THE JUST THIRD WAY:
BASIC PRINCIPLES OF ECONOMIC AND SOCIAL JUSTICE
by Norman G. Kurland, President, Center for Economic and Social Justice
Presented at the Fifth Annual Conference of the Center for the Study of Islam and Democracy (CSID), Wyndham Washington Hotel, Washington, D.C., May 28-29, 2004
Are there limits to freedom?
Are there limits to democracy?
Are there limits to peace?
Are there limits to justice?
Think about these questions in terms of the present war in Iraq and the Israeli-Palestinian conflict in the Holy Land. Think of the stated objectives behind America?s use of military power and the economic power of global capitalism. I think you?ll agree that, of these four values, only justice has no limits. Without a clear understanding of justice, we cannot recognize the limits, or the effective paths, to freedom, democracy and peace.
What is Justice?
To paraphrase Victor Hugo: ?More powerful than all the money and military might in the world is an idea whose time has come.? A new worldview of justice, properly understood, is the most powerful force to be placed in the hands of ordinary people and new leaders to transform degrading, oppressive and dehumanizing systems. This new worldview points the way to a lasting and humane solution to global conflicts. As Pope Paul VI reminds us, ?If you want peace, work for justice.?
Before we can apply its principles, we need to ask ourselves, what is ?justice?? Louis Kelso (the philosophical father of the ?Just Third Way?) and Mortimer Adler (the Great Books philosopher and Aristotelian scholar who once taught the Philosophy of Law at the University of Chicago Law School) articulated a classical definition of “justice”:
?Justice, in its most general formulation, imposes the following moral duties or precepts upon men who are associated for the purposes of a common life: (1) to act for the common good of all, not each for his own private interest exclusively; (2) to avoid injuring one another; (3) to render to each man what is rightfully his due; and (4) to deal fairly with one another in the exchange of goods and in the distribution of wealth, position, status, rewards and punishments.?
Understanding Social Justice and Social Charity
In his seminal work, The Act of Social Justice (1943), the late Marianist priest Father William Ferree, a co-founder of our interfaith center, argued that the dignity of the human personality is the basis of any sound theory of justice. Describing justice at the individual or personal level, Ferree wrote:
For Pope Pius XI [in his 1931 Encyclical, Restructuring of the Social Order], the theory of justice is based squarely on the dignity of the human personality. His position is that charity regulates our actions toward the human personality itself, that Image of God which is the object of love because it mirrors forth the Divine Perfections, and in the supernatural order shares those perfections. The human personality, however, because it is a created personality, needs certain ?props? for the realization of its dignity. These ?props? or supports of human dignity, which include such things as property, relatives and friends, freedom and responsibility, are all objects of justice. To attack a human person in his personality itself, as by hatred, is a failure against charity; but to attack him by undermining the supports of his human dignity, as by robbery, is a failure against justice.
In defining justice at the social level?how individuals should act when their institutions are in need of reform?Ferree wrote:
The same thing is true in the field of social morality. The human community, as such, shows forth the perfections of God in ways that are not open to individuals. This fact is very clearly stated in paragraph 30 of the Encyclical Divini Redemptoris:
?In a further sense it is society which affords the opportunity for the development of all the individual and social gifts bestowed on human nature. These natural gifts have a value surpassing the immediate interests of the moment, for in society they reflect a Divine Perfection, which would not be true were man to live alone.?
Society itself, therefore, as thus revealing further the perfection of God in His creatures, is worthy of love: of a love directed not only towards the individuals who compose the society, but also toward their union with each other. This love is social charity.
Moreover, as society thus makes available to man the further perfection of his potentialities of mirroring the Divine Perfection, it is also a support for these perfections, and hence is an object of the virtue of justice. This justice, Social Justice, which is directed at the Common Good itself, requires that the society be so organized as to be in fact a vehicle for human perfection.
Dr. Robert D. Crane, a global strategist, prolific writer on Islamic jurisprudence and another co-founder of the Center for Economic and Social Justice, has authored a brilliant paper published on the web site of the Global Justice Movement. His paper discusses how the seven fundamental principles of maqasid al shari?ah offer a ?paradigm for a spiritual renaissance in all faiths that can transform the world.? Dr. Crane?s writings are aimed toward mobilizing ?a minority of courageous Muslims determined to fill the intellectual gap that has weakened the Muslim umma for more than six hundred years.? These fundamental principles of Islamic law are, in my opinion, consistent with the ?Peace through Justice? vision of our center, the founding ideals of America, and the UN?s Universal Declaration of Human Rights.
Understanding Economic Justice
If social justice consists of organizing with others to change social institutions, then the pursuit of economic justice is an indispensable part of social justice. Principles of economic justice deal with all institutions affecting the production, consumption and distribution of economic goods and services. They deal with the more urgent material human needs, in contrast to the higher spiritual, intellectual, cultural and social needs that must be satisfied for the fullest development of every person. Since institutions are artifacts created by people, not God, transforming and perfecting them is a continuing responsibility of each of us, once we share a common vision and common principles of effective action.
