Privatize values, Socialize costs
The Undeserving Rich
Isaac Newton said that if he had seen farther than others it was because he stood on the shoulders of giants, paying homage to the thinkers who predated him. Yet contributions to the base of knowledge came from many unacknowledged sources, too. It’s all part of our commons. This 2010 article is from Dollars & Sense magazine, the March/April issue, by Gar Alperovitz and Lew Daly. Alperovitz, Lionel R. Bauman Professor of Political Economy at the University of Maryland, and Lew Daly, a Senior Fellow of Demos, are the authors of Unjust Deserts: How the Rich Are Taking Our Common Inheritance and Why We Should Take It Back. .
by Gar Alperovitz and Lew DalyThe conventional, heroic views of technology characterize progress as a sequence of extraordinary contributions by “Great Men” (occasionally “Great Women”) and their “Great Inventions.” In contrast to this popular view, historians of technology have carefully delineated the incremental and cumulative way most technologies actually develop. In general, a specific field of knowledge builds up slowly through diverse contributions over time until -- at a particular moment when enough has been established -- the next so-called “breakthrough” becomes all but inevitable.
Often many people reach the same point at virtually the same time, for the simple reason that they all are working from the same developing information and research base. The next step commonly becomes obvious (or if not obvious, very likely to be taken within a few months or years).
Often the real originator is not as good at public relations as the one who jumps to the front of the line and claims credit:
* Newton and Leibniz hit upon calculus at roughly the same time in the 1670s.
* Darwin and Alfred Russel Wallace produced essentially the same theory of evolution at roughly the same time in the late 1850s.
* Alexander Graham Bell is the inventor of the telephone even though, among others, Elisha Gray and Antonio Meucci got there at the same time or even before him.
Government, too, can discover useful improvements. The Internet, to take the most obvious example, began as a US military project, the ARPANET, in the early 1960s. Up through the 1980s there was little private investment or interest in developing computer networks. Today’s vast software industry also rests on a foundation of computer language and operating hardware developed in large part with public funds.
If most of what we have today is attributable to advances we inherit in common, then why should this gift of our collective history not more generously benefit all members of society?
The top 1% of US households now receives more income than the bottom 120 million Americans combined. The richest 1% of households owns nearly half of all investment assets (stocks and mutual funds, financial securities, business equity, trusts, non-home real estate). The bottom 90% of the population owns less than 15%; the bottom half -- 150 million Americans -- owns less than 1%. If America’s vast wealth is mainly a gift of our common past, what justifies such disparities?
The concept of unearned income first came into clear focus during the era of rapidly rising land values caused by grain shortages in early 19th-century England. Wealth derived simply from owning land whose price was escalating appeared illegitimate because no individual truly “earned” such wealth. Land values -- and especially explosively high values -- were largely the product of factors such as fertility, location, and population pressures.
As John Stuart Mill noted, landlords grow rich in their sleep. Mill and others urged, since society at large makes major contributions to economic achievement, it too has “earned” and deserves a share of what has been created. Mill believed strongly in personal contribution and individual reward, but he held that in principle wealth “created by circumstances” should be reclaimed for social purposes.
A later American reformer, Henry George, focused on urban land rather than the agricultural land at the heart of economist David Ricardo’s concern. George challenged what he called “the unearned increment” which is created when population growth and other societal factors increase land values.
Warren Buffett, one of the wealthiest men in the nation, is worth nearly $50 billion. Does he “deserve” all this money? Why? Did he work so much harder than everyone else? Did he create something so extraordinary that no one else could have created it? Ask Buffett himself and he will tell you that he thinks “society is responsible for a very significant percentage of what I’ve earned.” But if that’s true, doesn’t society deserve a very significant share of what he has earned?
JJS: Interesting how minds work. At the same time the authors explain unearned income, they refer to Buffett’s income as earnings. Which is it? If it is earnings, don’t touch it.
If it is not, then still don’t touch it. If you don't want the rich to have the money, don't give it to them. Instead of trying to reclaim a fortune downstream, after it has been amassed (like trying to tame an adult animal), redirect the inputs to fortunes upstream, while the values are still in flux (like training a pup).
What’s the recipe to great fortunes? It’s capture values your society generates and slough off onto society costs you create. For example, let society bear the cost of your pollution while you accrue the value of locations. You can do that via mortgages. You can accrue the value of buried resources by not paying royalties. Same with the value of supra-surface resources like the EM spectrum. You can also stake out a location on the field of knowledge by getting a patent or copyright for a mere filing fee. Big corporations like Intel and MicroSoft get thousands of patents each year, not to use the knowledge, but to keep others from using the knowledge, just like a landowner keeping a downtown lot vacant.
Imagine if government charged full value for the little pieces of paper it grants. Then corporations could not afford to stockpile patents. Utilities would pay full value for their monopoly franchises. Corporations in general would pay for the risks and costs they impose. Polluters would pay for their pollution. Extractors for their extraction. Land users for their exclusion of everyone else from their sites. Then, not only would businesses clean up their act, and not only would government raise enough revenue to replace counterproductive taxes, but also you’d shut off the valves on the inputs to great and undue fortunes.
Instead of keeping the annual rental value of sites, resources, EM spectrum, ecosystem services, utility franchises, monopolized knowledge, etc -- the stuff of fortunes -- the Buffetts of the world would have to pay them. Couple that with zero taxation on earnings and efforts and then you’d have distributive justice to go with productive efficiency. It’s called geonomics and it has worked wherever tried.
Editor Jeffery J. Smith runs the Forum on Geonomics.
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