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Your Stake in America
Americans have always had an uncertain love affair with equal opportunity. We believe in it, we know it really doesn't exist in today's world, and yet we have learned to live comfortably in the gap between ideal and reality. After all, aren't all ideals elusive?
Perhaps unequal opportunity was easier to accept when a booming economy guaranteed that children from every class did better than their parents. Even if lower-class kids still ended up near the bottom, they had a sense of participating in the general upward movement. But those halcyon days are over. Although the economy as a whole continues to prosper, the last generation's vast increase in wealth has utterly failed to "trickle down" to the overwhelming majority of Americans. The indisputable fact is that almost all our newfound abundance has gone to the top 20 percent.
The statistics on income and wages are no less grim. Since the early 1970s, the average family's income has grown little, and the typical male worker has seen his real wages decline. Only the entry of vast numbers of women into the labor force has produced meager gains in median Family income. In contrast, real wages for college graduates have continued to go up. By the mid-1990s, the top 5 percent of American families received 20 percent of total incomea larger share than at any time since 1947.
These economic disparities are profoundly shaping the future of the next generation. Rich kids get a big head start in lifethey go to the best schools, the best colleges, get generousfinancial help from Mom and Dad, and eventually receive a tidy inheritance. But things look different at the bottom, where an increasing proportion of children live out their early years. In 1996, children represented 40 percent of all Americans living below the poverty linebut only one-quarter of the total population. We are reaching the point of no return: it is one thing to tolerate a gap between ideals and reality, quite another to allow the ideal to disappear from our moral horizon. Do Americans believe in equal opportunity anymore?
There is only one way to find out, and that is by offering a range of serious proposals that might revitalize our collective commitment. In this neoconservative age, it is all too easy to assert that nothing practical can be done. Isn't increasing inequality the price we pay for progress?
Our answer is no. If America drifts away from the promise of equal opportunity, it is not because practical steps are unavailable, but because we have lost our way.
In developing our vision of the stakeholder society, we also challenge some familiar platitudes of the Left. Instead of focusing on the widening economic gap, American liberals have been increasingly preoccupied with the politics of identity. Insofar as economics has been important, the focus has been on assuring equal opportunity in the workplace. This is a fine goal, but it is not enough. Nor is it enough to redeem the faded promise of Brown v. Board of Education and seek new ways of providing a more equal education to all. We must also recognize that increasing inequality of wealth is endangering our sense of community.
We offer a practical plan for reaffirming the reality of a common citizenship. As each American reaches maturity, he or she will be guaranteed a stake of eighty thousand dollars. Our plan seeks justice by rooting it in capitalism's preeminent value: the importance of private property. It points the way to a society that is more democratic, more productive, and more free. Bear with us, and you will see how a single innovation once proposed by Tom Paine can achieve what a thousand lesser policies have failed to accomplish. Through stakeholding, Americans can win a renewed sense that they do indeed live in a land of equal opportunity, where all have a fair chance.
Our vision of economic citizenship is rooted in the classical liberal tradition. It is up to each citizennot the governmentto decide how she will use her fair share of the nation's patrimony. By putting this ideal of free and equal citizenship at the center of our political economy, we challenge two master themes that have dominated discussion throughout the twentieth century.
The first theme is the maximization of social welfare. This goal provides a ready argument for progressive taxation. Because a marginal dollar is worth more to the poor than to the rich, government should tax the rich at higher rates. The same logic implies a safety net for those whose incomes fall below a minimally decent floor. But these progressive tendencies are held in check by a final factor. Excessive redistribution reduces incentives for production and growth. The big tradeoff, then, is between more equality and more wealth to share.
This familiar conclusion is challenged by a second, and recently resurgent, theme. It proceeds from a libertarian model of society: the government does not "own" society's wealth and therefore has no right to redistribute it. Taxes should be low and welfare spending minimal. People have an equal right to exploit the opportunities that come their way. Freedom comes first, and whenever taxes go up, individual freedom goes down.