Among all the writings on the subject of economic justice, the clearest set of principles I have encountered are in a 1958 book, The Capitalist Manifesto, co-authored by Louis O. Kelso and Mortimer J. Adler. While the book was a best-seller when published, most scholars never got past the cover of book, undoubtedly because of its (in my view) misleading title. Kelso and Adler challenged basic assumptions of conventional paradigms of political economy. They developed a simple yet profound theory of economic justice that sheds new light on the impact of technology on human work and the development of modern civilization. They described the systemic political and moral flaws of national ?full employment? policies and how today?s global economic order creates an ever-expanding gap in economic power, opportunity and incomes between a wealthy elite and propertyless workers.
As a lawyer Kelso saw that the design of our ?invisible? institutional environment and social tools determines the quality of people?s relationship to technology. Such intangible things as our laws and financial systems determine which people will be included or excluded from access to economic opportunity, power and capital incomes.
Access to capital ownership, asserted Kelso, is as fundamental a human right as the right to the fruits of one?s labor. Kelso argued that the democratization of money creation and capital credit is the ?social key? to universalizing access to future ownership of productive wealth. This social key could enable every person, as an owner, eventually to gain income independence through the profits from one?s capital.
Kelso?s general theory and vision have been trivialized and virtually ignored by academia and the mainstream media. This explains in large measure why economists cannot understand or solve within their outdated paradigms most of the problems arising from economic globalization. Nevertheless, before his death in 1991, Kelso gained international fame as the inventor of the Employee Stock Ownership Plan or ?ESOP,? one of the tools he developed to democratize access to money and credit.
Kelso?s Economics of Ownership and Justice
At the heart of what Kelso called ?binary economics? is a simple but revolutionary proposition. Kelso stated that people could legitimately create economic value through two (thus binary) factors of production:
? Labor (which Kelso defined as all forms of economic work by people, including manual, intellectual, creative, and entrepreneurial work, and so-called ?human capital?), and
? Capital (defined by Kelso as anything non-human contributing to the production of marketable goods and services, including tools, machines, land, structures and infrastructural improvements, management systems, and patents). Kelso, like another post-scarcity thinker, Buckminster Fuller, attributed most changes in the productive capacity of the world since the beginning of the industrial revolution to technological improvements in our capital assets, and a relatively diminishing proportion to economic work.
Capital, in Kelso?s terms, does not ?enhance? labor productivity, i.e., labor?s ability to produce economic goods. It makes many forms of labor unnecessary. According to Kelso, productive capital is increasingly the source of the world?s economic growth and therefore should become the source of added property incomes for all.
The Three Basic Principles of Economic Justice
Kelso based his ideal market system on three essential and interdependent principles of economic justice:
(1) Participation, the input principle. If both labor and capital are interdependent factors of production and if capital?s proportionate contributions are increasing relative to labor, then equality of opportunity demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all.
(2) Distribution, the out-take principle. Property rights require that income be distributed based on the value of what one contributes to production?one?s labor, one?s capital, or both. Assuming that capital ownership is spread broadly, the free and open market under Kelso?s system becomes the most democratic and efficient means for determining just prices, just wages and just profits. If both sales revenues and all labor costs are set by globally competitive market forces, then profits, the revenues left over after all labor costs of an enterprise are subtracted, represent a market-based return to capital in the form of profits to be shared among all the firm?s co-owners.
The principle of distribution for the virtue of charity (according to need) complements the distributive principle for the virtue of justice (according to contribution). Charity, however, should never be a substitute for justice. Without justice people will not be motivated to produce enough wealth for themselves and to engage in charitable acts for the needy, and the needy will never become self-sufficient.
(3) Limitation, the feedback or, in moral terms, the anti-greed principle (which some Kelsonians call the principle of ?Harmony? and others call ?Social Justice.?) This principle, exercised through organized efforts to transform unjust institutions, guides the restoration of balance between ?participation? (input) and ?distribution? (out-take) when either principle is violated. It puts limits on monopolistic accumulations of capital and other abuses of property.
The Four Pillars of an Economically Just Society
All wage systems ignore one or more of what can be called the “Four Pillars,” the essential principles for building a more just economy. During periods of economic reform, leaving out any one of these pillars weakens the entire fabric of the economy and leads to eventual collapse. Applying the Kelso-Adler theory of economic justice, policies for transforming unjust economies include:
? Expanded Ownership of Productive Assets
? Limited Economic Power of the State
? The Restoration of Free and Open Markets
? The Restoration of Private Property
Expanded Ownership of Productive Capital: The Moral Omission of All Existing Economies
One of the most crucial problems that Marx addressed in his economic theories was that ownership of productive assets?“capital”?was limited to the very few. As a result, no high technology market system could possibly produce sustainable growth, since working people would have only their labor to sell in direct competition with labor-displacing technology and a growing world population of workers willing to work for lower wages. Unfortunately, Marx’s solution to this mismatch between the rising productiveness of technology and market-based consumption incomes was to concentrate productive wealth and power even more by mandating state ownership of all productive assets. This resulted in enormous concentrations of wealth and power in the hands of a new elite. The real problem that Marx faced, however, was not private ownership of productive property, but concentration of private ownership. Turning Marx upside down, Kelso would make every worker an owner of a growing stake of income-producing property. This would both achieve economic justice for all and stabilize and sustain growth in any market economy.
