Chapter 9

How Citizen Capitalism Compares to Other Proposals

WITHOUT SOME INTERVENTION, the gap between the best-and the worst-off Americans is only likely to widen. The Universal Fund offers a private intervention without the need for government funding. In fact, government-initiated redistribution is highly unlikely, possibly politically impossible. In illustration, let us take a look at some recent redistribution proposals that have attracted popular attention.

Universal Basic Income (UBI) Proposals

Widespread concern over the growing gap between rich and poor has triggered a flood of books, magazine and newspaper articles, and blog posts on the subject. Many offer specific proposals to address the problem. One policy response to rising inequality that has captured the public imagination in recent years is the idea of a Universal Basic Income (UBI). Under the typical UBI proposal, the government would provide every citizen (under some plans, every legal resident) of the United States with a periodic cash payment that they would be free to spend or save as they saw fit. Payments would be made to all, under many plans without regard to health, wealth, income, or employment status. UBI proposals have been offered from the Left (Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream, by former union president Andy Stern) and from the Right (In Our Hands: A Plan to Replace the Welfare State, by Charles Murray of the American Enterprise Institute), from Silicon Valley billionaires (Fair Shot: Rethinking Inequality and How We Earn, by Facebook cofounder Chris Hughes) and from academics (Basic Income: A Radical Proposal for a Free Society and a Sane Economy, by Philippe Van Parijs and Yannick Vanderborght).¹

The idea is not new. Free-market economist Milton Friedman supported a version of the UBI in the early 1960s, when he proposed a “negative income tax” to subsidize the incomes of the very poor and ensure they met certain basic thresholds. But the UBI has gained new traction, with a flood of recent books proposing some version of it appearing from authors both conservative and liberal, with backgrounds ranging from labor union representatives to internet billionaires to research professors.² UBI has become something of a darling of the ultrawealthy, gaining the public support of (among others) Facebook founders Mark Zuckerberg and Chris Hughes, Elon Musk of Tesla and SpaceX, and Virgin Group founder Richard Branson.³ There has even been testing of small UBI pilot programs in locales ranging from Oakland to Kenya.⁴

There are, of course, substantive critiques. One is that the amount of money likely to be provided under any full-scale UBI would be relatively small. Facebook cofounder Chris Hughes’ plan, for example, would provide a monthly cash stipend of $500 ($6,000 annually). This falls well below the official 2018 federal poverty level of $12,140 for a single-person household. But, as UBI proponents are quick to point out, even small amounts of money make an enormous difference to the very poor. It can be the difference between paying this month’s rent and being evicted; between buying blood pressure medication or suffering a heart attack or stroke; between taking a taxi or missing a promising interview for a much-needed job.

A second potential problem is that a UBI might create disincentives for work. Given the relatively modest amounts involved, it seems likely such disincentives would be small. Moreover, any work disincentive created by a UBI would be much weaker than the disincentives created by social welfare programs available only to the poorly paid or unemployed, like unemployment insurance, Medicaid, or the Supplemental Security Income (SSI) program. Nevertheless, some UBI proponents suggest payments should only be made to those who can prove they are working or pursuing an education.⁵

Another common criticism is that, even if the payment amounts involved are modest, a UBI program could prove extremely expensive. In response, some proponents suggest benefits could be “means tested” and provided only to those who fall below certain wealth or income thresholds. Of course, this would increase disincentives to work and might stigmatize the program and those who receive benefits under it as a kind of welfare for the lazy and unambitious. Other UBI supporters, including Milton Friedman and conservative thought leader Charles Murray, recommended reducing the cost of a UBI by simultaneously eliminating redistribution programs like Social Security, Medicare, and Medicaid. This would certainly reduce the cost, but it runs head-on into the most critical objection to any UBI plan—it would be, quite simply, politically impossible.

Government-funded UBI programs often involve some form of redistribution. The redistribution may be primarily from the top to the bottom, as in the case of Hughes’ proposal to provide cash payments only to those earning less than $50,000 annually, paid for by a new tax only on the top 1 percent of earners. Or, the redistribution may be from those on the bottom to those on the top, as in the case of Murray’s proposal to fund a UBI for rich and poor alike by cutting programs like Medicaid and Social Security, which disproportionately benefit low-income citizens.⁶ Any attempt to implement either would run into resistance from both sides of the political spectrum.

UBI defenders often frankly admit this. Charles Murray says his program “would work if it existed, but today’s American politicians will not build it.”⁷ Economist Robert Frank says “it is a pipe dream to imagine that an income grant large enough to lift an urban family from poverty could win or sustain political support.”⁸ Andy Stern is an optimist; he simply notes that a UBI “is no political slam-dunk.”⁹

So, let us take a moment to look at another, more subtle and perhaps more politically palatable response to inequality: a citizens’ dividend.

