The british government has raised more than ?22 billion by auctioning chunks of the radio spectrum to mobile phone companies-seven times more than expected. By using the latest game-theory techniques, the treasury has squeezed huge sums out of such savvy companies as Vodafone and Orange. Rarely has nerdish intelligence been put to better use. The challenge now is to find an equally imaginative way of using the windfall. True to his image as a tight-fisted son of the manse, Gordon Brown has talked only of paying off the national debt.
Yet thanks to the public spending squeeze of the early years of the Blair government, Brown is already set to meet his targets for the debt-to-GDP ratio. The lump sum raised by selling off the radio spectrum can and should be used in other ways. There are, of course, numerous public services short of cash. But a once-and-for-all windfall should not be squandered on current spending. Far better to treat it as an endowment fund and use the income from the fund to provide something of continuing value for the public as a whole. That way, one permanent public good-the radio spectrum-would be converted into another permanent public good, and there would be no sudden change in the fiscal stance.
But what kind of public good should Brown promote? He need not look far for the answer. The notion of creating a "stakeholder society" has been gaining support in both Britain and the US. This is not stakeholding in the sense used in the mid-1990s by Will Hutton and others-the attempt to dilute the rights of shareholders and shift power to employees, customers and others with more informal stakes in businesses. I mean stakeholding in the sense that Yale Law School professors Bruce Ackerman and Anne Alstott discuss in their recent book, The Stakeholder Society. Ackerman and Alstott want to give all young Americans a financial stake in society in the shape of a capital sum of $80,000 (chosen because this is the current cost of a four-year education at an elite US university). They believe that young people should be able to use their stakes for whatever purpose they please, but they envisage most of the money being spent productively-for example, to pay for vocational or higher education, to start up businesses, or to finance down-payments on houses. They see the provision of stakes or capital sums for all as a way of creating a society at once more equitable and more entrepreneurial.
The Ackerman-Alstott plan may seem both utopian and irresponsible: it would surely be outrageous to give young adults $80,000 without strings. Actually, as I shall explain below, it is more affordable and more rational than it sounds. But in a scaled-down form adapted to the realities of British political life, this stakeholder vision is already attracting interest. As an attempt to promote greater equity and greater effective freedom (a young person with a capital sum has more options than one without), it is just the kind of "third way" idea that Blairites need in order to generate enthusiasm for a likely second term in government.
Gavin Kelly and Rachel Lissauer of the Institute for Public Policy Research (IPPR) have endorsed the idea in a minimalist form. They favour an initial capital endowment for every young adult of ?1,000. They would complement this with a means-tested scheme to promote saving among low-income groups. The government would offer matching funds-?3 for every ?1 saved by a young person up to some specified ceiling, thereby greatly increasing the incentive to accumulate capital. The means-tested element (something which has no place in the Ackerman-Alstott vision) reflects their desire to redress what they regard as a bias towards the already-affluent in previous British attempts to promote capital ownership. Thus, during the Thatcher years, the "haves" rather than the "have nots" gained most from privatisation and other strategies to encourage a capital-owning democracy.
Given that there are about 650,000 18 year olds in Britain, the IPPR's modest ?1,000 stake would cost about ?650m a year. Kelly and Lissauer suggest financing it by cutting tax relief on pension fund contributions by the affluent. But the cash raised by Brown's mobile phone auction would be a more imaginative revenue source. Assuming a real return of 3 per cent, a capital sum of ?22 billion (possibly as high as ?24 billion, with the smaller "fixed wireless" sale added) would generate a permanent income of almost ?650m a year; judiciously invested, it might produce a good deal more than this. So, disregarding the fact that not all the ?22 billion will be immediately available to the treasury, it would be sufficient to pay for a modest stakeholding initiative. At any rate, it could provide the nucleus of a stakeholder endowment fund. By adding resources from other sources, more generous stakes could be financed.
Kelly and Lissauer are not interested in large-scale social engineering of the kind that Ackerman and Alstott advocate. But they believe that even small capital sums could have strongly positive effects on individual behaviour, especially among low-income groups. Quoting the US economist Michael Sherraden, they argue that capital ownership offers benefits which run well beyond the income stream generated by the capital. Holding income constant, people with capital are healthier, better educated, more entrepreneurial, less prone to marital breakdown, and so forth. Capital ownership generates a forward-looking orientation and a sense of control over one's life. All this is doubtless true, although one wonders if econometric confirmation were really necessary. People throughout history have surely understood the advantages of wealth. The problem has always been to find politically acceptable ways of spreading it more evenly.
