Social wealth funds: a key ingredient of a new pro-equality economic model
Stewart Lansley, visiting fellow at Bristol and City Universities. He is the author of A Sharing Economy: How Social Wealth Funds Can Reduce Inequality and Help Balance the Books, Policy Press, 2016; the co-author (with Joanna Mack) of Breadline Britain, Oneworld, 2015, and the author of the Cost of Inequality, Gibson Square, 2011.
Since 2008, the dominant model of capitalism – with its emphasis on markets, weak regulation and the concentration of private capital – has been fast losing friends. It has fuelled rises in inequality, and far from delivering stable, long term growth, has brought growing economic turbulence. Even former cheerleaders, including the IMF, are questioning its sustainability.
Yet despite the growing scepticism, the model of corporate capitalism remains intact, while proposals for change mostly involve tinkering with the existing pro-inequality model. A serious attempt at reform needs to build an alternative “sharing political economy”, one that disperses capital ownership, power and wealth, and ensures that the fruits of growth are more equally distributed. As the former lead economist at the World Bank, Branco Milanovic has argued, one of the principal drivers of inequality is the heavily private concentration of the ownership of capital. Central to a new, pro-equality economic model must be the de-concentration of such ownership.
To help achieve de-concentration, the French economist, Thomas Piketty, favours a global tax on wealth, while accepting it is a somewhat utopian idea. Encouraging the spread of alternative business models – from co-operatives to partnerships – that allow the greater sharing of economic gain – would also help disperse ownership.
As argued in a new book, The Sharing Economy, an especially powerful weapon for building more inclusive economies would be the creation of commonly-owned social wealth funds. These are publicly owned funds, created from the pooling of existing resources and used for the wider social benefit of society. By helping to secure a more even economic balance between public and private ownership and ensuring that economic returns are more evenly shared, social wealth funds are a direct way of tackling inequality.
More than 60 countries have already introduced state-owned sovereign wealth funds, mostly resourced from oil revenues. While most of these are run in a non-transparent way as little more than the investment arm of the state, sometimes without obvious public benefit, several examples offer a blueprint for a model social fund. Since the early 1980s, Alaska has operated a highly popular fund which pays an annual dividend to all citizens. Perhaps the most successful and transparent of these funds is the $700 bn Norwegian Fund. Overseen by an independent ethics committee, it holds one per cent of global equities.
Many nations, including the UK, have been moving in the opposite direction, entrenching the private ownership of capital through the selling off of state owned enterprises and land. An alternative strategy would have been to pool existing public assets (land, property and public companies) into a ring-fenced fund to form a significant pool of commonly held wealth. Imagine the shape of the British economy today if, instead of rolling privatisation, such a fund had been established in the mid-1980s. It would have preserved the family silver, and by boosting the value of public assets in an era of growing liabilities, greatly strengthened the public finances. With part of the returns reinvested and part used to boost social spending, the fund would have grown to represent a very sizeable chunk of the economy. At least part of the returns could have been used to boost spending on vital infrastructure, thus strengthening the productive base of the economy.
Fifteen nations – in Europe, Asia and the Middle East – have already created “public ownership funds” which manage all state-owned commercial assets. Many of these – such as the Temasek fund in Singapore – have achieved impressive rates of return.
There are other ways one or more social wealth funds could be established. Take the UK. Although it has already spent most of its oil revenue, such a fund could still be established using other sources of income including the dividends from other natural resources (that should be commonly shared) such as minerals, urban land and the electromagnetic spectrum. The occasional one-off taxes on windfall profits, such as those levied in the past on banks, energy companies and oil producers, could also be paid into such a dedicated fund, possibly in the form of shares. Other options might include a direct charge on those financial and commercial transactions – such as merger and acquisition activity – which contain a high element of rentier activity.
In the 1960s, the British Nobel Laureate, James Meade, advocated just such a fund to help promote a ‘property owning democracy` in which all citizens have access to assets. He argued that such a fund should be financed by the dilution of existing capital ownership, through, for example, an additional, modest annual levy on share ownership.
Social wealth funds have the potential to become a new and powerful economic and social instrument that could play a key role in the search for ‘inclusive economies`. They would provide a powerful balance to private capital while the returns could be used to help build the productive and social base of economies.
Inequality, the crash and the crisis Three articles by Stewart Lansley on OECD Insights
from → Insights