Citizens’ Dividend Proposals

In some ways, proposals for a “citizens’ dividend” look a bit like the Universal Fund. Citizens’ dividend proposals begin by finding some valuable asset—real estate, an investment portfolio, or perhaps the oil extracted from a series of oil fields—and setting it aside to be held as the common property of all the citizens or residents of a particular geographical area. When the common asset generates income—rents from the land, investment returns from the portfolio, or oil sales from the oil fields—that income is distributed proportionately to all qualified citizens or residents in the form of a proportionate dividend.

The idea of a citizens’ dividend fits better with American ideals of egalitarianism and personal liberty than a UBI. In fact, one of the earliest proposals came from Thomas Paine, a prominent figure in the American Revolution and one of America’s Founding Fathers. In 1796, Paine proposed “to create a national fund, out of which there shall be paid to every person, when arrived at the age of 21 years, the sum of fifteen pounds sterling …” The money would come from a tax on landowners. Nearly two hundred years later, the state of Alaska in 1976 actually adopted a citizens’ dividend plan in the form of the Alaska Permanent Fund. Alaska had just secured ownership of the enormous Prudhoe Bay oil field, and part of the revenues from the field were dedicated to the Alaska Permanent Fund. Under the Alaska Permanent Fund’s terms, every person who has legally resided in Alaska for at least one year is entitled to an equal annual dividend based on the Alaska Permanent Fund’s average financial returns over five years. Thanks to the Alaska Permanent Fund, every resident of Alaska still receives an annual dividend, which began at around $400 per person in the Alaska Permanent Fund’s early years and now averages around $1,000–$2,000.¹⁰

One of the most interesting things about these and other citizens’ dividend proposals is that they are typically not justified on the basis of economic growth or political stability. Rather, they are grounded in egalitarian fairness. Recall the idea that all citizens have an equal claim to common resources they enjoy for the simple reason that they are lucky enough to be alive today. All citizens have an equal moral claim to America’s air, water, and other natural resources; to its infrastructure built with centuries of massive investment; to its extensive body of useful knowledge and information; to its language, culture, and civic institutions. They even have an equal moral claim to its land, which was created by nature and not by any human being, and which is treated as property for the simple reason that someone some time declared it to be theirs.

This is not to deny that some of the wealth any particular individual enjoys today is due to their additional investment of their own time, skill, and effort. As Paine put it, “the earth, in its natural, uncultivated state was, and ever would have continued to be, the common property of the human race … It is the value of the improvement only, and not the earth itself, that is in individual property.”¹¹

Senator Elizabeth Warren channeled the spirit of Thomas Paine in a famous stump speech made during her Senate campaign: “There is nobody in this country who got rich on their own. Nobody. You build a factory out there—good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for.… You built a factory and it turned into something terrific, or a great idea. God bless! You can have a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”¹²

A citizens’ dividend plan recognizes the equal moral claim all citizens have on the portions of their national income that are due not to their individual efforts but to returns on their joint inheritance. As noted, Nobel Prize–winning economist Herbert Simon estimated that portion to be as large as 80 percent. As Paine put it, “[i]t is not charity but a right, not bounty but justice, that I am pleading for.”¹³

But Paine’s plan was never adopted. In contrast, Republican governor Jay Hammond’s proposal for the Alaska Permanent Fund became a reality. What explains the difference?

The answer is: political reality. Paine wanted his plan to be funded by a tax on landowners, in recognition of the value of the portion of the land that they did not create but were nevertheless able to extract wealth from. In eighteenth-century America as today, political opposition from a wealthy minority sufficed to stop even the most intellectually justified policy from becoming law, because the proposal would interfere with their ownership interests in their land. In contrast, the Alaska Permanent Fund was to be funded by revenues from oil fields the state of Alaska had just acquired. No identifiable individual or group of individuals could claim to own the oil revenues.

State-initiated redistribution appears to be politically palatable only when the resources being redistributed don’t already belong to someone. This explains why Norway was able to create its $1 trillion-plus sovereign wealth fund with revenues from the newly discovered North Sea oil fields (returns from the fund are reinvested or used to support various Norwegian social programs). It also explains why our plan for the private creation of a Universal Fund through voluntary donations by corporations and individuals is far more likely to become a reality than even the most thoughtful proposal for a government-funded UBI or citizens’ dividend.

That is, the Universal Fund is far more likely to become a reality if corporations and individuals have both the ability and the motivation to make substantial donations: both the way and the will. As we demonstrated, they do.

This brings us to the question of why not?