Limited Economic Power of the State
Limiting the economic power of the state ultimately involves the goal of shifting ownership and control over production and income distribution from the state to the people. To do this, the economic power of the state should be specifically limited to:
? Encouraging sustainable and life-enhancing growth and policing abuses within the private sector;
? Lifting barriers to equal ownership opportunities, especially by reforming the money-creating powers of the central bank to provide widespread access to low-cost capital credit as the key to spreading ownership and economic empowerment for workers;
? Preventing inflation and providing a stable currency for sustainable development;
? Protecting property, enforcing contracts and settling disputes;
? Ending economic monopolies and special privileges, except for limited terms for holders of patents, copyrights and other intellectual property rights;
? Encouraging democratic labor unions to become democratic ownership unions that organize to turn all workers into owners and promote economic justice in the ownership, governance and management of all private sector enterprises;
? Protecting the environment; and
? Providing social safety nets for human emergencies.
Within these limits the state would promote economic justice for all citizens. Coincident with this objective would be the goal of reducing human conflict and waste and erecting an institutional environment that would encourage people to increase economic efficiency and create new wealth for themselves and the global marketplace. Increased production would increase total revenues for legitimate public sector purposes, reducing the need for income redistribution through confiscatory income taxes and social welfare payments.
Restoration of Free and Open Markets
Artificial determinations of prices, wages and profits lead to inefficiencies in the use of resources and scarcity for all but those who control the system. Those in power either have too little information or wisdom to know what is right, or will set wages and prices to suit their own advantage. Just prices, just wages, and just profits are best set in a free, open and democratic marketplace, where consumer sovereignty reigns. Assuming economic democratization in the future ownership of the means of production, everyone’s economic choices or “votes” on prices and wages influence the setting of economic values in the marketplace.
Establishing a free and open market would be accomplished by gradually eliminating all special privileges and monopolies created by the state, reducing all subsidies except for the most needy members of society, lifting barriers to free trade and free labor, ending all non-voluntary, artificial methods of determining prices, wages and profits. This would result in decentralizing economic choice and empowering each person as a consumer, a worker and an owner.
Wealth distribution assumes wealth creation, and technological and systems advances, according to recent studies, account for almost 90% of productivity growth in the modern world. Thus, balanced growth in a market economy depends on incomes distributed through widespread individual ownership of the means of production. The technological sources of productive growth would then be automatically linked with the ownership-based consumption incomes needed to purchase new wealth from the market. Thus, Say’s Law of Markets?which both Marx and Keynes attempted to refute?would become a practical reality for the first time since the Industrial Revolution began.
Restoration of Private Property
Owners’ rights in private property are fundamental to any just economic order. Property is not the things that are owned. Property is the bundle of rights that determines one?s relationship to things. (In the modern era, we recognize that property owners cannot legitimately treat other persons as ?things,? as in more dehumanizing cultures.) Property secures personal choice, and is the key safeguard of all other human rights. By destroying private property, justice is denied. Private property is the individual’s link to the economic process in the same way that the secret ballot is his link to the political process. When either is absent, the individual is disconnected or “alienated” from the process.
Restoring the idea as well as the fact of private property?especially in corporate equity?would involve the reform of laws that prohibit or inhibit acquisition and possession of private property. This would include ensuring that all owners, including shareholders, are vested with their full rights to participate in control of their productive property, to hold management accountable through shareholder representatives on the corporate board of directors, and to receive profits commensurate with their ownership stakes. Private property links income distribution to economic participation?not only by owners of existing assets, but also by new owners of future wealth.
Money and Credit for Building a Just Market Economy
Control over money and credit (i.e., financial capital) largely determines who will own and control productive capital in the future.
When the subject of money and money creation comes up, we sometimes forget that money is a man-made thing, and is morally neutral. Its goodness or badness depends solely on how it is created and how it is used. Like the secret ballot in politics, money is a uniquely “social good,” an invention of modern civilization, a means for measuring economic values and enabling people to participate in a market economy.
And that is the crux of the matter. Money is created and credit extended these days systemically in ways that keep the rich wealthy, and the poor in their place. Consumer credit, for example, is available virtually to everyone, while access to capital (or “productive”) credit is restricted to use by those who meet the universal requirement for collateral, i.e., the rich. Thus, the poor and middle-class get the most risky and highest cost credit, while the rich get the lowest-cost and least risky kind of credit. It is more than an outworn truism that you need money to make money, or that lenders will only extend capital credit to people who don’t need to borrow.