We mean to define a third way. Like libertarians, we emphasize each person's right to make the most of his or her opportunities. But we deny that the "invisible hand" distributes these opportunities in a morally defensible way. Like welfarists, we believe in social responsibility. But for us, the central task of government is to guarantee genuine equality of opportunity. Americans who begin life with greater opportunities cannot complain when their tax dollars go toward expanding the life-options of the less privileged. Such a program redistributes opportunities more fairly, permitting all citizens to begin life on a level playing field.
Our proposal for a stakeholder society takes one large step toward this ideal. The program we describe is very different from the status quo, yet it is both realistic and politically attractive. Our reforms are unfamiliar because our goal challenges the existing mix of libertarian and welfarist policies of American government. We hope to displace the tired debate between supporters and critics of the welfare state with a new question: How do we achieve genuinely equal opportunity for all?
We reject the idea that there is an inexorable tradeoff between liberty and equality. The stakeholder society promises more of both.
The Basic Proposal: Stakeholding and Its Responsibilities
As a citizen of the United States, each American is entitled to a stake in his country: a one-time grant of eighty thousand dollars as he reaches early adulthood. This stake will be financed by an annual 2 percent tax levied on all the nation's wealth. The tie between wealth-holding and stakeholding expresses a fundamental social responsibility. Every American has an obligation to contribute to a fair starting point for all.
Stakeholders are free. They may use their money for any purpose they choose: to start a business or pay for more education, to buy a house or raise a family or save for the future. But they must take responsibility for their choices. Their triumphs and blunders are their own.
At the end of their lives, stakeholders have a special responsibility. Because the eighty thousand dollars was central in starting them off in life, it is only fair that they repay it at death if this is financially possible. The stakeholding fund, in short, is enriched each year by the ongoing contributions of all wealth-holders and by a final payback at death.
There are many possible variations on the stakeholding theme. But we have said enough to suggest the broad political appeal of equal opportunity. How many young adults start off life with eighty thousand dollars? How many parents can afford to give their children the head start that this implies?
Stakeholding liberates college graduates from the burdens of debt, often with something to spare. It offers unprecedented opportunities for the tens of millions who don't go to college and have often been shortchanged by their high school educations. For the first time, they will confront the labor market with a certain sense of security. The stake will give them the independence to choose where to live, whether to marry, and how to train for economic opportunity. Some will fail. But fewer than today.
A Common Bond
Turn back the clock half a century and consider a very different America. For most citizens, World War II had marked a great collective achievement for the nation. Both on the battlefront and on the home front, men and women experienced a sense of genuine contribution to a common enterprise of high moral importance. The military draft created a strongly democratic ethos which endured in American life long after the war was over. This sense of common enterprise was sustained during the next era of economic growththrough the 1960s, most Americans really did share in the growing abundance.
But these bonds have unraveled over the past quarter-century. Citizenship is now a largely formal exercise. Voting rights are important, but confer no sense of individual efficacy. Guarantees against discrimination in employment and the like are too thin to generate an everyday sense of common commitment. With the top 20 percent appropriating the lion's share of the nation's economic growth, most Americans no longer share fully in the free enterprise system. If a deep sense of national community is to endure, the next generation will require new institutions that express America's enduring aspirations.
Consider the fate of the GI Bill of Rights, the last great initiative that targeted young adults. First formulated after World War II, it was designed to provide citizen-soldiers with the funds needed to go to college, start a small business, or buy a home. While its direct benefits went mostly to men, it shared the universalistic aspirations of stakeholding, seeking to redeem America's promise of freedom in concrete terms. But after half a century, the meaning of the GI Bill has changed in the context of a professional military. It has become an employee benefit, not an expression of common citizenship.
Conventional forms of worker protection cannot be expected to fill this gap. Our current social security system reflects the traditional ideal of lifelong employment at a decent wage, with a safety net for occasional unemployment, catastrophic disability, and eventual retirement. That is a pretty picture. But it is no longer a reality for most American workers. The college-educated workforce is doing better than ever, but the least-skilled workers face a labor market that promises high unemployment and poverty-level wages. For this group, traditional social insurance provides very little economic security. And the future promises more of the same: free trade, global capital markets, and technological change are likely to hold down blue-collar wages in the United States. While it may be politically popular for pundits on the Right to deny this fact, it is far more constructive to confront it. How can we reconcile free trade and open markets with real equality of opportunity?
