allotted to them seems a better way to go about things than preserving poverty as an incentive. At the other end of the economic scale, the notion that vast rewards are needed to lure capital owners and managers into beneficial behavior is open to debate. It is quite possible that the reverse is true: that socially desired behavior can be better attained by raising taxes or reducing profit margins, so that those who enjoy accumulating riches will have to strive even harder for their rewards. A wider distribution of wealth itself would not, in any case, mean lower profit margins.

The “dead goose” argument is equally open to question. It is more likely that its converse is true, that improving distribution will increase production by putting more purchasing power into the economy. At the least, it is highly improbable that better distribution and continued growth are as mutually exclusive as the “dead goose” theorists proclaim.

The real problem is not to win arguments but to effect change, and at this point the obstacles seem well nigh insuperable. The foremost obstacle, as Senator Fred Harris of Oklahoma has observed, is that a symbiosis has developed between big wealth owners and politicians that is even more insidious than the spoils system of the 19^th century. In the old days, the quid pro quo for someone who worked for a successful candidate was a job on the government payroll. That, at least, was a system that rewarded labor. Nowadays the system works almost entirely on behalf of wealth. Owners of wealth contribute to political campaigns — oftentimes to opposing candidates — and in return receive subsidies, tax breaks and protection against reform. Since the economic system, by itself, will not distribute wealth more equitably, a political shove is needed; but since political power is so intimately an outgrowth of economic power, the vicious circle is seemingly unbreakable.

YET IT IS TOO EARLY to give up hope. Campaign financing reform could, conceivably, weaken the spoils system of wealth, as civil service reform put an end to the spoils system of labor. Movements to distribute wealth have achieved some modest victories in the past, and can provide some inspiration for the future. The Homestead Act of 1862, coming after half a century of agitation, was a wealth distribution measure, as were the 16^th Amendment, authorizing a federal income tax, and the wartime excess profits taxes.

It’s worth noting that, four years from now, the American republic will celebrate its 200^th year of independence, not just from England but from the feudal system of inherited privilege. It might be well to ponder at that time whether we have not, during those two centuries of independence, created a new kind of feudalism. Do we have an aristocracy of wealth and a permanent underclass of poverty? Must the distribution of wealth be accepted as an unalterable given? Can it not be put to a political test? These are questions that ought to be debated between now and 1976.

The way in which a society shares the fruits of its land and resources is the most fundamental of all determinations it must make, and especially is this so in a democracy. Perhaps some day Americans will recognize what we have become — an extraordinarily productive society marred by rigid and needless inequality — and agree on what we can become — a democracy that fairly shares what it produces.