Henry George, Buckminster Fuller
and Louis Kelso:
Three Architects of a Post-Scarcity Paradigm
Norman G. Kurland, Michael D. Greaney
and Dawn K. Brohawn
[A paper delivered at a Panel on the Citizens
Dividend at the 19th North American Conference of the Council of
Georgist Organizations, Hilton Hotel, Gaithersburg, Maryland, 8 July,
1999. Reprinted with permission]
Three Prophets of a Post-Scarcity World
Karl Marx, while we disagree with many of his conclusions, should be
acknowledged as the most dominant thinker affecting the way political
economists think about world poverty and mass powerlessness over the
last two centuries. Marx cannot be faulted in his analysis of why a
market economy in the modern world contains the seeds of its own
destruction, assuming that the ownership of the means of production
remained concentrated in too few hands and workers had only their
labor to sell in direct competition with labor-displacing technology
or with workers willing to work for lower wages. Unfortunately for the
world, Marx's post-scarcity paradigm was based on some unrealistic
assumptions and consequently his prescriptions increased the
powerlessness and economic exploitation of workers in economies
following Marx's model of development.
Had Karl Marx had the insights of the three Americans mentioned in
the title we think he would have radically altered his vision of how
to build an economically just world order. There is much truth in Lord
Keynes' concluding remarks in his 1935 book
The General Theory of Employment, Interest and Money that "Practical
men, who believe themselves to be quite exempt from any intellectual
influences, are usually the slaves of some defunct economist."
Today people are becoming aware that Keynes' remark can apply to
himself as well as Marx.
It is a great honor to have been invited to participate in this
conference which pays homage to Henry George, an intellectual giant of
the late 19th Century who saw another route for overcoming poverty and
mass powerlessness in a post-scarcity world: ending the monopolization
of ownership over land and natural resources.
A second American revolutionary thinker on how to build a
post-scarcity world was the late R. Buckminster Fuller, the inventor
of the Geodesic Dome. Fuller also has a growing global network of
disciples for his deep understanding of the nature of technological
change and his compelling "world design science" principles
for transforming the physical environment to enhance and sustain the
quality of life for all members of human society.
Less known but no less of a post-scarcity American revolutionary than
Henry George and Buckminster Fuller was the late San Francisco lawyer,
economist and investment banker Louis O. Kelso. While Kelso has
become known as the father of the Employee Stock Ownership Plan or "ESOP",
an increasingly popular tool of development worldwide, his "Third
Way" philosophy and his "Binary Theory of Economics"
are much less understood. Dr. Mortimer J. Adler, the "Great
Books" philosopher and Editor of Encyclopedia Brittanica Inc.'s
Great Ideas, A Syntopicon, has called Kelso's post-scarcity
paradigm "the most revolutionary idea of the century."
This paper will present the "Third Way" post-scarcity
paradigm from a Kelsonian perspective. It is a synthesis that does not
negate, indeed it complements, the best ideas of George and Fuller.
The Role of the Family in the Modern World
During the five days you will be gathered in Gaithersburg a hidden
holocaust will be occurring: over 630,000 children around the world
will have had their lives terminated, either because their parents do
not want them or because they cannot afford to raise them. They are
among the 46 million pregnancies that are aborted annually, according
to a recent report of the Alan Guttmacher Institute. These figures do
not count the millions more children who die daily from infanticide,
malnutrition, disease, and gross neglect and abuse.
Today we will address the global economic root causes for this
collapse of the moral order.
Letter to Families on February 22, 1994, Pope John Paul II
warned us, "[V]arious programs backed by very powerful resources
nowadays seem to aim at the breakdown of the family," the
fundamental unit of any society. He then pointed out that "stable
families require stable incomes."
Let us now examine the economic forces which systematically deprive
most families in the world from ever acquiring adequate and secure
incomes, despite the world's growing technological capacity to produce
in abundance for all. We will then turn to a practical solution that
can unite mankind, based on universal principles of economic and
A Different Perspective on Economic Globalization
Unless they reject traditional models of development and restructure
their basic economic institutions along sounder principles, most
people around the world will find themselves increasingly vulnerable
to becoming the next victims of an uncontrollable force greater than
any natural disaster the world has encountered in its recorded
"The economic firestorm that has been scorching economies around
the globe is intensifying into one of the world's worst - and most
baffling -currency crises since the system of fixed exchange rates
crumbled a quarter of a century ago." That is how
The Wall Street Journal characterized the latest round of
global economic catastrophes ("As Currency Crisis Spreads, Need
of a Cure Grows More Pressing," WSJ, August 24, 1998).