Through stakeholding. Our initiative does not seek to reverse world economic forces. It fully endorses the open economy and the great wealth made possible by the worldwide division of labor. But it insists that the American political community is strong enough to shape this wealth for its own purposes. Is America more than a libertarian marketplace? Can we preserve a sense of ourselves as a nation of free and equal citizens?
As young adults receive their stakes, they will have little doubt about America's answer to this question. As they come forward to claim their eighty thousand dollars, each of America's children will do more than gain the ability to shape their individual destinies. They will locate themselves in a much larger national project devoted to the proposition that all men are created equal. By invoking this American ideal in their own case, they link themselves not only to all others in the past who have taken steps to realize this fundamental principle but also to all those who will do so in the future.
To be sure, there are risks as well as rewards. Are twenty-somethings really up to the task of responsible stakeholding? Can they be trusted to invest the money wisely in themselves, their families, their businesses, and their communities? Won't they fritter away the nation's patrimony on drugs and decadence?
We will be discussing ways to structure stakeholding to enhance the prospect of responsible decision-making. For example, no citizen should be allowed free use of his eighty thousand dollars without gaining a high school diploma. Nor should he get all the money at once; the stakeholding fund should provide payments of twenty thousand dollars every year or two as citizens move through their early twenties. And so forth.
But it is better to defer questions of program design for now and consider more basic issues of principle.
Beyond the Welfare State
We are trying to break the hold of a familiar vision of the welfare state in America. In this view, modern government has succeeded to the traditional tasks of the churchtending to the old, the sick, the disabled. Like the church, the welfare state is concerned with providing the weak with a decent minimum.
Given this statement of the problem, debate centers on how minimal the minimum should be. Even libertarians grudgingly concede that some vulnerable Americans must be provided with some care some of the time; welfarists push the minimum higher.
We reject the organizing premise of this unending argument. Our primary focus is on the young and energetic, not the old and vulnerable. Our primary values are freedom and equal opportunity, not decency and minimum provision. We do not deny that old-fashioned decency has a role to play, and we will try to define its place later on. For now, it is enough to see that stakeholding is intended not as "welfare reform" but as an entirely new enterprise. Our first concern is not with safety nets but with starting points; not with misfortune, but with opportunity; not with welfare, but with economic citizenship.
From this vantage, it is hardly news that America only promises its children the pursuit of happiness and does not guarantee them success. But it is one thing to make a mess out of your life, quite another never to have had a fair chance. The key question, then, is not whether some stakeholders will fail to make good use of their stake. Some will fail, and in ways that they will come to regret bitterly. The question is whether these predictable failures should serve as a reason to deprive tens of millions of others of their fair chance to pursue happiness.
We say no. Each individual citizen has a right to a fair share of the patrimony left by preceding generations. This right should not be contingent on how others use or misuse their stakes. In a free society, it is inevitable that different stakeholders will put their resources to different uses, with different results. Our goal is to transcend the welfare state mentality, which sets conditions on the receipt of "aid." In a stakeholding society, stakes are a matter of right, not a handout. The diversity of individuals' life choices (and the predictable failure of some) is no excuse for depriving each American of the wherewithal to attempt her own pursuit of happiness.
Nor is it a reason to transform stakeholding into yet another exercise in paternalistic social engineering. In our many conversations on the subject, somebody invariably suggests the wisdom of restricting the stake to a limited set of praiseworthy purposesrequiring each citizen to gain bureaucratic approval before spending down his eighty thousand dollars. Won't this allow us to redistribute wealth and make sure the money is well spent?
This question bears the mark of the welfarist mindset. The point of stakeholding is to liberate each citizen from government, not to create an excuse for a vast new bureaucracy intervening in our lives. If stakeholders want advice, they can buy it on the market. If people in their twenties can't be treated as adults, when will they be old enough?