For example, let us look at the $2 trillion of growth assets added each year in the US public and private sectors, consisting of new technology, plant and equipment, physical infrastructure and rentable space. Amounting to a growth increment of $7,000 for every man, woman and child, these productive assets will be financed in ways that add almost no new owners. If capital credit were to become as universally accessible as the political ballot, capital assets could become a growing source of independent capital incomes for all persons and their families.
What makes capital credit special is that by nature it is procreative or “self-liquidating.” That is, capital credit is restricted to the purchase of assets that are expected to pay for themselves out of the revenues generated from the capital project which it financed, and thereafter these assets are expected to earn a continuing flow of profit for whoever owns the assets. Capital credit is inherently counter-inflationary. Consumer credit, on the other hand, does not generate its own repayment, and any repayment must come out of the user’s other resources. When used to any significant extent, consumer credit greatly reduces the purchasing power of the user.
The Democratization of Productive Credit: A New Right of Citizenship
The primary social means to bring about expanded ownership of productive assets involves the democratization of productive, self-liquidating credit.
By making productive credit available on a truly democratic basis, society moves people toward economic self-sufficiency and independence. A broad dispersion of wealth and power serves as the ultimate check against abuse of power by the state or by the majority against minorities or individual citizens.
Why is Access to Ownership the Antidote to the Injustices of Global Capitalism?
Americans generally and academics in particular, can describe problems. They flounder, however, for new solutions in fighting threats to regional and global peace, freedom and the rule of law. Many agree that economic growth equitably shared is necessary for overcoming poverty ? the taproot of conflict, revolutions and war ? within and among nations. But few ask new questions, such as: What are the systemic flaws in current development models?
If ?ownership is a sine qua non of development,? as expressed by World Bank President James Wolfensohn, why have the strategies of Western development experts failed to create nations of owners, from the bottom-up? What in the current system of economic globalization produces an ever-widening and dangerous gap in economic power and economic self-determination between haves and have-nots among nations and within all nations in the global marketplace? Can free markets, free trade, private property and limited government be made compatible with economic and social justice? What minor systemic changes could be introduced to transform the globalization process into a blessing, especially for the poorest of the poor, in Iraq, Gaza, on the West Bank, in Afghanistan, Kashmir, Indonesia, the Philippines, Chechnya and other breeding grounds of human hopelessness, group hatred, and the next rounds of suicide terrorism?
A Different Perspective on Economic Globalization
Conventional development approaches are based on wrong-headed, win-lose assumptions that argue that scarcity is inevitable and shared abundance is impossible.
R. Buckminster Fuller, a post-scarcity thinker, architect, and engineer, refuted the conventional wisdom by pointing out: ?There is only one revolution tolerable to all men, all societies, all political systems: Revolution by design and invention.? Besides offering a still untried vision for tapping technology?s untapped synergistic potential, Fuller then issued this challenge to the world: ?[M]ake the world work for 100% of humanity in the shortest possible time through spontaneous cooperation without ecological offense or the disadvantage of anyone.?
In contrast to Fuller?s optimistic approach to global development, pessimism and a sense of hopelessness around the world has been fueled by a growing awareness of a force that is greater than the power of any nation state in the world ? the force of economic globalization. This is the conclusion of best-selling author William Greider in his 1998 book, One World, Ready or Not: The Manic Logic of Global Capitalism. Greider points out that economic globalization?driven by a financial elite with the power to shift billions of dollars almost instantaneously from one country to another?is a reality and will not go away. The ability of those who control money and finance to topple seemingly invulnerable heads of state was evidenced in the overthrow of the Suharto regime in Indonesia.
The subordination of most world political leaders to the controllers of money was predictable at least a century ago when one of the world?s earliest financial capitalists, Baron Mayer Anshel Rothschild, was quoted as saying, ?Permit me to control the issuance of a nation?s money and credit, and I care not who makes the laws.?
For most people, however, economic globalization means a growing gap between rich and poor, technological alienation of the worker from the means of production, and the phenomenon of ?wage arbitrage.? It means an environment in which global corporations and strategic alliances can force workers in high-cost wage markets to compete with labor-saving tools and lower-paid foreign workers.
Even the United States, which today seems to be enjoying relative economic prosperity in the midst of the world?s financial downslide, is showing similar symptoms. The USA has one of the widest gaps between the ?haves? and ?have-nots.? American business has the widest pay gap between CEOs and ordinary workers. Low unemployment masks an underlying displacement of workers by technology and cheaper foreign labor, resulting in greater economic uncertainty and shakier retirement incomes.
This lack of direction is reflected in growing demands that ?something be done,? but with a conspicuous absence of anything substantive, other than the stale prescriptions of the past.
Is There a ?Just Third Way??
Media pundits continue to mention a ?Third Way,? but none of them seems to know quite what it is. People on the left who are positive toward the idea present it as socialism with a capitalist whitewash; people on the right present it as capitalism with a socialist veneer.
