The 19th-century French anarchist-socialist, Pierre-Joseph Proudhon, achieved fame with his dictum, "property is theft." Karl Marx, who had contempt for Proudhon in everything else, took over the idea and believed that problems of poverty and inequality would be solved by collective ownership of the means of production.
Marx's diagnosis was wrong. The trouble with capital assets and investment income is not that they exist but that too few of us have them. The traditional European upper-middle classes derived enormous benefits from having a nest egg to fall back upon. This was useful not only in providing collateral for home loans or starting or extending a small business. It was also helpful for people who wanted to opt out for a while from the rat race to try becoming a creative artist, to work at tasks with low market rates of pay, to pursue good causes, or just to enjoy an extra bit of leisure or riotous living.
And there is an alternative radical tradition based on distributing assets more widely. It has Biblical roots. The Old Testament decreed that every 50th year should be a jubilee in which all land would be returned to its original owners, debts cancelled, slaves set free and transactions in the preceding half century annulled. There is no evidence that this was attempted. But the injunction showed a recognition that capital ownership should not depend entirely on the accidents of heredity and past transfers.
The Peruvian economist Hernando de Soto has recently attracted attention by proposing for the third world a form of popular capitalism based on granting full property rights to the many forms of de facto property, such as extra-legal small businesses and property owned by the poor in shanty towns. There are not so many hidden assets of this kind in the industrial west. Property ownership for most people takes the form of home ownership and/or pension rights, whether in state or private schemes. The sale of council houses at heavily discounted prices was probably the most popular measure enacted by the Thatcher government, even though it did little to increase the wealth of those at the lower end. One problem with home ownership is that, despite equity withdrawal, houses are there basically for people to live in and do not become available as a nest egg or reserve unless or until the owner trades down in late middle age when his children have moved away. Similarly, pension rights are not usually tradeable except at a substantial discount and are also a resource needed for later life.
Writers throughout the ages have praised the benefits of individual property ownership. It was regarded by Greek and Roman authors as a precondition of good citizenship. The debate in its modern form goes back at least to John Locke in the late 17th century. His vindication of the rights of property depended on the belief that men had "mixed their labour" with it. I do not know how he would have replied to the observation that many of his fellow citizens did not have the opportunity to mix their labour with anything other than the crudest raw materials. My impression from his Treatises on Government is that his main concern was not with the distribution of property but with laying a foundation for personal rights which despotic governments had no right to abrogate.
The small stakeholder movement first took root in America. Jeffersonian democracy was based on the concept of small proprietors, mostly owner-farmers, for whose benefit the nation's affairs should be run. At the time of the French revolution such ideas took a more radical form in the old world; in the writings of Thomas Paine among others.
In late 19th-century Britain, Gladstone supported an amendment to the 1886 Queen's speech which advocated the goal of "three acres and a cow" to help landless labourers. The slogan came from Joseph Chamberlain's "unauthorised programme" and was probably adopted by Gladstone as an expedient to vote the Salisbury Tory government out of office, which it temporarily succeeded in doing. Widespread citizen ownership was more seriously espoused by John Stuart Mill, who advocated an inheritance tax of a progressive kind, based on the size of the legacy rather than the wealth of the deceased. The object was to encourage people to spread their wealth on death as widely as possible. This proposal has since been backed by many mainstream political economists, including the late Lionel Robbins. Yet even this modest change in tax and inheritance law has still to be made.
Friedrich von Hayek believed that the advantages of unearned income were so great that if no other method existed, one in 100 people should be given substantial sums by lot. The question now is whether advanced western countries are affluent enough to spread some of the benefits of property ownership to all their inhabitants rather than to rely on inheritance or the luck of the draw alone. Anthony Eden spoke about a "property-owning democracy." But the Tory governments of the 1950s and 1960s did little to promote it, apart from tax relief for mortgages and private pensions, which distorted the economy without effectively redistributing wealth. Left-wing thinkers have woken up very late in the day to the fact that property ownership is far more concentrated than earned income. It makes little sense to inveigh against corporate "fat cats," or to impose high marginal rates of tax on executives and professionals, when these people's wealth is trivial compared with the sums that still pass on at death: estate duties remain a voluntary tax for those who take legal advice in time.