Admittedly, there will always be some Americans who are profoundly unequal to the challenges of freedom. It would be silly to suppose that victims of profound mental disability were capable of managing their eighty thousand dollars on their own. More controversially, we would also deny full control over their stakes to Americans who cannot demonstrate the self-discipline needed to graduate from high school. We agree, alas, that more traditional forms of bureaucratic control may be needed to deal sensibly with these tough cases. But we refuse to allow trendy talk of "underclass" pathologies to divert our attention from another and equally pressing problem. Quite simply, there are tens of millions of ordinary Americans who are perfectly capable of responsible decision-making in a stakeholding society but are now becoming the forgotten citizens of our globalizing economy.
We are speaking of the ordinary Joe or Jane who graduates from high school or maybe a two-year college and who then confronts an increasingly harsh labor market. For this enormous group, stakeholding will provide a priceless buffer against the predictable shocks of the marketplace. A temporary economic setback will no longer quickly spiral into a devastating loss of self-confidence or a grim period of deprivation. The stake will provide a cushion in hard times and a source of entrepreneurial energy in better ones.
In emphasizing these ordinary Americans, we do not wish to belittle the importance of stakeholding for those at the top and the bottom of our economic hierarchy. For the top quarter of the population, those graduating from four-year colleges, stakeholding will not only eliminate the crushing burden of student loans. It will also inject much-needed competition among universities for the stakeholding dollar, generating a more responsive and effective system of higher education. For those growing up in the ghettos of America, stakeholding will provide a beacon of hope: stay in school and graduate, and you will not be forgotten. You will get a solid chance to live out the American dream of economic independence.
But stakeholding's message will have a special salience to the broad middle group of Americans, who constitute about two-thirds of the entire population. After all, existing governmental programs already heap large educational subsidies on those who can successfully negotiate the challenges of four-year college; even in today's conservative climate, we have not entirely given up on special programs that address the needs of ghetto youth. But at present, ordinary Americans really are forgotten Americans. After they leave school, they confront the market without much to fall back on. While stakeholding offers economic independence for all, its promise will have special meaning to middle Americawhich should rally to its support once it has been persuaded that government can be made to work again for ordinary people.
This leads us to our larger political objectives. We propose to revitalize a very old republican tradition that links property and citizenship into an indissoluble whole. In earlier times, this linkage was often used for exclusionary purposes. In colonial America, for example, suffrage and office-holding were often restricted to those with substantial property. But during the nineteenth century, a serious effort was made to reverse the linkage. Most famously, the Homestead Act refused to offer up America's vast resources to the highest bidders, but encouraged citizens to stake their claims for a fair share of the common wealth. During Reconstruction, Radical Republicans led a spirited campaign to couple the Fourteenth Amendment's grant of citizenship to black Americans with a stake carved out of rebel property.
This campaign failed, and the closing of the frontier heralded an increasing split between property and citizenship in American thought and practice. Even those genuinely concerned with economic dignity looked elsewhere: socialists would settle for nothing less than the abolition of private property itself; more moderate reformers aimed to build a strong state apparatus capable of regulating the capitalist system. Now that we have had experience with the limitations of both these experiments, isn't it time to consider another path?
We do not join those who would cheerfully sweep away the legislative achievements of the Progressives, the New Deal, and the Great Society. Many of these reforms have withstood the test of time, and others merely require adaptations and refinements. But if we are to confront the emerging problems of our own age, we must once again attempt a fundamental redefinition of the progressive vision. Rather than abolishing private property or regulating it more intensely, we should be redistributing it.
This is the time to make economic citizenship a central part of the American agenda. The task is to enable all Americans to enjoy the promise of economic freedom that our existing property system now offers to an increasingly concentrated elite.
Experiments in Stakeholding
Stakeholding is a simple idea, and one whose time has come. This seems to be the assessment of some astute politicians who have gained great followings through initiatives that bear a family resemblance to our proposal. Margaret Thatcher is a case in point. When she became prime minister of Great Britain in 1979, 32 percent of all housing was publicly owned. Although bent on sweeping privatization, Thatcher refused to sell off these vast properties to big companies. She invited residents to buy their own homes at bargain rates. With a single stroke, she created a new property-owning citizenry, and she won vast popularity in the process.