On this score, a Fabian pamphlet by Julian Le Grand and David Nissan is more forthcoming. The authors make a distinction between "curative" and "preventive" welfare policies. Curative policies allow the "disease" of poverty and inequality to take hold, and concentrate only on alleviating the symptoms. For instance, high rates of income tax are curative in that they take market outcomes as a given, and simply try to redistribute some of the wealth which has already been accumulated. Preventive policies try to prevent inequality, poverty or social exclusion appearing in the first place: a classic example would be education policies designed to increase the human capital that individuals bring to the market. Le Grand and Nissan regard capital grants as an extension of this second category of preventive policy: they are an attempt to equalise the stock of capital with which each individual begins adult life, and thus to reduce the risk of grossly unequal market outcomes.
They propose a stake for every 18 year old of ?10,000-not a figure in the same league as Ackerman and Alstott's $80,000-but enough, certainly, to create new opportunities for most young people. Stakeholding on this scale would cost ?6.5 billion a year. Le Grand and Nissan would pay for it by overhauling inheritance tax which, as they point out, is now a largely voluntary levy in Britain. The net value of the estates of people who died in the year to 31st March 1995 was ?21.75 billion. Inheritance tax paid in that year was ?1.4 billion-a yield of only 6 per cent. How could the yield be raised? By turning inheritance tax into a tax on inherited assets-in other words, a tax on recipients of assets rather than on donors-and by including lifetime gifts in the tax base. At present, wealth flows almost unchecked between generations because gifts passed on before death are not taxed. Le Grand and Nissan also propose a significant tightening of trust law. They reckon that such measures could raise the yield of inheritance tax to about 20 per cent. If the value of inherited assets and lifetime gifts is conservatively estimated at ?30 billion a year, that would be sufficient to pay for a ?10,000 stake for every 18 year old. If use were made of a ?22 billion endowment fund from the sale of the radio spectrum, the Blair government could finance a substantial stake with a lower yield from inheritance tax. The Le Grand-Nissan scheme might be unpopular in certain quarters, but it cannot be dismissed as utopian or impractical.
To understand the philosophy behind stakeholding, it is best to turn to the intellectual source of the British schemes: Ackerman and Alstott. These American academics do not imagine, I am sure, that any politician in any western democracy will attempt to implement a scheme as ambitious as theirs-at least not in the near term. Like the authors of the great political tracts of the past, they are trying to change the long-term climate of opinion. They are trying to sow intellectual seeds which will, eventually, transform the nature of liberal society. Unlike communitarians, they do not question the individualism at the heart of the liberal vision. What exercises them is the unfairness of life in contemporary liberal democracies: the fact that some of us start adult life with so many more advantages than others. By taking steps to render starting positions somewhat less unequal, they see themselves as increasing the effective freedom of the great majority of individuals. The leitmotif of their book is that equality and freedom, properly understood, are mutually supportive values.
In making their case for $80,000 stakes, they take issue with what they regard as an unprincipled retreat by centre-left intellectuals. In Britain and America, left-wing policy makers have largely abandoned the pursuit of greater economic equality. They increasingly accept the distribution of wealth dictated by market competition, and distinguish themselves from conservatives only by promising more generous social services for the poor, and by singing the praises of civic equality-trying to ensure that we meet as equals in public spaces and as users of public services. For example, Mickey Kaus, the US commentator, made the case for abandoning the goal of greater economic equality in his book The End of Equality. And this has been the line taken both by Bill Clinton's New Democrats and by New Labour.
But is this revisionist "don't mind the gap" attitude really justified? I think not. There is a hidden assumption in the fashionable view that redistribution from the affluent to the less affluent is wrong in principle. It is that the wealth of the rich is solely a product of their own hard work or creativity. Obviously this is not true when wealth is inherited. But it is not even true when an individual is "self-made." Ackerman and Alstott fully grasp this crucial point. They expressly reject the libertarian argument that taxation represents a confiscation of assets owned by individuals. Nobody makes money simply on the basis of his own efforts. Stakeholding, they maintain, does not involve coercive gifts to strangers. It represents a suitable act of recognition, by the wealthy, of the role played by fellow Americans in creating the conditions for the very system necessary for their own success. I underline this point because it is crucial in making the argument for stakeholding or, indeed, for any redistribution extending beyond the provision of a mere social safety net. The argument is as follows. The market system of private property and contractual exchange is a social construction. It can exist only because most people voluntarily co-operate in maintaining it. Laws and the threat of punishment would not, in themselves, be sufficient to sustain it. But because the system depends on the voluntary cooperation of the majority, it must be structured so as to serve the interests of the majority. Otherwise the majority has little incentive to continue to support it. The onus should be on the wealthy to justify their large withdrawals from the common pot, not on the poor to justify a modicum of redistribution.
