on serfs, stocks, and inequality

Chris writes:

We live in an era where stockholders are aristocrats and the rest of us serfs.  This is why incidentally redistributing their aristocratic wealth is not an avenue for liberation in my mind as it keeps the structural flaw of privilege classes in tact and simply tries to create a monarch (the state) with sufficient power to wrest some control from them in order to give scraps to the peasants (us)….

The problem is the structural formation of the corporation and its deleterious effects on capital (and by extension capitalism).  Or at least the way the corporation is currently formatted.  Or to put it more metaphysically–to sound a Rushkoffian note–we are the corporation.  They are us.

I’m not sure what restructuring Chris would like to see – it’s not terribly clear from this post.  Certainly I think that corporate interests often play too large a role in our politics.  Our regulators are too often captured by the industry they are supposedly regulating.  Nowhere has this been more apparent than during the latest Wall Street fiasco.  And in this sense I can almost agree with Chris’s analysis.  When we start talking about too-big-to-fail banking institutions who are at once resuscitated with billions of taxpayer dollars while at the same time lining their executives’ pockets with lavish bonuses – it certainly can appear that capitalism has failed – that we have been “taken hostage” by the corporations.

Chris likens shareholders to aristocrats and the “rest of us” to serfs.  Now, I don’t know about you, but I’m a shareholder.  I have a 401k.  I’m not, however, an aristocrat – nor will I ever be, even once I begin owning other things – a broader portfolio, a house, and so forth.

This latest financial crisis saw people all across the board take severe hits.  Shareholders on whatever scale took major losses.  The only people who seemed to make out like thieves were the thieves themselves: the executives and businessmen who knowingly took bad risks or even purposefully broke the law.

G.K. Chesterton once lamented that “”The problem with capitalism is that there are not enough capitalists.”  This belief has lead many down the path of distributism, socialism, (or in Freddie’s case neo-Stalinism) and many other redistributive paths toward perceived social justice.  The problem always with these philosophies is that, as Will pointed out, redistribution is very difficult to manage effectively, and often enough has unintended consequences or ends up enlarging the state rather than helping those it was intended to help.  Of course, this is not always the case, and nor is this meant as an indictment against all safety net or redistributive programs.

The ownership society was a somewhat vague and squandered promise of the last administration, but it has a lot of merit once you get past the stigma.  Chesterton was right that capitalism produces too few capitalists, if he was wrong about the solution.  Distributism promises a “third way” beyond capitalism or socialism but to my mind, distributists are essentially trying too hard.  Capitalism itself can promote the sort of ownership and recapitalization that distributists are after – but welfare liberalism, in its current form, is antithetical to this process.

Will Wilkinson had an interesting (and much discussed) paper out a little while ago about income equality that I think is pertinent here.  His general thesis is that while income disparity has grown, overall prosperity has also increased, and that measuring economic well-being on income disparity rather than on overall prosperity is missing the point.  Certainly redistribution through higher taxes on the rich can increase income equality, but whether it will also increase overall prosperity is another question altogether.  Welfare liberalism attempts to increase income equality and pays little heed to overall prosperity, imagining that equality will somehow create prosperity rather than the other way around.

The alternative is the ownership society.  Wilkinson’s personal retirement accounts paper springs to mind.  At the root of this concept is the idea that indeed, capitalism does produce too few actual capitalists, and that by allowing more people to become invested in private markets – through such mechanisms as personal retirement accounts – we will create a more invested populace with a greater chance to actually produce real wealth over the years.

Now, the markets are risky, and this latest crisis has once again revealed some cracks in our financial infrastructure.  We obviously need to work toward better, smarter regulations.  And we need to find ways to better regulate the regulators and protect against capture.  (Though regulation is really, really hard to do right.) There is certainly something awfully fishy about the Goldman Sachs / Treasury revolving door, and that’s certainly not the only place where government and industry seem to be less than above board.  There is the possibility that we might see a shareholder bill of rights pass though I’m not terribly familiar with the details.

However you look at it, though, contra Chris’s assertion that shareholders are the aristocrats and the rest of us serfs, in a functioning capitalist society there would be more shareholders and more shareholder protections, so that instead of clumsy, barely redistributive entitlements like Social Security, we could implement personal retirement accounts and give normal, lower-income people a stake in the private sphere that currently only the middle class and wealthy enjoy.  Couple this with a means-tested safety net, and you give people a better shot at real wealth creation over the long haul as well as the necessary protection afforded by social safety nets.  Capitalism has already remarkably raised our standard of living.  Using it to help the poor take some ownership in the markets may not decrease income disparity, but it can certainly help overall prosperity.  One of the major problems with our current economy has been our levels of personal debt.  What if instead we transformed this into higher levels of savings?

Economic freedom, wide-spread ownership, and strong safety nets do not have to be mutually exclusive.  Countries like Denmark have done a good job at implementing market reforms while at the same time making sure the poorest among them do not fall through the cracks.  The failure in America is not a failure of capitalism, but of imagination.