Capital for the people – an idea that the time has come


If the American states are, as former justice of the United States Supreme Court Louis Brandeis once said, the “laboratories of democracy,” then it’s worth watching closely what’s happening in California now.

The threat of tax increases and a “impregnating the rich” political atmosphere has led some wealthy residents of the Golden State, including a number of technology entrepreneurs, to to leave for cheaper pastures such as Austin or Miami. This, in turn, has raised concerns about greater migration that would have an impact not only on the state’s tax base, but on the growth and innovation that have made California the fifth largest economy in the world. the world.

It’s an exceptionally full situation. While today no one has much sympathy for wealthy individuals or businesses (witness to the recent justified rage on the ProPublica losses demonstrating how little taxpayers pay the richest Americans), or really believing in the economy to run, the threat of tax and regulatory arbitrage from other states is real.

The good news is that California applies typically creative thinking to the problem. What if there was another way to exploit the wealth of business and citizens for the benefit of all?

One of these ideas that is gaining popularity is what has been called “pre-distribution”. Unlike traditional redistribution methods, in which the state taxes existing wealth and then uses it to reinforce various projects and components, pre-distribution is all about exploiting capital the same way investors do, and then use the proceeds of capital growth (which as we know far exceeds income growth) to finance the public sector.

The idea of ​​allowing more people to become capital owners has been in the works for some time. U The CalSavers program, created in 2016, allows individuals such as concert workers or independent companies who do not have access to private sector retirement accounts to contribute to professionally managed funds in a state-run system. .

Similarly, Proposition 24, u California Privacy Rights Act, was passed last year and will take effect in 2023. This actually creates a kind of stealthy sovereign wealth fund, in which 93 cents of every dollar is collected from fees paid by companies for privacy violations ( which, given the nature of surveillance capitalism, are likely to be substantial) can be invested by the Treasury, and the proceeds of any gain used to pay for government operations. “It’s a way to help us not have to raise taxes,” says Robert Hertzberg, a Democrat, leader of the Senate majority in California.

He, along with some very wealthy Californians like former Google chief Eric Schmidt and Snap founder Evan Spiegel, have proposed that the concept be expanded into something called “basic universal capital”. The idea is that capital seed contributions from companies or philanthropists could be invested in a fund that would then be used by individual Californians for things like pension security, health care and so on.

Earlier, in the 2021-2022 budget, California Governor Gavin Newsom proposed using part of the state’s tax surplus this year – which, with Covid’s federal relief, put an extra $ 100m in public cases – to initiate university accounts for every first-tier primary in the state.

You can imagine going further and having the state to take a small capital position, maybe 3-5 percent, in start-ups, as countries like. Israel or Finland already done. Given that the current value of publicly traded companies in California is about $ 13 billion, it’s not a chump change. If the state had been able to take even a small stake in major companies a few decades ago, there could be much less of the “Occupy” Silicon Valley environment in California now.

Pre-distribution should not, in my view, be a substitute for taxation. It could not fill the gap, and taxes are in any case a way to reinforce the sense of civic duty and belonging. But it should be seen as a new revenue stream particularly well suited to an era in which networking effects and intangible assets they concentrate wealth not only in fewer hands, but in fewer companies that can generate significant profits with far fewer employees.

It could also help to better align public and private incentives and rewards. The massive wealth accumulated by major companies is in part up to the strength of public municipalities – good schools, decent infrastructure, basic research, and so on. As economists like Mariana Mazzucato do you often notice why taxpayers have to take the bill to, for example, lay fibers at high speed without having any commercial advantage?

In fact, if pre-distribution works in the California lab, I expect it to be adopted in some way at the federal level. The Obama administration actually tried to implement its own version of the CalSavers program for the country as a whole, called myRA, but failed in part because the funds were invested only in super-secure low-yield Treasury bills in a time when the market as a whole was growing much faster.

Even in this politically polarized moment, it is an idea that time can come. Pre-distribution is supported by unlikely bedfellows such as hedge funders Ray Dalio and left-wing economist Joseph Stiglitz. Perhaps because, although it does not fundamentally alter the market system, it expands stock ownership: a mixture of capitalism and socialism that is right for our time.

rana.foroohar@ft.com



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