The problem is that no one seems to have a workable solution. As the
article states, "What makes the crisis so unnerving is that there
is no clear solution in sight -no financial firebreak that governments
or international financial institutions can construct to slow the
This general pessimism is increased 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 new 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 recently in Indonesia.
The subordination of world political leaders to the controllers of
money was predictable at least a century ago when one of the world's
earliest financial capitalists, Mayer Rothschild, was quoted as
saying, "Give me control over money and credit, and I care not
who makes the laws."
But for most people 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,"
where global corporations and strategic alliances can force workers in
high-cost wage markets to compete with labor-saving tools and foreign
workers costing less to hire.
Even in the United States, which today seems to be enjoying relative
economic prosperity in the midst of the world's financial slide into
depression, 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 "Third Way"?
Media pundits are now talking about a "Third Way," but none
of them seems to know quite what it is. People on the left who are
positive toward the idea describe it as socialism with a capitalist
whitewash; people on the right claim it is capitalism with a socialist
veneer. The European and US power elite, represented by Britain's
Prime Minister Tony Blair and America's President Bill Clinton, have
begun using the phrase, but have failed to define it in any meaningful
way. On September 21, 1998 Clinton and Blair met with other world
leaders at the New York University Law School to try to give content
to "The Third Way."
Many skeptics view this new summit meeting as an attempt to give
moral legitimacy to the Wall Street capitalist approach to economic
Washington Post on August 30, 1998 editorialized that "there
is in fact no third way", adding to the confusion on what Clinton
and Blair have in mind.
In contrast to the intellectual fuzziness now pervading high policy
circles, this paper asserts that no Third Way is a genuine "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
- 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 real "Third Way" that
goes beyond the traditional answers supplied by the right and left. It
offers a new vision and a new 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 Real 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 $90 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, who enjoy 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 which cannot meet their massive foreign debt
obligations or compete effectively in the emerging global marketplace.
Logically, a "third way" would be a free market system
which economically empowers all individuals and families through
direct and effective ownership of the means of production - the best
check against the potential for corruption and abuse.
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.
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. The so-called "Third Way" of
Clinton and Blair follows the Keynesian model.
As recognized by Bill Greider in Chapter 18 of his new book
previously cited, lawyer-economist Louis O. Kelso in 1958 fathered a
real "Third Way." Kelso conceived 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 1958 book with renowned Aristotelian
scholar Mortimer J. Adler centered on a profound theory of economic
justice and clear vision of the impact of technology on human work,
and how modern corporate finance has influenced the quality of work
and thus the political and moral life of society.
Most scholars never got past the cover of the first Kelso-Adler book,
which was unfortunately entitled The Capitalist Manifesto.
Kelso, however, has 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. Remarkably,
however, his larger vision and general theory have been trivialized
and virtually ignored by academia and the mainstream media. This
largely explains why economists cannot understand or solve the
problems arising from economic globalization.
Kelso's revolutionary insights helped him to solve an economic
enigma: How Say's Law of Markets - rejected both by Marx and Keynes -
can 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 which creates barriers to
participation. Focusing on the means by which ordinary people could
become owners of productive assets and participate more fully in the
economic process, Kelso provided the systems theory and practical
mechanisms, like the ESOP, for implementing expanded ownership around
Why Free Market Solutions Alone Fail
Encouraged in the 1980s by Ronald Reagan's and Margaret Thatcher's
powerful advocacy of privatization initiatives to counter socialism
and the Welfare State, academicians and investment bankers have rushed
into advanced, transforming and developing economies to promote
traditional Wall Street capitalist solutions. All these solutions,
however, sound dismally the same: "shock therapy," more
foreign investment, a Wall Street-style stock exchange, top-down money
and credit markets, and numerous tax breaks and special privileges to
mirror the labyrinthine US tax system.
Surely these "privatization experts" can do better than to
sell an already-failed and incomplete model. Why saddle the rest of
the world with a tendency to recession and more class division? Why
should experts promote grossly concentrated ownership of corporate
equity, over-dependence on foreign investment to fuel the economy,
increasing marginalization of the labor force, and institutionalized
gambling on a national stock exchange?