Many skeptics, correctly in our opinion, view the ?muddled middle? formula for the ?Third Way? as an attempt to give moral legitimacy to the Wall Street capitalist approach to economic globalization. This formula attempts to blend political democracy with economic plutocracy, an inherently unstable mix. The Washington Post on August 30, 1998 editorialized that ?there is in fact no third way.?
In contrast to the intellectual fuzziness now pervading high policy circles, this paper asserts that no third way is a true third way or a ?Just Third Way? if it:
? Does not economically empower the people,
? Keeps economic and social power, especially over advanced technologies, concentrated in the hands of an elite,
? Keeps most people in a status of servile dependency on the state or other people,
? Lacks a coherent theory and principles of economic justice to guide policy makers,
? Lacks a structured system for closing the gap between the rich and the poor within the evolving global marketplace,
? Ignores the central role of such ?social tools? as money, capital credit and central banking in determining how all people can acquire access to assets and economic power in the future, and
? Remains trapped by inherently bankrupt Social Security and other income redistribution schemes, instead of encouraging asset-backed systems to link future consumption incomes with future wealth production.
Is there a solution? Yes. There is a ?Just Third Way? that goes beyond the traditional answers supplied by the right and left. It offers a new vision and alternative model for development for countries of the world in which they can succeed to their fullest potential within the framework of a global marketplace.
The Just Third Way
Let?s examine more closely the Washington Post?s statement that no third way exists. On the one hand there is capitalism, an economic system governed by market forces but where economic power is concentrated in the hands of a few who own and control productive capital. An illustration of this system is Bill Gates, who without any extra effort, went from $16 billion to over $40 billion?a greater accumulation of assets than those of 50% of the American people combined. Most workers-for-hire have great difficulty meeting their consumer debt, let alone accumulating any income-producing assets. Indeed, ?capital breeds capital? but only for those who own most of it.
On the other hand, socialism, in all its forms, is an economic system governed centrally by a political elite that enjoys even more highly concentrated ownership and economic power. And in practice, socialism doesn?t work. The world is full of examples of traditionally state-dominated economies that cannot meet their massive foreign debt obligations or compete effectively in the emerging global marketplace.
Logically, a ?just third way? would be a free market system that economically empowers all individuals and families through direct and effective ownership of the means of production.
A mistake made by many academics and economists today is to equate democracy and the market system with the top-down, Wall Street capitalist model, with its growing gap of wealth and power between the rich and the poor. That there is excessive corruption under capitalism and socialism, even where governments are democratically elected, should come as no surprise. Lord Acton warned us years ago about the inherent corruptibility of systems that concentrate power. And without a workable market-based version of economic democracy, extending the political ballot to a majority of propertyless poor people in a developing economy is a recipe for political upheaval, as India learned in its recent election.
Capitalist theorists like Milton Friedman pay no attention to concentrated ownership of labor-displacing technology. Marxist theorists do, but conclude that the state should own and regulate all means of production. Keynesians offer a feeble synthesis between these two models of development based on the premise that maldistribution of ownership is acceptable, perhaps even necessary. The ?Third Way? model of the muddled middle follows the Keynesian model.
As recognized by William Greider in chapter 18 of One World, Ready or Not, Louis O. Kelso fathered a comprehensive systems approach to solving the structural problems faced by Russia, Indonesia and many other economies that have become dependent on those who today control money and credit.
Kelso?s revolutionary insights helped him to solve an economic enigma: How Say?s Law of Markets?rejected both by Marx and Keynes?could achieve sustainable and balanced growth in a modern global economy. His legal background enabled him to see how the structuring of basic laws and institutions creates a system that either concentrates or decentralizes ownership and economic power, that encourages participation by all or creates barriers to participation. Blended with the keen insights of Buckminster Fuller?s design science revolution in physical technologies, Kelso, a master architect of social technologies, provided the comprehensive institutional framework and practical financial tools, like the ESOP, for lifting up the world?s poor without pulling down the world?s rich.
Lessons from the First American Revolution
The connection between widespread distribution of property and political democracy was evident to America’s founders. This understanding was reflected in the 1776 Virginia Declaration of Rights, the forerunner of America’s Declaration of Independence and Bill of Rights. Following John Locke’s triad of fundamental and inalienable rights, the Virginia Declaration of Rights declared that securing “Life, Liberty, with the means of acquiring and possessing Property” is the highest purpose for which any just government is formed.
With the abolition of slavery and feudalism, the United States insured that no American would ever again become the property of another. Through this and other limitations on the rights of private property, a just government transcends the weaknesses of a pure laissez-faire approach to ownership rights. However, by fulfilling its duty to all its citizens to lift barriers to private property in the means of production, government builds a permanent political constituency for a sustainable free market economy.
Looking Beyond Socialism and Capitalism
Power exists in society whether or not particular individuals own property. If we accept Lord Action’s insight that “power tends to corrupt and absolute power corrupts absolutely,” our best safeguard against the corruptibility of concentrated power is decentralized power. If Daniel Webster is also correct that “power naturally and necessarily follows property,” then democratizing ownership is essential for democratizing power.