A more sweeping initiative took place in the Czech Republic in the aftermath of the Communist overthrow of 1989. The prime minister elected in 1992, Václav Klaus, confronted a much larger task than Thatcher's: the state sector contained seven thousand medium and large-scale enterprises, twenty-five to thirty-five thousand smaller ones. How to distribute this legacy of Communism? Klans saw his problem as an opportunity to create a vast new property-owning class of Czech citizens.
The mechanism was the ingenious technique of "voucher privatization." Each Czech citizen could subscribe to a book of vouchers that he could use to bid for shares in state companies as they were put on the auction block. An overwhelming majority8.5 out of 10.5 milliontook up Klaus's offer and claimed their fair share of the nation's wealth as they moved into the new free-market system. Klaus's creative program helped cement his position as the leading politician of the Republic. More importantly, the broad involvement of citizen-stakeholders played a central role in legitimating the country's transition to liberal democracy.
Thatcher and Klans conceived of their initiatives as one-shot affairs. But the citizens of Alaska have made stakeholding a regular part of their political economy. Once again, the occasion was the distribution of a major public asset, in this case the revenues from North Slope oil. Rather than using it all for public expenditures, the Republican leadership designed a stakeholding scheme that is now distributing about one thousand dollars a year to every Alaskan citizen. Once again, the system has become broadly popular, with politicians of both parties regularly pledging that they will not raid the symbolically named Permanent Fund.
The biggest difference between these initiatives and our proposal should be obvious. Brits, Czechs, and Alaskans funded stakeholding out of public property. We look to two other sources. Over the short termthe first forty or fifty yearswe rely principally upon an annual 2 percent tax on wealth. Over the longer run, stakeholding will be financed increasingly by recipients' payments at death.
These particular choices deserve their own chaptersand then some. Perhaps you will find yourself unconvinced by our case for the wealth tax and will conclude that some other short-run source of revenue is more appropriate. If so, we would be happy to marry stakeholding with your alternative taxing scheme. But beyond these (important) questions of program design lies a deeper point. In our view, there is no good reason to limit stakeholding to cases involving physical assets like housing or factories or oil. Americans have created other assets that are less material but have even greater value. Most notably, the free enterprise system did not drop from thin air. It has emerged only as the result of a complex and ongoing scheme of social cooperation. The free market requires heavy public expenditures on the police and the courts and much else besides. Without billions of voluntary decisions by Americans to respect the rights of property in their daily lives, the system would collapse overnight. All Americans benefit from this cooperative activitybut some much more than others. Those who benefit the most have a duty to share some of their wealth with fellow citizens whose cooperation they require to sustain the market system. This obligation is all the more exigent when the operation of the global market threatens to split the country more sharply into haves and have-nots.
This view gives our proposal a different ideological spin from those pioneered by Margaret Thatcher and Václav Klaus. Surely there will be some on the Right who will blanch at the implications of our proposal. But we do hope that many others will come to see its justice. We expect a similar split on the Left. Some will be deeply suspicious of our proposal to liberate stakeholding assets from the grip of the regulatory state, leaving it to each citizen to spend his eighty thousand in the way that makes sense to him. Others will be more impressed by the justice of empowering all Americans to share in the pursuit of happiness.
We expect less resistance to the long-run aspect of our funding proposal, which relies on stakeholders making substantial paybacks at death. This will require us, however, to put some old questions about inheritance in a new light.
Expanding the Stake
Our first task will be to explore the many moral and practical questions presented by the basic stakeholding proposal. But we have a larger aim as well. We believe that our initiative provides a framework for a more general reconstruction of the existing welfare state.
