The people’s stake – creating a force for convergence

Creating a more inclusive economy, one that ensures that the proceeds of growth are more equally distributed, is a long-declared political goal. Yet it is a goal that has proved elusive. Over recent decades, the top one per cent has exercised its political and economic muscle to capture a growing share of the economic cake, while a disproportionate share of the proceeds of economic activity continues to be captured by a powerful financial and corporate elite.

As a result, UK inequality levels are today much higher than in the post-war decades, with the UK the second most unequal country in Europe. As the French economist, Thomas Piketty argues, the present economic model has a built in systemic bias to inequality – a force, as he puts it, for ‘divergence`. So is there a way of creating a ‘new counter-force for convergence’, one which locks in a new bias to greater equality?

One way of building a robust element of inclusivity into the economy would be via the creation of Citizen’s Wealth Funds. These are collectively-owned pools of wealth, owned on an equal basis by citizens, with the returns shared across the population. Established initially by the state, but managed independently of government, such funds ensure that the proceeds of part of economic activity are used for wider community benefit.

By offering a progressive way of managing part of the national wealth, such funds would give society a powerful new policy instrument.  All citizens would directly own part of the economy, creating a new people’s stake, and ensuring a much greater degree of inclusion in the way the gains from economic activity would be shared.

Just how inclusive depends on three main factors: the size of the fund, how it is financed, and how the gains from the fund are distributed. In recent times, scores of countries have pooled wealth through sovereign wealth funds, nearly all created from the proceeds of oil, but few of these act as a progressive force. Most operate as little more than unaccountable and secretive investment arms of the state. One of the most transparent and pro-equality of these sovereign funds is the Alaskan oil-based Permanent Fund. This has been paying a highly popular citizen’s dividend – averaging £1100pa  – since 1982, helping to turn Alaska into the most equal of all US states.

If the UK had used its own oil bonanza to build for the future, it would today have a fund worth in excess of £500bn, a quarter of the size of the economy. Instead of investing this windfall – once described by the then Prime Minister, Jim Callaghan, as ‘God’s gift to the economy’ –  the UK chose a one-off, short-term boost to personal consumption.

Building a fund therefore requires alternative sources of financing. Possibilities include the transfer of a range of existing commercial public assets (from property and land to a number of state owned enterprises) into the fund; revenue from natural resource exploitation; occasional one-off taxes (paid in shares) on windfall profits and the issue of a long term bond. Another possibility would be to link such funds to higher wealth taxation. Wealth is much more unequally distributed than income – with financial wealth the most concentrated of all – yet is very lightly taxed. Paying revenue from revised capital taxation directly into a fund which enjoys a high degree of public support might make reform of wealth taxation more politically palatable.

One of the most pro-equality approaches would be to establish a fund through the dilution of existing corporate ownership. A scrip tax with large companies making a modest annual share issue – of say 0.5% – with the new shares paid into the fund would gradually socialise part of the privately owned stock of capital to be used for explicit public benefit. By taking established stakes in companies (up to a ceiling), such a fund could help align the interests of society and business more closely. A variation on this model was applied in Sweden in the 1980s.

Citizen’s wealth funds would take time to build and would help to inject more long-term thinking into the British political system. Once established, and depending on the size of fund achieved, the returns could be used to finance an annual citizen’s dividend, as in Alaska, and/or help to boost spending on public infrastructure and new areas of social spending, such as social care for the elderly. Such a fund might also be used to help finance a universal basic income.

The overseas evidence is that such funds can gain significant public buy-in. By rebuilding the nation’s stock of depleted ‘family silver`, they would re-establish the importance of social wealth, rebalance the ratio of public to private capital, and tackle extreme wealth concentration. Above all, this new approach would help the theoretical concept of inclusive growth move closer to reality.

Stewart Lansley is the author of A Sharing Economy: How Social Wealth Funds Reduce Inequality, Policy Press, 2016, and a visiting fellow at City University’s Citizen’s Wealth Fund project. The project’s report on building a UK Fund – by S Lansley, D McCann and S Schifferes – will be published in May.