The case for a revision of the liberal rules has lately become more pressing because of the globalisation of the world economy and the intensification of market competition. This process is rapidly reversing the progress towards greater economic equality which characterised most of the 20th century.
Yet the idea of substantial redistribution via stakeholding may seem deeply un-American. Is not the US the land of low taxes and entrepreneurship? Ackerman and Alstott believe that their reform would take the US closer to the ideals laid out by its founders, who wanted to combine liberty and equality. They want to revitalise an old republican tradition which links property and citizenship into an indissoluble whole. Until the closing of the frontier, something like a stake was available to most citizens in the form of virgin land sold cheaply by the government. The Homestead Act expressly rejected the market logic of selling land to the highest bidder. Thomas Jefferson's vision of America was of a nation of yeoman farmers who would enjoy a measure of autonomy by virtue of their holdings of assets-in this case, land. Ackerman and Alstott can thus present credible US precedents for their scheme.
One of the virtues of The Stakeholder Society is the magnificent humanity of its authors. Unlike so many policy makers and theorists, Ackerman and Alstott do not allow their personal success to cloud their understanding of life as lived by most ordinary people. Even in a booming economy, they know that many families live on the brink of economic calamity. They graphically describe the pressures besetting Americans who lack a law practice or a Princeton degree. Often there are no easy choices when a family cannot afford a house in a safe neighbourhood or pay for good child care, and when both partners work full-time just to pay the rent. It is such families-the truly forgotten middle classes-that Ackerman and Alstott want to help.
Alive to the realities of practical politics, the British advocates of stakeholding insist that strings must be attached to the grants. It would be absurd, argue both Le Grand and Nissan for the Fabians and Kelly and Lissauer for the IPPR, to let young people choose how to spend their own endowments. They thus suggest rules stipulating that the stakes may be used only for "responsible" purposes such as investment in education or training, first-time house purchase or entrepreneurial ventures. By comparison, Ackerman and Alstott are perhaps na?vely high-minded. They want no conditions attached to stakes beyond a requirement that recipients have high school diplomas and no criminal record.
Some youngsters would blow their stakes in casinos or on lavish holidays, expensive cars, or even drugs. Fine, say Ackerman and Alstott: stakes are not a gift from the state but rather something individuals claim by right. On their view of political economy, the nation's patrimony is a jointly-owned asset. Stakeholders should thus be as free as any aristocrat to squander their inheritance if that is their wont. Freedom, they believe, is a precondition for responsibility. But they are confident that stakes would usually be handled sensibly. They would encourage longer-term horizons. Why? Because young people would have a much greater sense of control over their destiny. They would be less likely to drift because they would have the means to make something of their lives. Stakeholding might even serve as a beacon of hope for inner city youths. For the first time, they would be invited to honour a social pact of some value: work hard at school and keep clear of the police and you will receive the cash equivalent of a Harvard education.
But wouldn't the cost of a universal $80,000 stake be prohibitive? The total bill would be on a par with the Pentagon's budget: about $255 billion a year or 3.4 per cent of US GDP. How could it be raised? Well, if a stakeholding system became well-established, it ought to be largely self-financing. Under the Ackerman and Alstott plan, all citizens would have to repay their stakes, with interest, on death. The logic is that it would not be reasonable for one generation to deny the next the opportunities from which it benefited. In the long run, then, stakeholding would be financed mainly by a change in estate taxation. After setting aside a certain sum for charitable gifts, every individual would have to satisfy his obligation to the stakeholding fund before having a right to bequeath his assets to family or friends. This would represent a collectivisation of inheritance because individuals would no longer be free to leave assets to whomever they pleased. But it would only reflect an underlying reality: social institutions and rules are a collective asset which one generation hands down to the next. Stakeholding would make a virtue of this fact of life by creating an endlessly circulating fund. Although each of us might be less free, when old, to bequeath our assets as we choose, we would be more free when young, because we would each receive a sizeable inheritance in the form of the $80,000 stake.
