Chapter 6

How Citizen Capitalism Embraces Capitalist Principles

IN A CAPITALIST ECONOMIC SYSTEM, private property is the primary means of production, and resources are redistributed primarily through marketplace exchanges. It’s worth noting here that “pure” capitalism without government doesn’t work: government is needed at least to define and protect property rights and to enforce contracts for exchange. Capitalism is sometimes associated with greed, rapaciousness, and the exploitation of the many by the few. Yet the ideal of capitalism rests on a surprisingly community-oriented foundation. From its earliest days, capitalism has been defended not because it allows a few individuals to become very rich, but because it can provide a broad array of social benefits to almost everyone.

Scottish economist Adam Smith’s famous 1776 description of the free market as an “invisible hand” begins and ends by emphasizing how this hand can serve the public:

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry so that its produce may be of the greatest value, every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it … He intends only his own security, … only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end that was no part of his intention.… By pursuing his own interests he frequently promotes that of the society more effectively than when he really intends to promote it. (emphasis added)¹

Capitalism can indeed serve the public interest. When it allocates resources to their most productive use, it increases the quantity and quality of the goods and services we enjoy. Indeed, it is a mistake to assume that this means pursuing unsustainable growth or material consumption. After basic needs are met, we might prefer capitalism serve our human desires for leisure, a clean environment, more social connection, better health, and a longer life.² It rewards and promotes investment and innovation. It gives us freedom to make our own decisions. It encourages and rewards desirable characteristics like industriousness, responsibility, willingness to take risk, and far-sightedness.

This is why Americans have traditionally embraced capitalism. This was especially true in the second half of the twentieth century, when the decline and eventual fall of the Soviet Union offered a stern object lesson in the dangers and dysfunction of communism. By 1991, editorialist Claudia Rosett had declared in the Wall Street Journal that “the free market has won” and “We are all capitalists now.”³

Today, many are not so sure. On the heels of the 2008 financial crisis, a number of high-profile best-selling books have appeared criticizing capitalism, at least as it is currently practiced in the United States. Rana Foroohar’s Makers and Takers and Thomas Piketty’s Capital in the Twenty-First Century are only two well-known examples.⁴ We see popular movements like Occupy Wall Street and influential political candidates like Bernie Sanders, who does not hesitate to label himself a socialist. Instead of fearing the Soviet Union’s fate, many, especially younger Americans, now look with envy at the highly regulated Scandinavian nations. A recent poll of young adults nationwide found that 51 percent do not support capitalism and only 42 percent support it.⁵

What’s gone wrong? The reasons for capitalism’s declining popularity are not hard to find. Without limitation, the purely self-interested can profit from activities that impose “external costs” on others, or simply take money through fraud, deception, cartelization, destruction of competitors, and criminality.⁶ The concentration of money and power produces interests with the ability to buy lobbyists, regulators, politicians, and whole political parties, and to use them to acquire further wealth through government subsidies, preferences, and deregulation.⁷ In the wake of the 2008 financial crisis, Congress focused its efforts not on bailing out the borrowers but on bailing out the banks and hedge funds themselves.⁸ The celebration of self-interest invites greed and wanton indifference to others’ welfare, undermining community and social trust.⁹

Citizen Capitalism is designed to counter these problems. Using the tools of capitalism itself—private property and voluntary contract—it allows all citizens to share in the financial returns from the companies whose shares are held in the portfolio. It is worth noting that “private” property does not mean “individual” property; corporations and partnerships are collectively controlled forms of private property that have proven integral to capitalism’s success. This sharing of economic benefits gives us all a stake in the companies that are the engines of our economy.

By democratizing control over these corporations, it also makes it less likely they will seek to profit from anticompetitive behavior, production methods that generate excessive external costs, or lobbying for regulation harmful to public welfare. By creating a new and powerful long-term shareholder, it encourages companies to focus on the kind of investment and innovation that drives economic growth.¹⁰ And it does all this in ways consistent with traditional capitalist virtues, leaving donors free to choose whether they want to contribute and citizen-shareholders free to vote and to use their money as they see fit, and avoiding the kind of work disincentives created by programs available only to those who fall below a certain income level or are unemployed.¹¹

Openness and Transparency

Openness and transparency have long been recognized as potent tools for addressing many of the negative externalities created by the capitalist system. A well-designed Universal Fund would support these ideals.

