People’s Policy Project is a think tank founded in 2017. The primary mission of 3p is to publish ideas and analysis that assist in the development of an economic system that serves the many, not the few.
Matt Bruenig is the founder of People’s Policy Project.
In the United States, the top 1 percent of families owns more wealth than the bottom 95 percent of families combined. Millionaires own 80 percent of the country’s wealth while the bottom third of families owns none of it. Between 2007 and 2016, the average wealth of the top 1 percent increased by $4.9 million at the same time as the wealth of the median family declined by $42,000.1
Much has been written in recent years about the worsening of wealth inequality in America.2 This is an important story, but it can also mislead readers into thinking that midcentury America was an egalitarian society.
In 1962, the bottom 40 percent of families owned just 0.3 percent of the national wealth while the top 1 percent of families owned 33 percent of the national wealth. Today, those figures are -0.5 percent and 40 percent respectively.3 Then, as now, the country was home to a large, propertyless underclass and high levels of overall inequality.
Wealth levels vary considerably by race, age, and education, but these intergroup differences are not why overall wealth inequality is so high. This can be demonstrated by looking at the distribution of wealth within each demographic group.
In virtually every demographic group, wealth distribution takes on the same familiar pattern: the top 10 percent owns around three-fourths of the group’s wealth, while the bottom third owns none of it.
Why wealth in capitalist societies tends to concentrate like this has been a matter of much discussion over the years.4Broadly speaking, it appears that capitalist economies contain feedback loops that cause relatively minor differences in initial endowments or incomes to become amplified over time. Those with more wealth receive more income; those with more income save at higher rates; and those who save at higher rates accumulate a larger share of the national wealth. In other words, wealth begets wealth.
In this paper, I propose that the US government tackle the problem of wealth inequality by creating a social wealth fund (swf) and issuing one share of ownership in the fund to every American. After the fund is created, the government will gradually accumulate assets for the fund to manage, such as stocks, bonds, and real estate. As the assets under management increase, the value of the shares held by the citizen-owners will increase, causing wealth inequality to fall. Although the citizen-owners will not be permitted to sell their shares, they will be paid a universal basic dividend (ubd) each year from the investment income earned by the fund.
Section One of the paper provides a basic background on social wealth funds. Section Two discusses the Alaska Permanent Fund, a social wealth fund created by the state of Alaska in 1976. Section Three contains a detailed proposal that federal policymakers could use to create an American social wealth fund along the lines explained above.
Our current policy discussion around wealth inequality is inadequate for the task at hand. This discussion features mostly small bore proposals—often going under the heading of “low-income asset building”—that, if implemented, would have virtually no effect on the overall level of wealth inequality in the country. The goal of this paper is to go beyond these conventional proposals and provide a solution to wealth concentration that is designed to confront the monumental scale of the problem we face.
Social wealth funds are generally defined as “collectively held financial funds, fully owned by the public and used for the benefit of society as a whole.”5 The concept is also sometimes referred to as “citizen’s wealth funds” or “sovereign wealth funds.”6 Whatever you call it, the idea is simple: the government directly owns a large pool of income-generating assets and then uses the return on those assets for social welfare purposes.
Interest in social wealth funds has spiked in recent years. Seth Ackerman proposed the creation of such a fund in 2012;7 Peter Barnes published a book on the subject in 2014;8Tony Atkinson proposed the idea as a solution to inequality in his 2015 book;9 Angela Cummine and Stewart Lansley put out books about it in 2016;10 former Greek Finance Minister Yanis Varoufakis wrote in support of the idea in 2016;11 the pan-European movement DiEM25 included the idea in its European New Deal platform in 2017;12 and two British think tanks published reports promoting the idea in 2018.13 In addition to interest from policy writers, Hillary Clinton endorsed the concept of creating a national swf in her 2017 campaign memoir.14
The recent burst of writing on this topic was predated by a century of similar proposals. Rudolf Hilferding argued that the socialization of financial assets “constitutes the ultimate phase of the class struggle between bourgeoisie and proletariat” in 1910;15 Oskar Lange argued for the payment of a social dividend out of a collectively-owned capital stock in 1936;16Nobel prize-winning economist James Meade published a paper in favor of the idea in 1964;17 and John Roemer proposed something similar to a social wealth fund in his 1994 book.18
The older swf advocates were typically motivated by market socialist ideologies. To them, a social wealth fund provided a way for society to collectively own, control, and benefit from the wealth of the nation. Although some modern swf advocates continue to argue for the idea on these traditional terms, most choose instead to present it as a practical and egalitarian source of revenue for social welfare purposes.
The turn towards the practical has likely been driven by the fact that the swf idea has now been successfully implemented many times throughout the world. At the beginning of 2016, the globe was home to around 80 sovereign funds spread across more than 60 governments, with most of the funds being established after the year 2000.19 Not all of these funds exist for a social purpose and so some do not meet the definition of a social wealth fund used above. But they all nonetheless prove that a government can own and manage large pools of income-generating assets without significant problems.