In the economic world, property performs the same power-diffusion function that the ballot does in politics. It does more. It makes the ballot-holder economically independent of those who wield political power.
Both socialism and capitalism concentrate economic power at the top. It makes little difference that under capitalism the concentration is in private hands and under socialism the concentration is in the hands of the state. Both systems are excessively materialistic in their basic principles and overall vision. Both, in their own ways, degrade the individual worker. Both bring forth economic systems that ignore and hinder the intellectual and spiritual development of every member of society.
Amalgams of the two systems, as in America’s so-called “mixed economy” or the Scandinavian welfare state model, differ only in their degree of social injustice, corruption, economic inefficiency, human insecurity and alienation which permeate each level of class-divided societies. What then would be a genuine alternative economic model for moving toward a freer, more just and economically classless society?
Mistakes of the Left and the Right
Most schemes being promoted by experts keep repeating the mistakes of the past. From the academic right come proposals that assume that free markets alone will bring prosperity and justice to workers. However, the right never explains how the unrestrained forces of the market can ever match consumer production (i.e., aggregate supply) with consumption incomes (i.e., aggregate demand), where ownership of advanced labor-displacing technology is owned by a tiny fraction of the world’s consumers, and old capital “breeds” (i.e., finances) new capital in ways that create few if any new owners. A systemic mismatch is inevitable, together with social conflicts, disorder and a growing gap between the rich and the rest of society. Bill Gates of Microsoft, with his $43 billion, and his fellow billionaires cannot possibly spend all the consumption income earned by their productive assets.
From one side of the muddled middle come ideas to fight economic globalization by retreating behind defensive proposals to restore mercantilism, protectionism and economic balkanization. Others in the middle react to the dangers of globalization with “Marshall Plan” proposals to pump billions in new foreign money each year into transforming economies They promote welfare state systems that would ensure every worker displaced by privatization a wage packet in return for his labor, while ignoring a worker’s right to own and share profits from new and denationalized enterprises.
And from the academic left, clinging to the cobwebs of socialism, come proposals to rectify imbalances from maldistribution of capital ownership, generally by fighting the immutable laws of supply and demand in favor of new forms of collectivism and redistributive taxation. This would ensure systemic dependency by putting all citizens on the dole, regardless of their efforts or the demands of justice. And it would concentrate economic power and leave even fewer checks than under capitalism.
Beyond the Wage System
Higher wages are not the focus of the Just Third Way. The Just Third Way is a systematic approach, balancing the demands of participative and distributive justice by lifting institutional barriers that have historically separated owners from non-owners. This involves removing the roadblocks preventing people from participating fully in the economic process as both workers and owners. Then more people can then begin earning higher incomes from their own capital, as well as from their labor.
The emphasis of the Just Third Way is not on redistribution of income. Its focus is on providing people with social means and a legal system that will encourage them to create their own new wealth and share in profits broadly and equitably.
The Transformation of Human Work
In striving to “make every worker an owner,” the Just Third Way recognizes that by nature every person is a worker. Under the wage system framework, the concept of “work” has been stripped of much of its dignity, consigned only to that portion of human endeavor dealing with “making a living.” In its larger context, however, work involves physical, mental, entrepreneurial and spiritual forms of human activity, from manual labor to meditation.
Within the paradigm of the Just Third Way, the highest form of work is not economic labor, but unpaid “leisure work”?the work of building a civilization, work that no machine can perform. Throughout history, creative work has mainly been engaged in by individuals with independent incomes, those who were supported by a patron or by someone else’s labor. The Just Third Way provides a means whereby more people can engage in “leisure work” and be supported by an independent capital income produced by their own “technology slaves.”
The Homestead Act: A Historical Precedent
In the 1860s, Abraham Lincoln’s Homestead Act turned thousands of people into owners of frontier land, the single most valuable productive asset at the time, by giving them the opportunity to earn ownership of one hundred and sixty acres. The land itself wasn’t given away. Each homesteader had to develop the land and work it for five years. He was then granted title.
Since ever-improving technology accounts for most of the newly produced wealth in the today’s world, limiting everyone to ownership opportunities in the land and natural resources would merely result in a growing population dividing up a static amount of wealth into ever smaller pieces, ensuring poverty for themselves and their descendants. There are, however, social technologies that can be used to democratize individual ownership of a type of wealth?new tools of production being added to the world’s expanding technological frontier?that has no limits save human creativity and ingenuity.
One New Social Tool: The Employee Stock Ownership Plan
One modern financial technology to enable the acquisition of companies by their employees is known as the Employee Stock Ownership Plan (ESOP). The ESOP has been enacted into over twenty US laws and is being increasingly used in the United States, the United Kingdom and a growing number of other countries. What makes it different from other ways for workers to purchase ownership shares is that the ESOP is a credit democratization vehicle designed specifically to attract capital credit to enable many workers with little or no assets to gain significant ownership opportunities, and to pay for their shares from corporate profits, not reduced take-home income.