Of course, some people would die with insufficient assets to repay their original stakes plus interest (2 per cent interest over a lifetime would create a liability on death of about $250,000). So repayments into the stakeholding fund would have to be supplemented in some way. Also, during a long transition period (the period from the initial payment of stakes to the death of the first stakeholders), no funds would flow into the pool. To bridge this gap, Ackerman and Alstott suggest the introduction of a 2 per cent tax on all forms of wealth. They regard a wealth tax as the fairest way of financing stakeholding during the transitional decades. Although wealth taxes are levied in several European states, they accept that the idea might be too controversial for America. A regressive alternative would be some form of consumption tax: at present the US has no equivalent of Europe's value-added tax. (A radio spectrum-type windfall could also be part of the bridging finance.)
A wealth tax to finance redistribution at a rate of $255bn a year (in current prices) may strike some readers as the next worst thing to Marxist expropriation. But recall that the tax would be a transitory measure: once stakeholding came of age, it would be largely self-financing. Recall also that it would be levied to finance a very special form of redistribution. It would not be used to pay for public services or cash benefits. It would finance payment of a sizeable capital sum to each and every young person. The point of such payments would be to move closer to the ideal of equality of opportunity. Strict equality of opportunity can never be achieved-at least not unless Plato's plan to bring up children in institutions as the collective wards of society is implemented. So long as families exist, some children will always be favoured over others. But not all inequality of opportunity is ineradicable. The other main factors affecting life chances are the quality of education and our financial wherewithal. The challenge of creating a level educational playing field is a separate and complex issue. Stakeholding has nothing directly to say about that. The goal of stakeholding is to try to reduce inequalities in opportunities which flow from the different financial circumstances of young adults.
Those who abhor redistribution when it is aimed at the illusory goal of equality of outcomes can surely see something of value in redistribution which is harnessed to the more practicable goal of equality of opportunity. That is the purpose of stakeholding. Ackerman and Alstott are not egalitarians in an old-fashioned sense. If every American received an initial stake of $80,000 and if serious efforts were made to reduce educational inequalities, they would be indifferent to the resulting distribution of income and wealth. They accept that in the lottery of life some people are granted more talent than others and that differing preferences for work and leisure, and for saving and consumption, result in big differences in lifetime asset accumulation. They do not want to even out these differences. Thus they present their form of stakeholding as a genuine "third way" which, by focusing on opportunities rather than outcomes, transcends the false alternatives of old-style social democracy (which redistributes to equalise outcomes) and new-style libertarianism (which rejects redistribution for any purpose).
This version of stakeholding should not be confused with any variant of welfare reform-not even so-called citizens' incomes. Citizens' incomes are unconditional grants, but they are dribbled out in small amounts over many years, and so do not offer a transformation of life chances comparable with that which could flow from a sizeable capital endowment at an early age. The premises behind stakeholding, moreover, are quite different from those behind the 20th century welfare state. This rested on two assumptions: that something had to be done to help the old and the vulnerable; and that the way to do this was by tying various social benefits (for unemployment, sickness and retirement) to the employment records of workers. On this model, the welfare state offers security as a reward for diligent work. Since then the link between work and welfare has changed somewhat. Policy makers are now trying to make willingness to work a precondition for welfare benefits. According to the new wisdom, those who won't work don't deserve alms from the community. Because work is good for the human psyche, the theory goes, the unemployed must be forced, if necessary, to experience its delights. Traces of this paternalistic logic, with its faint overtones of the 19th century workhouse, are present in the Blair government's recent welfare reforms.
Such an approach is anathema to Ackerman and Alstott. They recoil from the emphasis on work and compulsion. The whole idea of stakes is to obviate the need for much of the welfare spending which is now unavoidable: it is to shift from curative to preventive policies, in the words of Le Grand and Nissan. The value on which they lay emphasis is not work but freedom. In shifting the focus from welfare to stakeholding, they are saying that people must be thought of primarily not as workers or consumers but as citizens. A universal stake for young adults should not be seen as a charitable gift, or as a reward for hard work, but rather as a right of citizenship. Political citizenship came of age with the arrival of representative democracy. The goal of stakeholding is to establish a parallel form of economic citizenship.
Rather than trying to evade a modest wealth tax, or rules requiring stakes to be repaid on death into the common pool, Ackerman and Alstott hope that most citizens may even come to look with pride on contributing a fair share to a polity in which inheritance is a universal right of citizenship, rather than an accident of birth. Perhaps that is too much to hope for. But their attempt to rewrite the ground rules of liberalism deserves careful study. Ackerman and Alstott's simple, almost homespun, style is deceptive. They have produced a subtle and subversive text which strips away much of the facade of contemporary political discourse and which will oblige every fair-minded reader to rethink his political assumptions in a fundamental way. In that sense they belong firmly in the radical tradition of Thomas Paine, the original source of the stakeholding idea.