Before their future is decided for them on a permanent basis, people
should ask whether the prescriptions being touted will really build a
better society for every citizen - or will the Wall Street capitalist
model, once again, merely empower a small elite? Is capitalism the
only logical alternative for rebuilding, transforming, or
revitalizing an economy? Is it possible to conceive of a globalized
free enterprise alternative to the wage/welfare systems of capitalism
and socialism, one consistent with the vision of America's founding
fathers - a truly revolutionary and just "Third Way"?
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.
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
With the abolition of slavery and feudalism, the United States
insured that no person 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 pure1 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
free market economy.
Looking Beyond Socialism and Capitalism
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 which ignore
and hinder intellectual and spiritual development.
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 the true "Third Way"
for moving toward a freer, more just and economically classless
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 $50 billion, cannot possibly spend all the consumption income
earned by his 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, promoting welfare state systems that would
ensure every worker displaced by privatization a wage packet in return
for his labor, also ignoring a worker's right to own and share profits
from new and privatized 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 confiscatory
progressive income taxes aimed at "robbing the rich and giving to
the poor." This would ensure a handout for all citizens on the
dole, regardless of their efforts or the demands of justice.
The Fatal Omission
Each of these approaches commits a fatal error. The right remain
blind to institutional barriers to broadened ownership, thus
implicitly limiting the ownership of productive assets to a tiny
elite. This ensures that most workers will receive income only from
selling their labor, in direct competition with advancing technology
and an expanding global work force. This view ultimately reduces the
worker to an input of production. He can then be purchased cheaply and
forced into unemployment if owners decide to relocate where labor
rates are lower, or to replace people with machines. Exclusionary
approaches to finance also make the recipient country dependent upon
regular infusions of foreign capital to keep the economy going. Those
in the middle and the left turn to government, not the market system,
to solve the problems ignored by the right.
Historically, capitalism and socialism violate the rights that owners
of productive property have in the fruits of production. Any excess is
taken from owners and productive workers and redistributed among
non-productive non-owners. This leaves more economic power in the
hands of the state than is healthy for achieving genuine social and
economic justice for all.
Ownership Without the Full Rights of Private Property: Socialism
With a Different Face
Other schemes also have severe flaws. One seemingly attractive
approach, the Scandinavian Plan (erroneously billed as the "Third
Way"), relies on forcing companies to issue shares to a
collective ownership trust set up in the name of the workers.
Workers are insulated from direct shareholder rights, and are paid
retirement or disability wages out of the earnings of the trust. No
worker has any access to the power or profits associated with property
rights in any of the company shares held by the trust. Payments are
determined by labor leaders and company managers who control the
shares as trustees for the workers. This perpetuates the dependency of
workers on their leaders, and invites new forms of elitism and
The Yugoslavian self-management model also falls short of embodying
the Third Way. Self-management gives workers more say over their
workplaces and jobs and some input into decisions. However, this is
joint management, not joint ownership. All ownership remains
collectivized in the hands of the state or in some other form of
politicized ownership. The self-management model sometimes
deteriorates into "management by committee," a lack of
checks and balances in corporate governance, and an inability to make
long term investment and operational decisions for meeting global
The Basic Weakness of Any Wage System
What all of these approaches have in common is a reliance on the wage
system, a Space Age form of feudalism. Whether the economy is
capitalist, socialist, a variety of the welfare state, or some
combination thereof, they all depend on the worker receiving his sole
income and support in the form of wages for the only thing he has to
sell: his labor.
No plan or proposal based on a wage system can truly call itself the
Third Way. Whether the bosses are politicians or paid hirelings of a
small ownership elite, the worker ends up being a wage-slave. Even a
labor union, when it confines itself to obtaining higher wages and
greater fixed "entitlements," does nothing to empower the
worker or gain him real liberty and justice. The worker may be well
paid, but in the end he is simply a wage-slave who gets more than the
other wage-slaves. The owners of capital still have the power to shift
their capital assets to areas of the world where market wage rates are
Beyond the Wage System
Higher wages are not the focus of the real Third Way. The Third Way
is a systematic approach, balancing the demands of participative and
distributive justice by lifting institutional barriers which 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
The emphasis of the Third Way is not on redistribution of income, but
on providing people with social means and a legal system which will
encourage them to create their own new wealth and share in profits
broadly and equitably.