The most famous social wealth fund in history was the one briefly established in Sweden in the 1980s.20 The Swedish “wage-earner funds,” as they were called, were the brainchild of trade union economists Rudolf Meidner and Gösta Rehn. Meidner published a book on the idea in 1978 titled Employee Investment Funds: An Approach to Collective Capital Formationand then a retrospective paper in 1993 titled “Why Did the Swedish Model Fail?”21
The Meidner plan, as it came to be known, proposed using a scrip tax to gradually transfer ownership of Sweden’s corporations away from private shareholders and into wage-earner funds administered by the country’s labor unions. Under the plan, Swedish companies would be required to essentially pay a 20 percent tax on their profits. But rather than paying that tax in cash, they would instead issue an equivalent amount of new company stock to the relevant wage-earner fund.
Meidner calculated that, with an average profit margin of 15 percent and a continual reinvestment of profits back into buying more shares, the wage-earner funds would have majority ownership and thus control of Swedish companies after 25 years.
When Social Democratic Party (sdp) leader Olof Palme adopted the Meidner proposal ahead of the 1982 Swedish general election and then won, the whole world took notice.
The New York Times declared that it could be the end of the “middle way,” which they clarified as “the socialism carried on in Sweden from 1932 to 1976” that mostly left ownership in private hands. They went on to note the irony of the fact that the plan’s “transition to collective ownership” relied upon the country’s stock market, “the heart of capitalism.”22
The Christian Science Monitor called it a “Socialist program masterminded by Marxist economists of the Swedish Confederation of Trade Unions” and quoted various critics of the plan. Economist Per-Martin Meyerson is quoted as saying that, after the plan, “the market economy would cease to exist.” Stig Anderson, the manager of the Swedish band abba, is reported to have organized a concert “to help finance the fight against the Socialist takeover” and was quoted as saying an sdpelectoral victory “might be the first time that a country will freely vote to go behind the Iron Curtain.”23
Despite the hysterical response, the plan was implemented in 1984, though in a diminished form. Under the program, the government imposed a relatively small excess-profits tax on companies rather than requiring them to directly issue new shares and created regional funds to hold the assets rather than the wage-earner funds originally proposed by Meidner. Nonetheless, the cash received from the excess-profit tax was used to purchase shares of Swedish corporations and the program managed to buy up 7 percent of Swedish company stock by 1991.
Norway’s central government currently manages three main asset pools. There is the Government Pension Fund Norway (gpf-Norway), a stock and bond portfolio that is invested in Norwegian and other Nordic companies;25 the Government Pension Fund Global (gpf-Global), a stock, bond, and real estate portfolio invested exclusively outside of Norway;26 and the state-owned enterprises (soes), a set of 74 domestic companies that are directly owned by 12 government ministries.27
gpf-Norway and gpf-Global are social wealth funds. The soe assets, because they are owned directly by ministries rather than through a fund, are not technically a social wealth fund. But the soes are nonetheless in the spirit of a swf and could be rolled into a swf if the Norwegian state wanted to do so.
Adding up all of the wealth collectively owned through the Norwegian state produces some truly staggering figures. At the end of 2016, gpf-Norway controlled assets equal to 7 percent of Norway’s gdp;28 gpf-Global owned assets equal to 241 percent of gdp;29 and the soe equity holdings were valued at 23 percent of gdp.30 Thus, all together, the Norwegian central government owned assets equal to 271 percent of the country’s gdp in 2016. To put this in perspective, for the US government to own a similar amount of wealth, it would need to build a $54 trillion social wealth fund.31
The soes, gpf-Norway, and other local government funds combine to own a little more than one-third of all the equity listed on the Oslo stock exchange.32 This level of ownership is nearly 5× what the Meidner plan achieved before it was halted.
Due to its collective wealth funds and soes, the Norwegian government owns around 59 percent of the country’s wealth. To reiterate: 6 out of every 10 kroner of wealth in Norway is owned by the state. When you exclude owner-occupied homes from the calculation, you find that the state of Norway owns 76 percent of the country’s non-home wealth. For comparison, the Chinese government owns only 31 percent of its national wealth.33
These holdings generate a considerable amount of income. Over the last 10 years, the conservatively-invested gpf-Global generated an average annual return of 5.9 percent.34 Over the same period, gpf-Norway had an 8.3 percent average return.35 In 2017, gpf-Global generated a return 1,028 billion kroner while gpf-Norway had a return of 26 billion kroner.36 In 2016, the soe portfolio produced a 33 billion kroner dividend for the state.37 Adding the 2016 soe figure to the 2017 figures for gpf-Norway and gpf-Global gives you a total return of 1,087 billion kroner or $133 billion.38 Had that money been paid out as a dividend to all 5.2 million Norwegians, it would have provided each with $25,500, or $102,000 for every family of four.
The Norwegian funds are also efficiently administered. In 2017, gpf-Global’s expenses were equal to 0.06 percent of its assets under management and gpf-Norway’s expenses were 0.07 percent of its assets.39These expense ratios are near the lowest in the world, even when comparing them to private asset management, and this is despite the fact that the funds are actively managed.