Transparency is essential for accountability in governance systems. As US Supreme Court jurist Louis Brandeis famously observed, “Sunlight is said to be the best of disinfectants.”¹² An understanding that honesty, openness, and transparency are desirable in both politics and business is reflected in a host of American legal rules, including the Freedom of Information Act, the Government in the Sunshine Act, the disclosure requirements of the Securities Act of 1933, and the constitutional guarantee of freedom of the press.

Unfortunately, in both politics and business, transparency is sometimes hard to find. This is especially true in the corporate world. Privately held corporations, nonprofits, and in some respects, even large public companies have limited duties to disclose information to the public; in some cases, these duties border on nonexistent. Share ownership can be particularly complex and opaque, with individuals and firms using layer upon layer of subsidiaries and shell organizations to hide their activities. As a result, corporations and similar entities are widely used by the wealthy and influential to hide conflicts of interest, launder money, evade legal rules, influence politicians, and sway public opinion.

In 2016, the issue attracted attention when an anonymous whistleblower working at the Panamanian law firm Mossack Fonseca leaked to journalists the “Panama Papers,” more than eleven million documents detailing how wealthy individuals, including prominent politicians, had used more than two hundred thousand corporate entities to pursue a host of unsavory and sometimes flatly illegal activities. But the problem is longstanding and endemic. Decades ago, the sugar industry—which knew of the connection between consuming sugar and heart disease from its own research—supposedly paid researchers to produce a 1967 article concluding that reducing cholesterol and saturated fat was the best dietary intervention to prevent heart disease.¹³ The finding influenced the advice US doctors gave patients for half a century.¹⁴ More recently, for-profit colleges have created Students for Academic Choice, an apparently student-led grassroots organization that promotes (wait for it …) for-profit colleges.¹⁵

Corporate secrecy enables and encourages political secrecy. Corporations are in a position to give money and media support to politicians, and many politicians are eager to receive them. Both sides would just as soon no one look too closely. We have laws that are intended to force politicians and regulators to disclose whom they meet with and from whom they accept contributions and support. But the laws are easy to evade and difficult to enforce. Average Americans are aware of this—a 2017 survey by Transparency International reported that where 32 percent believed that “most” or “all” business executives are corrupt, even more (38 percent) believed most members of Congress are corrupt, and 44 percent believe that most of those serving in the office of the president and the White House are involved in corruption.¹⁶

A well-designed Universal Fund promotes openness and transparency on at least three levels. First, the Fund itself should be transparent. So should the proxy services that provide citizen-shareholders with voting guidelines. In both cases, the individuals charged with administering the organization—the Fund administrators and the managers of the Fund-approved proxy services—should be required to disclose their identities, past histories, economic interests, and potential conflicts. Financial information for both organizations should be available to the public.

Giving citizen-shareholders more influence in corporate governance also would promote openness and transparency in the corporations whose shares are held in the Fund portfolio. We don’t need laws to require corporations to disclose their activities; empowered citizen-shareholders can demand this of the boards they elect. Admittedly, corporations that disclose matters like their lobbying efforts, their carbon emissions, or the types of research they fund may suffer a short-term disadvantage relative to competitors that don’t. However, it’s reasonable to believe those corporations would enjoy an offsetting competitive advantage in the form of the loyalty of citizen-shareholders who are also customers and employees.

Finally, promoting corporate transparency promotes political transparency. It takes two to keep a secret. When companies must disclose their lobbying, campaign contributions, and public relations activities surrounding elections, the activities of politicians and regulators are also brought into the light. Citizen Capitalism can use our business corporations to fight political corruption rather than contribute to it.