A major flaw in most wage systems is that higher wages are obtained
through government intervention or collective bargaining pressures
rather than by the free choice of people within a system of equal
ownership opportunities. If owners are better bargainers, wages are
low. If workers can out-argue owners or force them to implement
minimum wages supported by the state, wages are high. Neither side
considers, except indirectly, how to link workers to labor-saving
technology. Since capital is more mobile than labor in the global
marketplace-being able to relocate to take advantage of lower wages in
other areas-wage system workers remain at a permanent disadvantage.
Four Pillars for Building 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 the perilous transition periods of economic reform,
leaving out any one of these pillars weakens the entire fabric of the
economy and leads to eventual collapse. The four pillars of the Third
- 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 ownership of productive property, but
concentration of ownership. Turning Marx upside down, making
every worker an owner of a growing stake of income-producing property
is essential, both for achieving economic justice for all and for
stabilizing and sustaining growth of 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;
- Ending economic monopolies and special privileges;
- 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
- Protecting property, enforcing contracts and settling disputes;
- Promoting democratic unions to bargain over worker and
- 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 will 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 uses 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 production 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 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
which 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.
Indeed, Baron Rothschild was right, as noted earlier.
A central issue in discussing any third way is whether those who
create money and control credit today will use money and credit in the
future in ways that exclude most people from participation in
ownership and profits. Or will the people wake up to demand
restructuring of today's money and credit systems to liberate
themselves from continued economic domination by the few who control
When the subject of money and money creation comes up, we sometimes
forget that money is a man-made thing, and it 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
And that is the crux of the matter. Money is created and credit
extended these days 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.
Let us focus on the $1 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 $4,000 for every man, woman and child, these
productive assets will be financed in ways that add 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
The primary social means to bring about expanded ownership of
productive assets involves the
democratization of productive, self-liquidating credit.
Anyone familiar with the overly consumption-oriented economies of the
developed world knows that it is far easier for the average citizen to
obtain credit for non-productive purposes than to acquire
productive property. Many Third World debtor nations have fallen into
the same trap, incurring huge burdens of debt and spending the loan
proceeds on projects that do not generate revenue to repay the loans.
Consumer credit and other non-productive forms of credit entrap
workers and nations into dependency on those who own and control
One way to unshackle workers from the slavery of the worker-for-hire
system and from dependency on the redistributive Welfare State is to
redirect society's uses of credit from non-productive and consumer
purchases to faster rates of wealth production and more universal
participation in the ownership and profits from enterprises which
produce that new wealth. Productive capital assets, under professional
management, are expected to pay for themselves out of future profits,
and thus are inherently better credit risks.
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.
In judging the efficacy of any plan of economic reconstruction or
reform, certain criteria are clear. First, it must be
practical, solving real problems while avoiding the
concentrations of wealth and power embodied in capitalist and
socialist systems. Second, it must be efficient, providing the
greatest benefit for the lowest cost. Finally, the plan must be just
for all the people, not only the few at the top, to ensure that the
efforts of ordinary citizens accrue to their benefit.
As the United States has one of the more successful economies in the
world, the temptation is simply to copy the present American model.
From the standpoint of democratizing economic power, this would be a
mistake. As things stand now, most of the directly held corporate
equity in the United States is concentrated in a few hands. Going from
a mega-concentration of wealth and power under socialism to a
super-concentration of wealth and power under capitalism would result
in only a minor lessening of injustice.
The Homestead Act: An Historical Precedent
However, there are experiences in the history of the United States
which account for its current relative success in the world. One
historical analogy would provide an effective approach for broadening
the base of capital ownership in order to avoid the evils of
capitalism, and would place ownership and power directly into the
hands of the people.
In the 1860s, Abraham Lincoln's Homestead Act turned thousands of
people into owners of 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.
Today's vast corporate wealth in the United States was largely
created after the Homestead Act had turned many Americans into owners
of productive property, and consisted of a kind of productive property
not addressed by the Act. That most of the corporate wealth in the
United States is appallingly concentrated in the hands of a few is due
to the monopolistic tendencies of capitalism itself.
But a land-based Homestead Act is not the only method that can be
used by the average worker to accumulate income-producing wealth.
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 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
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 as opposed to token ownership opportunities, and to pay
for their shares from corporate profits, not reduced take-home income.
The ESOP is a social technology which is totally different from
collective ownership or the "Bolshevization of Capital,"
because it is based on the full restoration of private property in the
means of production. The ESOP diffuses economic power by enabling
workers who have no savings to purchase shares in the companies in
which they are employed.
