Political leaders, national and global, continue to declare verbal war on growing inequality. But instead, Britain is on course to become a society ever more divided between extreme affluence and mass impoverishment and there are very few radical ideas on the table about how to prevent it. Stewart Lansley argues that it’s time we took the idea of social wealth funds seriously.
Conservatives should be ‘warriors for the dispossessed‘ declared Cabinet Minister Michael Gove a few weeks before the 2015 election. MP Dan Jarvis calls for Labour to be ‘tough on inequality, tough on the causes of inequality’. Yet despite these declarations, there is precious little to show for it. It is the power handed to capital, and the increasing concentration of its ownership, that has been the main source of the pro-rich, anti-poor trends of the last thirty years. Driven by decades of rolling privatisation, de-regulation and an antipathy to collectivism, Britain has one of the world’s heaviest concentrations of wealth and capital. It is this that allows the fruits of economic activity to be increasingly colonised by business executives and City financiers, a small and powerful elite allowed to exercise their growing muscle to extract a larger share of the cake, park it offshore and leave much less for everyone else.
As the World Bank economist, Branco Milanovic, has argued: ‘If one of the drivers of inequality are capital incomes (and “allied” incomes like those of top management), this is because they are heavily concentrated. “Deconcentration” of capital incomes, that is much wider ownership, is then a solution. But it is seldom mentioned.’
Reducing inequality ultimately depends on the dispersal of capital ownership and the power and wealth that goes with it. There are many ways of achieving such ‘deconcentration’. Thomas Piketty, for example, favours a global tax on wealth, while accepting it is a somewhat utopian idea. Encouraging the spread of alternative business models – from co-operatives to partnerships – that allow the greater sharing of economic gain would also help disperse ownership.
One of the most potent anti-inequality policy measures, as yet unused in the UK, would be the creation of social wealth funds. These are collectively-owned pools of wealth that ensure that a higher proportion of economic activity is socialised, with the returns shared across the population. Such funds act as a counter to the private ownership of capital and ensure that their proceeds are used for wider community benefit, such as investment in social infrastructure. By balancing the level of private wealth and extending wider opportunities, such funds would also help to tackle inequality from both ends.
Today’s model of corporate capitalism has a built-in tendency to ever-rising inequality. In contrast, the social wealth fund model has a tendency towards greater equality.
Britain had a golden opportunity to create such a fund in the 1980s by using some of the gains from the bonanza of North Sea oil. Instead, the proceeds were used to cut taxes and boost consumption – now widely recognised as a huge historic policy error.
This does not mean it is too late to create such funds. An especially effective way of doing this would be to cancel the rolling privatisation juggernaut and pool all remaining public sector assets into a ring-fenced public ownership fund. In the last year alone, over £30bn of publicly owned assets from Eurostar to RBS have been sold. Next in line are to be the Land Registry and the remaining shares in Lloyds Bank previously bailed out with taxpayers’ money.
The state is the custodian of these assets on behalf of citizens yet seems intent on a jam-today strategy that will be paid for over and over again by subsequent generations. The government claims that such sales help pay down the deficit, but it makes little sense to use long term capital assets to finance a temporary revenue gap. Sales offer a one-off windfall – the family silver can’t be sold again. This will mean the permanent loss of collectively owned public assets, many highly profitable, built up over many decades, and the end of a stream of income delivered over time. In recent years, for example, the land registry has achieved annual surpluses of up to £100m, thus delivering regular dividends to the government.
Although such sales can reduce the cash debt at a given moment, they aggravate the problem of public indebtedness as the asset base, which once helped to balance the debt, shrinks away. By following this course, Britain will soon be all debt and no assets. Instead of being sold off and the proceeds disappearing into the Treasury black hole, the family silver should be kept in the family’s hands. All publicly owned commercial assets – land, property and public companies – should be brought together into a single ring-fenced pool of commonly held wealth, and managed independently of the state. Such a fund would not preclude the occasional selling of an individual asset, if this was in the wider public interest, but the proceeds from such a sale or part-sale would be paid back into the fund, thus building its value.
There is nothing utopian about such an idea. Fifteen nations – in Europe, Asia and the Middle East – have already gone down this road. The Singapore fund – established in 1974 – is worth more than half the country’s GDP, and has achieved a higher annual return than the private sector. In Europe, both Austria and Finland have established funds. The Austrian Fund, ÖIAG, set up in the 1970s, has also performed better than the national stock market, and pays annual dividends to the government.
Imagine the shape of the British economy today if, instead of the £200bn worth of successive sell-offs since the mid-1980s, public assets had then been pooled into a protected public ownership fund. With the revenue paid back into the fund – and only an agreed proportion of it spent – it would have grown to represent a significant part of the economy, providing a powerful balance to the entrenchment of private capital.
There are also other routes to the establishment of social wealth funds. A fund could be financed from a variety of sources: by assigning the dividends from a range of other assets – ones that should be owned in common – including other natural resources, minerals, urban land and the electromagnetic spectrum; by redirecting the occasional one-off taxes on windfall profits, such as those levied in the past on banks and energy companies and oil producers, or from the revenue from revamped capital taxation.
Social Wealth Funds could also play a much wider role in the economy. Another more radical possibility, first advocated by the Nobel Laureate, James Meade in the 1960s, would be to finance such a fund through the dilution of existing capital ownership, through, for example, an additional, modest levy on share ownership. Such an approach would generate a sizeable pot over time, enough to fund an annual citizen’s dividend, through a modest contribution from a very privileged social group.
Several overseas examples offer a blueprint for a model social wealth fund, from the Alaskan Fund which pays an annual dividend to all citizens to the highly transparent and giant $700bn Norwegian Fund. Social wealth funds have the potential to be a powerful national economic and social weapon, directly tackling the source of inequality, strengthening the productive base and improving the overall balance sheet of the public finances. It is time to follow the example set by many other nations.
This article first appeared on Discover Society blog and is republished here with permission.
About the Author
Stewart Lansley is the author of: A Sharing Economy:How Social Wealth Funds Can Reduce Inequality and Help Balance the Books, Policy Press, 2016, the co-author ( with Joanna Mack ) of Breadline Britain, The Rise of Mass Poverty, Oneworld, 2015.