Recently, the idea of a "citizen stake" has attracted support across the political spectrum. Two US authors, Bruce Ackerman and Anne Alstott, espoused it in their influential book The Stakeholder Society (see Michael Prowse's article in Prospect, June 2000). It has also been taken up by Julian Le Grand of the LSE. David Owen canvassed it for the Social Democrats in 1984 and David Willetts, the Tory social security spokesman, has promoted it under the title "asset-based welfare." The natural home for asset-based welfare is surely, however, the "radical centre." This was a name invented decades ago by the Economist to describe those political moderates who were not content to split the difference between extremes and were interested in more innovative ideas than either left or right felt comfortable with.
It is against this impressive, but not yet mainstream, advocacy that Gordon Brown's scheme for a child trust fund, introduced in the last budget, needs to be viewed. The media characterised it as a gimmick to disguise the fact that the chancellor could afford few goodies. But the commentators failed to notice that a British government is, for the first time, committed to distributing capital to its citizens rather than welfare in kind or social security payments. It is a first stab at spreading ownership of assets other than housing and pensions more widely. Asset distribution proposals were incorporated in the 2001 Labour election manifesto, but as they did not have the backing of any powerful lobby, the Chancellor could easily have postponed the project indefinitely. It is to his credit that he has not done so.
It is now official government policy that each newborn infant should be provided with a small capital sum-?500 for the poorest third of families, falling to ?250 for the rest-that would be invested in the financial markets and which bearers would be free to draw from at the age of 18. The treasury suggested that with further modest contributions from the exchequer at a later stage and a 5 per cent real return on equity, the capital stake should be worth some ?1,600 a head when the baby reaches 18. The annual exchequer cost of the scheme is put at ?230m-less than one tenth of the cost of the Iraq war. Moreover, it will not be a substantial drain on resources until the bonds become encashable in 18 years time.
Since the budget, the case for these baby bonds-and extending the idea much further-has been elaborated by Will Paxton and other authors in an IPPR book, Equal Shares? They consider the arguments for the idea and also how to finance its enlargement and extension. It is not surprising that they are more successful in the former than the latter. The beauty of the baby bond, as they explain, is that in contrast to pensions or outright home ownership, they benefit young people who should be healthy and optimistic enough to enjoy them.
The IPPR book starts by citing the standard statistics on wealth distribution. However, these tend to exaggerate the concentration of wealth because they are a snapshot rather than a lifetime comparison. For example, on the basis of Inland Revenue figures, the top 1 per cent of the population is said to hold over 20 per cent of all personal wealth. Even if lifetime wealth was equally distributed among all households, many of them would still tend to start off with little wealth or even net debts, but would gradually build up assets in the course of their working lives. They would then run them down in retirement, even if they left something over to bequeath to their children.
It would thus be desirable to have some estimates of the distribution of wealth that take into account life cycle and other complications. Impartial analyses of distributional issues were indeed carried out by the Diamond commission, which worked under the 1974-79 Wilson and Callaghan governments. Its senior economist, Henry Phelps-Brown, was a respected egalitarian scholar who carried conviction when he explained how little there was then to be gained from the Labour policy of soaking the rich. He concentrated mainly on income, but such a commission today could usefully examine the distribution of wealth. The Thatcher government made a big mistake when it abolished this commission, as did the Blair government in not reinstating it.
I do not want to exaggerate the distortions. The office for national statistics states that "wealth is considerably less evenly distributed than income," and a substantial proportion of the population is asset-poor even allowing for the normal accumulation of debt for house purchase and the start of a career. But a good case can only be made better if supported by less tendentious estimates than currently available.
Paxton gives four reasons for what he calls "progressive asset-based welfare." First, to create a more equal overall distribution of wealth. Second, to create a more equal distribution of wealth among young adults. Third, to create a more equal distribution of, or access to, assets during times of change. And finally, fourth, to provide more progressive incentives to accumulate assets.