As Marx observed, conflict between owners and workers is built into
the capitalist system. However, by turning workers into owners of the
companies in which they labor, class conflict between labor and
capital largely disappears. Professional managers are still needed to
make day-to-day decisions, but are subject to a democratic
accountability. Conflict is reduced because labor and capital now
share a common interest in the success of an enterprise - measured by
With workers as owners, companies would be able to maximize their
competitive edge. It would be to the advantage of the workers to keep
costs down by keeping their own fixed wages at the lowest possible
subsistence level, and then receive most of their money by dividing up
- as owners - the greater profits that would result.
The role of the union would change under this scenario. Instead of
continually confronting management and owners with higher wage and
benefit demands, the union would work with owners and management while
serving as a check on the power of capital concentrated in the hands
of management. The union would protect the ownership rights of
The Capital Homestead Program: A Long-Range Plan
The rest of the world now have the same opportunity with state-owned
accumulations of industrial wealth that the United States had with its
vast holdings of land. The question is how best to take advantage of
this historic, but quickly disappearing opportunity. The United States
used the Homestead Act to attain widespread capital ownership. It is
now up to the people of the world to choose what method they will use.
What is needed today is an "Capital Homestead Program" for
the transforming economies. This would give ordinary citizens access
to the means to earn ownership of the current and future wealth of
their nation, rather than having the ownership handed to them or sold
out from under them. Many governments throughout the world hold
tremendous capital resources which their own citizens need to
transform their country into a more just economy and political order.
Essentially, the question is how to make a free enterprise economy
work while building a broader political constituency for free
enterprise growth. How can we avoid the concentration of wealth in the
hands of the few that inevitably accompanies capitalism, and the
predictable and even more destructive backlash of socialism?
A Capital Homestead Program would approach the problem on both the
macro- and micro-economic scale. Components of a Capital Homesteading
strategy are interdependent, supporting the total program like the
legs of a tripod:
- Simplifying the national tax system,
- Conforming national monetary policy to supply-side economic
- Linking tax and monetary reforms to the goal of expanded
Simplification of the national tax system.
The simplest income tax system for the modern industrial state is one
where income from all sources, whether from labor or capital, is taxed
at a single rate, while exempting incomes of the very poor and
deferring incomes used to enable workers, the poor and citizens
generally to accumulate assets needed to supplement their wages and
retirement incomes. This would eliminate the unfairness of tax systems
that exempt income derived from capital or act punitively against
income that exceeds a certain amount.
A simplified, flat-rate tax on all consumption incomes above the
poverty level would provide the most direct means for balancing the
national budget and restraining excessive government spending,
including spending on unworkable social welfare programs. It would
also eliminate the traditional double taxation of profits in ways that
would maximize greater savings and investments in new plant and
equipment, plus removing other features that discourage ownership.
This would also force politicians to compete on who can provide the
best government at the lowest cost.
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.
Reforming national monetary policy to conform to supply-side
New policies would free economic growth from the slavery of past
savings, while creating a domestic source of new money and expanded
bank credit to finance new capital repayable out of "future
savings." A two-tiered interest policy by the central bank would
draw a sharp line between productive and non-productive uses of
credit. The upper 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.
Any future increase in the money supply would be linked to actual
growth of the economy, creating new owners of new capital through
widespread access to low-cost capital credit repayable with future
profits. The lower tier would be achieved by requiring the central
bank to discount at a low "service charge" (but subject to a
100% reserve requirement) "eligible" industrial,
agricultural and commercial paper financed through the banking system.
Thus, the central bank would create (
i.e., "monetize") lower-tier credit. Lenders would
add their normal markup above their cost of money, establishing an
unsubsidized minimal rate for financing rapid technological
growth. This would provide the public with an asset-backed currency
reflected in more efficient instruments of production.
Besides monetizing the creation of new wealth in ways that create new
owners, monetary policy makers should also encourage the establishment
in the private sector of insurance and reinsurance pools to offset the
risk that the enterprises issuing new shares on credit will 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 classic collateralization barrier that
excludes poor people from access to productive credit. Insurance is
the rational way to deal with risk, as well as providing an additional
check on the quality of loans being supported by the central bank.
Linking tax and monetary reforms to the goal of expanded capital
It is important to encourage all citizens to accumulate a direct
private property ownership stake in the country's growing
technological frontier, and to ensure the broadest possible base of
direct beneficiaries (and thus political supporters) of future
market-oriented reforms and policies.