To be sure, Norway is an outlier in the world in terms of just how much wealth it has accumulated in its various swfs. But this is also what makes it such a promising example. The idea that a society could collectively own three-fourths of its non-home wealth through social wealth funds administered by a democratically-elected government without any negative economic consequences would be rejected as preposterous by most political and economic commentators in America today.
But that is precisely what Norway has done and seemingly what any country could do if it has the necessary will and competence.
The United States is aready home to a handful of social wealth funds. There is the Permanent School Fund and Permanent University Fund in Texas,40 the State School Fund in Utah,41 and the Common School Fund in Oregon,42 to name a few. By far the most interesting and largest of those funds is the Alaska Permanent Fund(apf). What sets the apf apart from virtually all other swfs in the world is that the apf pays an annual cash dividend to every citizen of Alaska. It is thus a homegrown model of the kind of swf I think the federal government should implement on the national level.
The Alaska Permanent Fund (apf) only exists today because Alaska Governor Jay Hammond was obsessed with the idea of dividend-paying social wealth funds.43:
Before his stint as governor, during the 1960s, Hammond was the manager of a 2,000-person municipality in Alaska called Bristol Bay Borough. Bristol Bay was teeming with salmon resources, but 97 percent of those resources were being extracted by Seattle-based firms, not local fishermen. The Seattle-based firms even preferred hiring non-residents to staff their fishing operations, meaning that the local population was largely locked out of the job opportunities the salmon catch provided.
This situation resulted in serious economic deprivation for Bristol Bay residents: “no high schools, sewer or water systems, health care facilities, fire, police, or ambulance services.” The town’s garbage “was dumped over the riverbank in hopes it would flush out with the ice during high spring tides.”
Hammond hit upon an idea to reverse this dynamic. He proposed imposing a 3 percent tax on the fish catch and using the revenues to build out a “conservatively managed investment account” that would pay the residents an annual dividend from its investment returns. Since 97 percent of the fishing was done by non-local firms, this would mean 97 percent of the tax would be paid by non-local firms. Despite its seeming appeal, Hammond’s proposed ordinance failed at the polls, apparently due to anti-tax sentiments.
Hammond did manage to pass the tax a few years later in exchange for an elimination of the local property tax. The massive tax take from the fishing transformed the borough into the “richest municipality in the nation on a per capita basis” according to Fortune magazine, but Hammond nonetheless lamented his failure to establish a universal basic dividend in Bristol Bay.
Alaska Native Claim Settlement Act Failure
Undeterred by his mixed success at Bristol Bay, Hammond again tried to establish a dividend-paying social wealth fund in 1971 on the heels of a $900 million settlement that the federal government had entered into with the indigenous people of the state. Hammond was asked to make recommendations about how the natives could use that money and he suggested they put it in a big fund and use the investment return to pay annual dividends to all Alaskan natives.
As in Bristol Bay, Hammond’s idea was rejected. The native leadership decided instead to invest the money into the creation of over 200 native businesses. This was not the diversified social wealth fund of Hammond’s dreams, but the native-owned enterprises did nonetheless produce dividends for Alaskan natives in most cases.
When Hammond became governor of Alaska in 1974, he found another opportunity to replicate what he did in Bristol Bay. The state’s gas severance tax was about half the national average, but most of the extracted gasoline was being sold abroad. So, he proposed doubling the gas severance tax, creating a $150 state income tax credit to offset any increase in gas prices in the state, and storing the remainder of the revenue in the general fund. This proposal passed.
Hammond’s tax-and-dividend proposal was a success, but not completely. “I found almost no one remembered the tax credit,” Hammond later wrote. “At that point I decided that if another dividend program were established, I wanted to put a check in everyone’s hand, rather than simply a credit for those making sufficient income to pay a state income tax. I thought that by so doing people would better recognize and appreciate the dividend concept and demand the state maximize returns from its resource wealth.”
And this is exactly what Hammond did. In 1976, he got the legislature to put a constitutional amendment on the ballot that would require that “twenty-five per cent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments.” The measure passed by a 2-to-1 margin.44
In 1977, the Alaska Permanent Fund (apf) received its first deposit, $734,000 from oil royalties. In 1980, the legislature created a state-owned enterprise called the Alaska Permanent Fund Corporation (apfc) to manage the apf and created the Permanent Fund Dividend (pfd) program that began paying dividends to the citizens of Alaska two years later. Those dividends continue to flow to this day.45
After 15 years of trying, Jay Hammond’s dream of establishing a social wealth fund that paid out a universal basic dividend finally became a reality.
At the end of 2017, the Alaska Permanent Fund owned just under $60 billion of assets.46 This is equal to around 113 percent of the state’s gdp.47 A similarly-sized fund for the United States would need to be around $22.6 trillion.
The assets are invested in a broad and diversified portfolio of stocks, bonds, real estate, and other ventures.
Across its 34-year existence, the apf has achieved an average annual investment return of 8.78 percent. The apf’s performance is slightly below its benchmark index across the entire 34-year horizon, but quite a bit above that same index in more recent years. This seems to indicate that the apfc is getting better at asset management over time. Nonetheless, the main drivers of the apf’s return in any given year are general economic conditions.
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