To suggest the possibilities, Part 2 focuses on social security and how stakeholding allows Americans to rethink some basic decisions made during the New Deal. In building support for his proposals, Franklin Roosevelt had one overriding aim. He wanted to entrench social security so deeply in our institutional life that it would be politically impossible for his opponents to repeal it. Somehow or other, his program must express the idea that social security was not charity but a fundamental right. What image would convey the requisite notion of entitlement?
Drawing on European traditions, Roosevelt embraced a system that emphasized the workplace. Social security was not charity because workers would earn it by contributing to an insurance fund through payroll taxes. Here as elsewhere, Roosevelt proved himself the master politician of the age: to the libertarians' despair, social security remains a bulwark of economic citizenship. Thanks in large part to social security, the poverty rate among the elderly has plummeted in the past decades, and many more workers can look forward to retirement with a modicum of dignity.
But Roosevelt's enduring political triumph has come at a heavy price. Because "premiums" are paid only at the workplace, nonworkers get nothing in their own right. Of course, many of these people live productive lives. Millions of women spend years out of the paid work force, or in low-paid part-time work, while they rear young children. As a consequence, the insurance metaphor provides them with little or no independent social security. The system ties their economic fate to their husbands'if they have them. As we shall see, this is only the beginning of many other questionable discriminations and taxation decisions encouraged by the Rooseveltian link between retirement income and the workplace.
Don't get us wrong. Social security is one of the great achievements of American social policy. But as we look forward to the twenty-first century, it is time to move on to a more progressive and more inclusive system. What is required is a new master metaphor to displace the insurance analogyand to symbolize the transition from worker citizenship to universal economic citizenship.
Stakeholding provides this metaphor. It creates a new way of expressing Roosevelt's idea that a decent retirement is a matter of right, not a question of charity. And it allows us to restructure this right in a much fairer way. Under our expanded proposal, each American citizen not only gets to stake her claim to eighty thousand dollars. She also gets an entitlement to a basic retirement pension. In contrast to the existing system, this citizen's pension would not depend on the vagaries of her work history, her wage rate, or her marital status. Instead, it would be a fundamental aspect of economic citizenship. Each American would receive a monthly retirement check that represented the minimum amount needed to live a decent life. Of course, this check would represent a floor, not a ceiling. People who wanted more money in retirement would remain perfectly free to invest in private pension plans. But it would be up to each of us to make this decision.
The stakeholding system will also open up a long overdue reconsideration of the methods through which we now pay for a secure retirement. Once we remove pensions from the workplace, it will no longer seem natural to fund them through payroll taxes. Instead, Americans will begin to see the payroll tax for what it isa tax, and one that hits the working poor hardest. We urge its replacement by a new system that is more in keeping with the principles of equal opportunity at the core of the stakeholder society.
Stakeholding as a Catalytic Reform
Most reforms, when they are adopted, don't lead anywhere. They may fix a problem, and that is a good thing, but they don't precipitate a larger wave of reconstructive activity.
Stakeholding, by contrast, is a catalytic reform. It can generate further waves of activity that might, over time, lead to the construction of a more just retirement system for older Americansand much else besides.
Or it may not. The case for our basic proposal in no way depends on anything we say in Part 2. Indeed, we are a bit concerned that the greater complexity of expanded stakeholding might distract attention from one of the greatest virtues of our basic proposal.
And that is its direct appeal to ordinary Americans. Everybody understands eighty thousand dollars and what it might mean in the lives of young adults. Everybody understands a flat tax of 2 percent on net wealth. Because our proposal exempts the first eighty thousand dollars of each citizen's wealth from the new tax, the overwhelming share will be paid by America's upper classesthe very group that has seen its wealth increase over the past twenty-five years. Our basic proposal, then, makes it plain to the general public that something effective can be done about America's increasing maldistribution of wealthand that stakeholding is well within our political reach.
This is, is it not, a democracy where each citizen casts an equal vote, and the majority rules? If we work together, there is nothing that can stop us from building a new foundation for economic citizenship. The effort will require political effort by many, inspired leadership by some, and a certain sophistication by all in dealing with the advertising campaigns launched by those who have so much to lose.
But Americans have managed to overcome larger obstacles in the past. It is past time to begin a new era of reform.