Belief and Investment in the Future

The revolutionaries who founded the United States were an optimistic lot. It takes optimism to think you can break free from a world power and create a new nation. That capacity to hope has persisted for centuries. Alexis de Tocqueville observed in the nineteenth century that Americans “have all a lively faith in the perfectibility of man … They all consider society as a body in a state of improvement.”¹⁷ It survived well into the twentieth century, as reflected in Americans’ embrace of the pursuit of happiness and the American Dream.

But Americans’ belief in a better future is wavering. A recent survey by the Pew Research Center found that nearly two-thirds of respondents believed today’s children would grow up to be worse off than their parents.¹⁸ This is a shocking loss of faith in the future.

To restore citizens’ hope for the future, we need to restore their belief in progress: ongoing improvement in the circumstances of their lives. This means not only access to a wider variety of material goods, but also greater comfort, more leisure, better health, more social connection, and more opportunities for new experiences. Corporations can play, and indeed historically have played, a key role in that sort of progress.

Today, anyone who is willing to pay a small fee can incorporate. This is why, although there are millions of corporations in the United States, many of them have only one or two shareholders and no significant operations. However, if we look at the giant organizations we typically think of as “corporations”—the Amazons, Exxons, Googles, Aetnas, Boeings, and General Electrics—it becomes apparent these organizations specialize in pursuing long-term, large-scale projects. This has been true throughout corporate history. Prior to the fourteenth century, corporations founded universities and built cathedrals. In the seventeenth and eighteenth centuries, companies like the Dutch East India Company and the Hudson’s Bay Company opened whole continents for trade. In the eighteenth and nineteenth centuries, corporations built railroads and developed the steel and oil industries. In the twentieth century, corporations built the electrical grid, mass-produced automobiles, and developed the internet. Government supported many of these initiatives, but that does not detract from the critical role corporations played in implementing them. Much of what we think of as progress can be credited to corporations.

Yet corporations’ key role in promoting progress by pursuing large-scale, long-term projects is threatened by the way the current system places control over many of our biggest firms in the hands of narrow, short-term interests. These interests relentlessly pressure boards to stop reinvesting and instead cut back on basic research and development in order to “maximize shareholder value.” By creating a powerful, diversified, and fundamentally long-term investor with no interest in the gyrations of market prices, and with great interest in how corporations contribute to the overall economy, Citizen Capitalism counters these forces. It would give corporate boards more breathing room to plan for the long term and to make the kinds of investments that lead to the breakthrough innovations of the sort economist Robert Gordon argues drive long-term economic growth.¹⁹ Of course, there’s no guarantee that any particular company’s investments will necessarily pay off; Google’s spin-off Alphabet is developing self-driving cars, but so are Tesla and General Motors. It remains to be seen which one will dominate the market. But as long as the Universal Fund is reasonably diversified, citizen-shareholders are not concerned. Whichever company succeeds, they will share in the gains—and they will get to use the cars.

Citizen Capitalism accordingly supports and reinforces a collective belief and investment in a better future. By turning large corporations away from the mindless pursuit of a higher share price and returning them to their historical mission of inventing, developing, and distributing the innovative new products and services that improve citizens’ lives, it promises to help restore a common belief in progress.

Paying the Primordial Debt

Many elements of the Universal Fund we propose are in harmony with the ideal of personal responsibility. Citizen-shareholders shoulder the minimal burden of registering for their citizen-shares and deciding how to spend the income they receive from their shares. Nor is that income guaranteed; the financial and social performance of the companies in the Fund portfolio depends, at least in part, on the wisdom of citizen-shareholders selecting a proxy service to vote the stocks in the Fund portfolio. Depending on how the Fund is set up, citizen-shareholders may also play a role in selecting the administrators who manage the Fund portfolio.

But Citizen Capitalism promotes another important, if easily overlooked, dimension of responsibility. That is our responsibility to acknowledge and repay our debts—including, especially, the enormous debt we owe to past generations.