The fourth of his objectives is the most problematic. The case for wider asset ownership is not helped by becoming too entangled in the savings drive. Some treasury draftsmen are inclined to treat baby bonds as simply one aspect of encouraging savings. But even without bringing in Keynesian considerations of the dangers of oversaving in recession, the appropriate attitude to savings versus consumption should be one of liberal neutrality. In fact, one of the great advantages of baby bonds in enabling young people to "do their own thing" for a few years would be associated with "dissaving"-in other words drawing on both baby bonds and some of their own savings.
Surprise has been expressed that some of us, for whom equality is a false ideal, nevertheless back the baby bond idea and its possible extensions. (Anyone curious about my own position will find it in an extremely short essay entitled "Redistribution Yes, Equality No.") But the arguments of Paxton read well enough if the words "wider distribution" are substituted for "equal distribution." Indeed, he admits that he does not have in mind "all citizens possessing precisely equal shares."
Asset distribution is only one way of topping up the resources of the poor. The other approach is to provide a basic income so that everyone has a source of income outside the market and is therefore always better off on moving from the dole to a low-paid job. Gordon Brown's integrated child credit and employment tax credit come close to providing a basic income, subject to a "willing to work" test. There has unfortunately been a long-running dispute between advocates of state-paid income top-ups on the one hand and asset distribution on the other. One clear advantage of asset distribution is that it is politically easier to introduce without the work test still insisted upon in income supplement schemes.
In some kinds of worlds, a regular basic income and a capital endowment amount to the same thing. Lifetime basic income payments discounted at the appropriate interest rate are equivalent to a capital sum. And anyone who receives this sum on achieving adult status would be able either to enjoy the income from his or her capital at a steady rate or borrow on the strength of it. So on libertarian grounds a capital stake is to be preferred. But not everyone has access to credit markets at prime rates. Moreover, what do we propose to do about the prodigal son who spends his endowment and is not then able to earn an above poverty wage? It is unlikely that a civilised society would let him starve. So both approaches will be required.
The IPPR authors correctly point out how modest the present proposals are, compared with, for instance, Fabian proposals to provide every 18 year old with ?10,000 worth of assets or with the Ackerman plan for $80,000 per head. The weakness of the Brown plan is that it is financed entirely from revenue. If such ideas are to make a bigger contribution to a wider distribution of wealth, other sources of funds, preferably of a capital nature, need to be found.
I proposed in the late 1970s that state revenue from North sea oil should be earmarked for citizen dividends which could be capitalised on the stock market. No political party took the slightest interest. Another missed opportunity was the Tory decision to sell privatisation shares at bargain prices rather than distribute them freely to everyone-a proposal supported by Milton Friedman. Yet another missed chance was the capital receipts from the sale of mobile telephone licences which were unimaginatively spent repaying the national debt.
Former communist countries have experimented with distributing shares in privatised companies at a nominal price. But the lack of a capitalist culture has made these countries difficult soil. The allotments to citizens have sometimes fallen prey to mafia financiers who have bought them up cheaply. Alaska has been much more successful in distributing state oil income to its inhabitants.
There are other opportunities if only policymakers would look for them. An obvious one is the increase in land values resulting either from planning permission or the extension of public facilities, such as the Jubilee line in London. Not far from the Financial Times in Southwark, south London, is a site that was available for purchase in 1980 for ?100,000. In January 2000 it was sold for ?2.6m. The gain was money in the bank for the owners but nothing was contributed to the general welfare.
Land taxation has the advantage over other forms that it need not be a disincentive to either capital or labour. David Ricardo noticed this as long ago as the early 19th century. Towards the end of that century the American social reformer Henry George advocated a single tax on land ownership as the main source of government revenue. The Attlee government attempted to nationalise development values, but its plans floundered in a morass of legal and political complication.
These matters will all need to be looked at again. But as a very simple practical proposal, why not auction planning permission? Many local authorities have approached this piecemeal by making such permission conditional on the provision of local services such as leisure centres, approach roads and so on. But why not return this windfall to the taxpayer in the form of asset distribution and let citizens decide how to spend it? Meanwhile, anything which shifts public discussion away from endless obsession with state delivery of services in kind to ways in which people could provide for themselves is highly welcome.
