The Democratization of Wealth and the Era of Deepening Fiscal Crisis

Part of the Series

Gar Alperovitz | America Beyond Capitalism

This “Chapter Eleven” is part fifteen of Truthout’s continuing series of excerpts from Gar Alperovitz’s “America beyond Capitalism.” This is an exclusive Truthout series from political economist and author Gar Alperovitz. We are publishing weekly installments of the new edition of “America Beyond Capitalism,” a visionary book first published in 2005, whose time has come. Donate to Truthout and receive a free copy.

A radically new context is forcing very difficult choices. Either there will be no solution to many problems, or something new – like the multitude of wealth-related strategies that directly benefit the public – will have to be tried.

Few observers have as yet grasped the extent – or further possibilities – of wealth-related strategies that benefit the public directly. It is obvious, however, that a great deal of hands-on experience now offers practical backing for ideas at the heart of the Pluralist Commonwealth vision – including (among others) worker ownership, cooperatives, municipal ownership, neighborhood ownership, nonprofit ownership, individual development accounts, and a wide range of major public investment strategies. There is also evidence that such efforts can be efficient, especially if adequate attention is paid to developing and refining management, training, and other strategies over time.

It would be a mistake either to exaggerate or to minimize the developments. On the other hand, the steady expansion of several of the most significant new forms has been impressive. In recent years the number of Employee Stock Option Plan firms has increased from a few hundred to more than eleven thousand; Community Development Corporations have grown from a few hundred to nearly four thousand. Municipal enterprise, though less well studied, is on the rise in cities across the nation. In other areas, long-standing experience – as with public utilities and pension funds – offers solid evidence both of the economic and political viability of larger wealth-owning approaches. Former New York State comptroller H. Carl McCall is also almost certainly correct to predict “a renewed era of activism by public institutional shareholders.”

Viewed in larger historical perspective, what stands out is the simple fact that the last several decades have established practical and policy foundations that offer a solid basis for future expansion. There is a body of hard-won expertise now available in each area – along with support organizations and technical and other experts who have accumulated a very great deal of direct problem-solving knowledge.

Significantly, in each area there has also been – and continues to be – a broad base of public backing for new approaches. Moreover, a converging trajectory of concern with community economic stability has added force to many of the newer strategies – especially as global economic pressures have intensified. As we have seen, a number of the new economic institutions are inherently anchored in local communities by virtue of their ownership structure.

Beyond this there has been growing recognition of the mutual interests of – and the organization of implicit alliances between – specific investors and firms, on the one hand, and engaged citizen groups developing new institutions, on the other. Tax benefits provided to corporations and retiring business owners have helped fuel ESOP development; other incentives provided to individual investors have helped CDCs develop low-income housing.

(The last several decades have also demonstrated that it is possible for new institutions to move beyond such origins. Thus, CDCs that develop momentum regularly transcend the limits of their initial financing strategies. Again, as ESOPs move toward majority ownership – at least in states that have been subjects of study, such as Ohio – they also begin to move increasingly toward greater democratic control.)

In general, and notwithstanding ideological opposition to government involvement in the economy, many of the new wealth-ownership efforts also transcend traditional left-right political distinctions – as is evident in connection with CDCs, ESOPs, bipartisan support of Individual Development Accounts, and the experience of mayors of both parties who embrace local public enterprise strategies. That a conservative state like Alabama can essentially socialize control of a major airline also suggests (win or lose) that politics in the future may well be far more open to innovative change than is commonly assumed.

The emerging direction is not without major challenges. Much greater democratization of CDCs, worker-owned firms (of all kinds), and other wealth-related institutions is clearly a priority for those seeking more far-reaching change. So, too, are new strategies to deal with the difficulties facing nonprofit organizations struggling with the conflict between service goals and economic support activities. Municipalities must not be allowed to raise fees for basic services in the name of new principles. Greater and more sophisticated citizen accountability and oversight of public pension investment efforts like those of CalPERS and Retirement Systems of Alabama need to be developed to ensure that worker, community, and other concerns are fully taken into account. On the other hand, Americans already know – and in the future are likely increasingly to understand in their own communities – that a variety of ways of owning assets on behalf of small and large publics are now feasible.

What may well be of decisive importance in the coming period is that even as the various developments have gone forward, the nation as a whole has begun to move into a radically new and unrelenting fiscal environment – one that promises to force ever greater attention to strategies that offer ways to produce additional resources at all levels. Projections for the coming decade alone suggest a combined federal fiscal deficit that could easily reach more than $5 trillion – indeed, $7.5 trillion if Social Security Trust Fund reserves are left aside! [In retrospect, these estimates were far too conservative; the deficit is currently at $16.2 trillion.]

Nor is it likely that there will be an early reversal of the growing fiscal crisis. The Bush tax cuts, though dramatic, are by no means unique. Indeed, fundamental and long-developing political-economic trends have been moving in this direction for some time.

Corporate taxes, as we have noted, were reduced from 35.4 percent of federal receipts in 1945 to 7.4 percent in 2003. Taxation of individuals in top brackets has also been reduced over the span of the last several decades – from 91 percent in the Eisenhower, Kennedy, and early Johnson eras to 35 percent today. And long before the Bush-era reductions (and proposed reductions), domestic discretionary spending by the federal government had moved down – from 4.7 percent of GDP a quarter-century ago to 3.6 percent now, a drop during this period alone of roughly 25 percent.

An even greater fiscal squeeze is likely as time goes on. Critically, spending on Social Security benefits and Medicare will continue to rise as the baby-boom generation retires. So will spending on Medicaid. Recent studies project these three programs alone may ultimately consume a larger share of GDP than all of the money the federal government collects in taxes.

A radically new context thus is being shaped that is forcing – and will continue to force – very difficult choices. Either there will be no solution to many problems, or something new will have to be tried. The growing fiscal pressures – intersecting now with growing global uncertainties – are, in fact, producing a political-economic environment in which alternatives of the kind we have reviewed may well become the only feasible way forward in many areas.

Although it is impossible to predict the degree and extent of potential expansion, a developmental perspective on past, present, and possible future stages of institutional and political change suggests that we are approaching a point in time when once controversial and seemingly novel strategies based on Pluralist Commonwealth principles are likely to become matter-of-fact and commonplace in everyday life.