The Capital Homestead Program: A National Plan for Growth through Economic Democracy
The ESOP was designed by Kelso for workers in the corporate sector as a first step toward a capital homesteading plan for all citizens. For America?s domestic and foreign economic policies to work for the greatest number of people, such policies have to build a universal political constituency for free enterprise growth. A Capital Homestead Program promotes such a broadened constituency by applying principles of justice at both the macro- and micro-economic levels.
Components of a national Capital Homesteading plan are interdependent, supporting the total program like the legs of a tripod:
? Conforming national monetary policy to supply-side economic goals,
? Simplifying the national tax system, and
? Linking tax and monetary reforms to the goal of expanded capital ownership.
Reforming national monetary policy to conform to supply-side economic goals.
Central banks were invented to create money. Speaking somewhat flippantly, the economist Paul Samuelson calls central banks ?legal counterfeiters.? They can create good money linked to productive growth or bad money with no asset backing. Only the latter is inflationary.
Through Capital Homesteading reforms economic growth would be freed from the slavery of past savings (old money), while creating a domestic source of new interest-free money and expanded bank credit to finance new capital repayable out of “future savings.” A two-tiered interest policy by the central bank would sharply distinguish between productive and non-productive uses of credit.
Under the first tier future increase in the money supply would be linked to actual growth of the economy?s productive assets, creating new owners of new capital through widespread access to low-cost capital credit repayable with future profits. Thus, the central bank would create (i.e., “monetize”) interest-free credit. Lenders would add their normal markup as service fees above the cost of money, establishing an unsubsidized minimal rate for financing technological growth. This would provide the public with a currency backed by increasingly more efficient instruments of production.
The second tier would allow substantially higher interest rates for non-productive purposes, for which “past savings” would remain available. The central bank would be restrained from future monetization of national deficits or encouraging other forms of non-productive uses of credit, causing upper-tier credit to seek out already accumulated savings at market rates.
Through capital credit insurance Capital Homesteading would also provide a rational way to deal with risk, as well as an additional check on the quality of loans being supported by the central bank. Capital Homesteading would promote private sector insurance and reinsurance pools to offset the risk that the enterprises issuing new shares on credit might fail to repay the loans. Such capital credit default insurance would substitute for ?collateral? demanded by most lenders to cover the risk of non-payment, thus enabling the poor and others with few assets to overcome the collateralization barrier that excludes poor people from access to productive credit.
Simplification of the national tax system.
A just tax system would encourage accelerated rates of sustainable and life-enhancing growth in wealth-producing assets, enable all citizens to become economically self-sufficient in the process through growing ?Capital Homestead? accumulations, and tax every citizen?s consumption incomes above poverty levels at a rate sufficient to balance the government?s budget. Each citizen could establish from the time of birth a tax-deferred Capital Homestead Account (CHA) to provide him or her a dividend income for supplementing income from other sources and to provide for his or her retirement. The tax system would also eliminate the traditional double taxation of corporate profits in ways that would maximize greater savings and investments in new plant and equipment, and would remove other features that discourage ownership. Such a simplified tax system would also force political candidates at all levels of government to compete on which of them could provide the best government at the lowest cost.
Taxes on property and capital improvements would be discouraged as impediments to development. Inheritance, gift and wealth taxes would be redesigned to spread broadly ownership of large aggregates of existing wealth, rather than passing monopolistic accumulations of wealth and economic power from one generation to the next.
Linking tax and monetary reforms to the goal of expanded capital ownership.
Once Capital Homesteading is elevated as a major objective of national economic policy, monetary and tax policy makers and all public sector economic institutions would be encouraged to upgrade their programs to maximize ownership opportunities for all citizens.
Immediate Applications for Fighting Global Terrorism.
Oil Shares for Iraqi Citizens: One Cost-Free Application of the Just Third Way
America, its coalition allies and the UN should support denationalization of the oil fields of Iraq to serve as a catalyst for building a ?Just Third Way? economy independent of foreign capital or international development assistance. First, the Iraqi National Oil Company would be converted into a professionally managed joint stock corporation. Initial shares would be issued at no cost to every oil worker and Iraqi citizen ? uniting Shiites, Sunnis, Kurds and other Iraqis in one fell swoop ? and guarantee each of them first-class shareholder rights to the profits and voting control of the company. Preferential oil production leases could be offered to competitive operating companies that are broadly owned. To lay the foundations for Iraq?s future economy, projects to be owned by Iraqi citizens should be launched using advanced U.S. technologies that produce power and water from sea water and waste. Future government revenues would then come from increased citizen incomes, reducing non-accountable political control by a military or political elite, or by foreign oil interests.
Initial shares would be non-transferable for 10 to 20 years, except for inheritance upon death. Tax-sheltered equity accumulation accounts would be given the power to borrow interest-free, non-recourse productive credit on behalf of the shareholders for future share issuances to meet the expansion and modernization needs of the former state-owned oil company, as well as new enterprises, with the debt secured and repaid by the projected dividends on the newly issued shares.