When you become a citizen of the United States, whether by birth or by naturalization, you are given an enormous gift. This is the gift of a fruitful land with ample water, air, and other natural resources; a body of knowledge painstakingly acquired through the efforts of millions over centuries; an immense infrastructure for travel, communication, and energy; a system of world-renowned universities; a remarkable array of political and civil institutions; and a dynamic and diverse culture. Nobel Prize–winning economist Herbert Simon has estimated that 80 percent of “the income we enjoy today comes not from the efforts of living individuals or existing corporations, but from this shared inheritance.”²⁰ Whatever contributions individual Americans make to society over the course of their lives, such contributions are unlikely to come close to matching the benefits they receive simply for being lucky enough to be alive in the United States today.

For most people, receiving a gift of such enormity generates a sense of obligation to acknowledge the gift and, if possible, find some way to reciprocate it. Anthropologist David Graeber describes the sense that “we are born with an infinite debt to all those people who made our existence possible” as “primordial debt” and suggests that it can be seen in many cultures, both modern and new.²¹ To whom, though, is primordial debt owed? To God or another object of religious devotion (as reflected in some practices of tithing or ritual sacrifice)? To nature or the cosmos? To our parents and immediate ancestors? To the king or the nation-state? This last view, Graeber notes, provides a convenient rationale for imposing and collecting taxes.²²

Among the individuals, groups, and tangible and intangible entities and institutions that have made the lives of present citizens both possible and reasonably comfortable, past generations of citizens are among the foremost contributors to whom they owe a debt. This raises an obvious question: How can one repay a debt to those who have passed on? The answer is in many ways equally obvious, if imperfect: pay it forward, by making their own contributions to future generations.

The idea that those who are alive today owe responsibilities to future generations is reflected in a wide variety of conversations and cultures. Consider the Iroquois Nation’s Seventh Generation Principle that decisions about natural resources should be made with the interests of the next seven generations in mind; or Evangelical environmentalists who emphasize Biblical mandates urging humans to act as stewards tasked with taking care of God’s creation; or activist groups fighting climate change like 350.org; or conservative political activists’ battle against the rising national debt.

Creating a Universal Fund helps citizens meet their responsibilities to the future. First, the Fund is structured not only to provide benefits to its current citizen-shareholders but to continue to provide benefits to future generations of citizen-shareholders as well. Indeed, because the Fund is a perpetual entity that retains the securities in its portfolio indefinitely and accepts donations from individuals and corporations on an ongoing basis, it can be expected to grow larger and generate even greater benefits over time. Moreover, it will also continue to provide opportunities for future generations to repay their own primordial debt.

Meanwhile, by giving diversified, long-term-oriented citizen-shareholders more influence in the boardroom, Citizen Capitalism can help corporations focus on the kinds of large-scale, long-term projects that generate economic growth and innovations that benefit not only current but future generations. The railroads and electrical systems that General Electric and Union Pacific began building in the late 1800s are still serving Americans today. The electric elevators that Otis Elevator Company spent decades to develop and make safe also made skyscrapers—and modern Manhattan and Chicago—possible.

Finally, Citizen Capitalism provides a vehicle for those who are alive today and who care about those who will follow them to express their altruism and concern, both by donating to the Fund while alive or through bequest and by delegating their voting power to a proxy service that supports corporate action likely to benefit future generations. They can truly “pay it forward.” And by doing so, they not only reaffirm their own integrity and responsibility but also work to heal divisions between the old and young, and between the past and future.

Citizen Capitalism is rooted in the capitalist ethos of distributing resources primarily through market exchanges, but it does not subscribe to a purely self-interested, profit-driven ethos that has become the reigning norm in the capitalist economy. In many ways, Citizen Capitalism is designed to counter many of the problems associated with capitalism, such as short-termism in financial markets and a profit-at-all-cost ethos. The Fund we envision would be designed in a manner that promotes openness and transparency, offers a means for Americans to invest in a sustainable future, and relatedly, provides a means for everyone to pay it forward. The next chapter explores the connection between Citizen Capitalism and certain American ideals.