Past accumulations can become more widely diffused through reforms of
inheritance and gift tax laws. Greater emphasis should be placed on
more enlightened tax and credit policies to spread ownership of future
accumulations resulting from technological advances.
Eliminating existing ownership barriers would eventually create for
every citizen a personal estate or "Capital Homestead" large
enough to provide a decent retirement income from enterprise
dividends. This individualized accumulator of capital would be exempt
from all taxes until distributed as consumption incomes, reducing much
of the pressure of taxpayer-supported social security and welfare
systems. In this way, each citizen's capital accumulation would be the
modern equivalent of the quarter-section of land provided by the
original Homestead Act in the United States. The
Employee Share Ownership Plan (ESOP) and its variations such
as the Consumer Share Ownership Plan (CSOP), the Individual
Share Ownership Plan (ISOP) and the Community Investment
Corporation (CIC), would serve as the basic capital credit
vehicles for linking new monetized credit and a tax system friendly to
productivity growth with the expanding base of owners under a Capital
Homestead Program. Each of these vehicles would help accelerate rates
of growth of private sector enterprises by providing their new
shareholders easy access to low-cost bank credit for buying growth
shares repayable out of future growth profits.
The Goal of the Capital Homestead Program
As productivity of technology increases, fewer workers will be needed
to produce the necessities and even the luxuries of life. As capital
displaces workers in the future, the status of a worker will change
under both capitalism and socialism from being a wage slave dependent
for his subsistence on a wage system to a welfare slave dependent on
the politicians and bureaucrats of a redistributive Welfare State.
The crucial element for avoiding this bleak future is
expanded capital ownership. In transforming state-owned
enterprises and farms into effective competitors in the global
marketplace, in encouraging advanced technologies, and in launching
the new enterprises for growing the economy, today's unemployed and
under-employed would become absorbed and trained on-the-job within a
vigorously dynamic and more just private sector. Connecting each
worker through ownership to an expanding pool of wealth created by
more and more efficient technology will ensure that each citizen can
participate directly in how that wealth is produced.
In its initial stages, a program of expanded capital ownership will
primarily affect the workers - the people who must become motivated to
work together to turn failing or unproductive companies and industries
into successes and to build a high-growth, technologically advanced
economy. The ultimate goal of a Capital Homestead Program, however, is
for every citizen to have access to sufficient credit to become an
owner of productive assets. Each citizen's "Capital Homestead"
would ensure that he could attain a living income without having to
rely on wages from his labor alone. Such a system would greatly reduce
society's burden of supporting the unemployed and permanently
incapacitated. By producing a living income, ownership of productive
assets could liberate human beings to enrich their lives materially,
intellectually and spiritually.
A New Vision of the Future: The Transformation of Human Work
A Capital Homestead Program represents one concrete proposal for
moving toward the long-range vision of the Third Way. The Third Way
itself embodies a moral philosophy and evolutionary process for
transforming the institutional environment - legal, financial,
cultural and moral systems - to democratize economic power and improve
the quality of life for everyone.
In striving to "make every worker an owner," the 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 and spiritual forms of human activity, from manual
labor to meditation.
Within the paradigm of the Third Way, the highest form of work is not
economic labor, but unpaid "leisure work" - the work of
building a civilization, work which 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 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
Pursuing Economic 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
Many aspects of the 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.
For years the capitalist world has guarded against socialism. In this
rare moment in history and to protect their citizens against the loss
of economic sovereignty under the Wall Street capitalist model for
economic globalization, all nations of the world have a chance to
implement for their citizens a new and bloodless economic revolution,
one consistent with the unrealized ownership vision and ideals of
America's founding fathers. 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. There is
another model for economic globalization, a true 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.
Michael D. Greaney is a Certified Public Accountant. He is CESJ's
Director of Research and administers ESOPs for several employee-owned
US companies. He was responsible for developing the Accounting and
Administration Manual for the Alexandria Tire Company in Egypt, the
first ESOP outside of the USA.
Dawn K. Brohawn is Director of Communications of the Center for
Economic and Social Justice. She also serves as Director of
Value-Based Management Services for Equity Expansion International,
designing and implementing systems to help companies build a
self-sustaining ownership culture. Ms. Brohawn edited the orientation
book for President Reagan's 1986 Presidential Task Force on Project
Economic Justice, as well as the 1997 compendium,
Journey to an Ownership Culture: Insights from the ESOP Community
(published by Scarecrow Press and The ESOP Association).