One cautionary note: Experience with employee stock ownership plans has shown that it is not sufficient merely to give people ownership and expect any significant change in their behavior and value systems. It is essential that management systems be introduced during the planning and implementation phases of Capital Homesteading to offer a new servant leadership philosophy and structures and processes for diffusing economic power and ownership. One such system called ?Justice-Based Management? systematically builds internal ownership cultures necessary to educate all co-owners and managers to the new social contract and philosophy of leadership.
The Abraham Federation: A Just Third Way Solution to the Israeli-Palestinian Conflict
The initial rush to recognize a ?Palestinian State? by the US State Department and many European leaders, though well-intentioned, is unlikely to achieve a lasting peace through justice for Palestinians, Israelis and other persons living in the disputed territories. Who wants to be a non-Jew in a ?Jewish state,? a non-Muslim in an ?Islamic state,? a non-Christian in a ?Christian state? ? or, for that matter, a Jew in a ?Palestinian state?? What is needed now is a much bolder vision to stop terrorism and bring all parties into a new framework ? beyond the exclusionary two-state formula ? to begin negotiating beyond zero-sum politics.
Over perhaps a decade of peace and reconciliation, justice-oriented Israelis and Palestinian leaders, supported by an international police force, could establish a new model nation-state based on a radically new ?inclusionary? process of nation building, where economic justice would become the basis of social and political justice in the daily lives of each citizen. It would offer a modern fulfillment of the biblical concept of ?Jubilee? , but instead of redistributing land, a finite resource, the new nation would redistribute future opportunities for every citizen to become an owner of land and whatever can be built upon the land.
Under an ?economic bill of rights? every citizen would gain equal access to future ownership opportunities, guaranteeing a level playing field in citizen participation as property owners in future economic growth and profit sharing. By decentralizing access to economic power and economic independence through Capital Homesteading policies and a federation central bank, citizens would control government, not vice versa. Everyone?s faith, spiritual life and political beliefs would then be respected and guaranteed by the rule of law. National ?sovereignty? would be built from the ground-up, based on securing the inherent sovereignty of every individual and the sanctity of the family unit. With “ownership-sharing” economics surpassing politics in the daily lives of its citizens, economic power would be widely diffused and the power of the state would be subordinated to the power of the people.
Pursuing Justice, Not Utopia
Mankind will probably never achieve the “perfect” economic system where all drudgery is eliminated and everyone is free to do the work they prefer. However, before the opportunity passes, it becomes imperative for all economies of the world to implement effective programs of expanded ownership of productive assets. The alternative is a pendulum swing between capitalism and socialism, where any period of stability merely serves as preparation for the next violent overthrow.
Many aspects of the Just Third Way will be determined by reforming tax and banking laws that affect the process of democratizing productive credit. How this democratization is brought about ?the timing, priorities and procedures ? are social issues best discussed in an open and democratic fashion by people aspiring to build a free and just future for themselves.
We have reached a rare moment in history. Having discarded the failed systems of socialism and communism, many nations are now struggling to protect their citizens against the loss of economic sovereignty under the Wall Street capitalist model of economic globalization. Before the pendulum swings back to socialism, all nations of the world have a chance to implement for their citizens a new and bloodless economic revolution. This positive global revolution would be consistent with the unrealized ownership vision and ideals of America’s founding fathers and the ancient principles of justice expressed in Islam, Christianity and Judaism. It could enlist the poor of the world to help win the war against global terrorism.
As they search for a better life, the citizens of developing and transforming economies ? as well as those living in the developed countries themselves ? need something better than the outmoded and dehumanizing systems of traditional socialism and capitalism. Nations now have the power to create new property for the poor, without taking existing property from the rich. Leaders who believe in Peace through Justice now have in their hands a new model for economic globalization, a true and just third way forward.
Norman G. Kurland, a lawyer-economist, is president of the Center for Economic and Social Justice (CESJ), a non-profit, ecumenical research and educational organization based in Arlington, Virginia. He served in 1985 as deputy chairman of President Reagan’s Task Force on Project Economic Justice, which recommended policy reforms to encourage economic democratization in Central America and the Caribbean. An ESOP pioneer, he invented the Employee Shareholders Association, an advance over the US ESOP, at the Alexandria Tire Company of Egypt. He authored ?A New Look at Prices and Money: A Kelsonian Binary Model for Achieving Rapid Growth Without Inflation,? The Journal of Socio-Economics, 2001 and co-authored Capital Homesteading for Every Citizen, 2004. Prior to joining Louis Kelso to found the Institute for the Study of Economic Systems in 1968 and later to lobby the first laws to empower workers as worker-owners, Kurland was planning director of the Citizens Crusade Against Poverty, a broad-based coalition headed by labor statesman Walter Reuther. As a government lawyer, he worked in Mississippi?s ?one-person, one-vote? movement in 1962-64 and later in structuring empowerment policy for President Johnson?s ?War on Poverty.? 052804