Profits to the People
A concept for wealth redistribution through state investment in the private market
The widening wealth gap between the rich and poor poses a dire threat to global security.[1] A stable future demands capital redistribution — and states can achieve this by establishing universal supplemental income schemes. Governments should provide regular unconditional cash transfers to all citizens; generated by stock investment dividends.[2]
I. Dividends for All
The concept of a universal income is nothing new.[3] But the idea of funding a universal income scheme through investment in capital markets is. Imagine a state-funded entity, analogous to a Sovereign Wealth Fund,[4] established for the sole purpose of investing in stocks and distributing dividend payments in regular intervals to all citizens. We‘ll call it the Universal Supplementary Income Fund (USIF). Democratically elected officials with no past or present ties to the business world will strategically invest money allocated to the USIF by the state treasury across a range of stocks in companies that pay dividends. Dividends will be pooled and distributed directly and equally to all citizens by way of monthly automatic deposits into their bank accounts.[5]
The USIF will require a large initial capital allocation from the state treasury upon its establishment. This may require austerity measures, tax increases, or deepening the budget deficit — all admittedly politically unpopular measures.[6] But after the initial sizeable investment, the program will be self-sustaining: after the USIF managing entity invests the initial capital in stocks of companies that pay dividends, these stocks will ideally grow in value each year, continuously generating dividend payments. The state legislature will allocate a modest budget each subsequent year to the USIF, proportional to funding for other state agencies, for continued investment. Depending on the size of the yearly allocations and the health of the stock market, USI payments to citizens should grow from year to year.
The doctrine of shareholder primacy has long driven corporate decision making in the United States, igniting concern among progressives that the interests of the general public are left behind.[7] But what if shareholders and the general public were one in the same? Through the proxy of state government investment in capital markets, this plan would make each individual citizen a shareholder and beneficiary of corporate profits. Their elected USIF representatives would have shareholder voting rights, which would subject a degree of corporate decision-making to democratic processes.
II. Evidence of redistributive potential
This proposal draws inspiration from and combines elements of three mechanisms that have already been shown to have great redistributivepotential: unconditional cash transfers, partial state ownership of enterprises, and citizen dividends from natural resource export profits.
A. Unconditional cash transfers
Unconditional cash transfer programs direct equal payments in regular intervals to all recipients, with no limitations on how the money can be spent. In recent years, people from across the political spectrum have expressed support for these programs.[8] Basic income programs can reduce inequality by providing much-needed income support for families living in poverty without the bureaucratic obstacles, limitations, and social stigma associated with other social support mechanisms.[9] Regular cash payments would increase workers’ bargaining power by exerting pressure on employers to raise wages and improve working conditions.[10] And in a world where automation is increasingly replacing human labor, the number of unemployed or underemployed people in need of supplemental income for basic necessities is sure to grow rapidly in coming years.[11] Basic income experiments have emerged across the globe[12] –with promising results.[13]
B. State-owned enterprises (SOE’s) and profit redistribution
Highly lucrative SOE’s exemplify mechanisms by which corporate profits can be directed into social programs to help the poor. In several east Asian countries, the success of wholly or partially state-owned enterprises has contributed to development success and mass poverty eradication.[14] Singapore invests dividends from SOE’s directly into social programs,[15] while SOE’s have established poverty relief funds in China.[16] However, SOE’s may be granted unfair advantages by the state, which profits from their success.[17] The USIF framework avoids this by establishing an entity separate from the state to manage investments. Furthermore, unlike SOE profits, dividend payments from USIF investments go directly to citizens, rather than into the state treasury.
C. Citizen dividends from natural resource profits
Some natural resource-rich countries provide payouts to citizens from resource export profits. Oil-rich gulf countries like Saudi Arabia and the United Arab Emirates provide generous benefits like living subsidies,[18] free healthcare and university tuition, and generous pensions to all citizens.[19] The benefit scheme most similar to the one proposed here is the Alaska Permanent Fund, which distributes an annual dividend from oil revenues that has ranged from $1,000 to $3,000 each year, and is credited with reducing Alaska’s inequality.[20] While these programs depend on the presence of lucrative natural energy resources, they demonstrate the way unconditional payments to citizens can provide widespread financial security.
III. Redistributive policy that appeals to everyone
Progressives have long proposed idealistic plans to reduce inequality — including exorbitant taxes on the rich, industry nationalization, and comprehensive state welfare programs. Idealistic proposals like these could potentially redistribute wealth more efficiently than the plan presented here. But in a world where corporate business owners hold outsized influence on policy, such idealistic dreams of restructuring societies seem far out of reach. Instead, we need viable solutions less likely to spark strong pushback from wealthy interests. The USIF proposal is a realistic solution that is politically palatable to all stakeholders — and distinguishable from the more idealistic solutions described above for three reasons.
First, this proposal suggests a supplementary income, not a basic income.[21] This framing is important to alleviate widely held concerns that such payments would disincentivize participation in the workforce.[22]
Second, increasing taxes on the rich — a policy long at the center of the battlefield between the left and the right — is not a central feature of this plan. Not only are tax hikes politically unpopular, but wealthy individuals and corporations have grown quite adept at avoiding taxation. As the flow of capital, communications, and goods across international borders grows ever cheaper and easier, so too does tax evasion.[23] This proposal could generate wealth from the private sector through the market without relying completely on tax revenue.
Third, USIF’s investments would actually stimulate markets by pouring state money into the stock market, and in turn, putting cash into the pockets of consumers. As monthly payments to citizens are tied to the profits of the individual companies comprising the USIF’s portfolio, the public would celebrate the success of the companies in which the agency invests. Presumably, the greater number of shares in a company the USIF holds, the more the public stands to benefit from their profits. Thus, company owners would be incentivized to maximize the number of shares the USIF holds — perhaps even by offering the agency shares at lower prices or offering higher dividend yields — to generate good will among consumers. In turn, consumers with financial security, ensured by their monthly USI checks, are equipped to put more money back into the economy — sustaining a cycle of rising corporate profits and correspondingly rising monthly supplementary income payments.
Finally, this program would not depend on state coercion of corporate actors, but corporations would be incentivized to participate by the market itself. The extent to which corporations fashion the terms of their public offerings to accommodate the USIF scheme is entirely within their discretion. But it may be advantageous for companies to maximize the percentage of their shares held by the USIF and to maximize dividend yields to encourage public engagement in their enterprises and to boost their social utility. Periodic reports on the USIF portfolio, for instance, could provide valuable publicity for those contributing most to the dividend payments.
IV. Further research
Comprehensive economic analysis is required to determine the long-term viability of this plan as well as its potential to generate enough revenue to provide meaningful payments to recipients. While logistical questions remain about implementation, this conceptual framework could guide policymakers towards guaranteeing financial security for society’s most vulnerable as we venture into an uncertain future.
[1]Income inequality has been the source of political unrest leading to armed conflict. See Karim Bahgat et. al., Inequality and Armed Conflict: Evidence and Policy Recommendations, Center for Security Studies (2017); Also, economic insecurity related to inequality also may hinder compliance with objectives of the Paris Climate Accord. See Karl-Petter Thorwaldsson, Why Income Inequality is Bad for the Climate, World Economic Forum(2019).
[2]This analysis and the scholarship informing it is based primarily on the United States financial system and governance structures, but the concepts proposed here are generalizable to any states with publicly traded enterprises that pay dividends.
[3]The concept of a universal basic income “is a very old one, with its roots in Tudor England and the writings of Thomas Paine.” Annie Lowry, Give People Money (Crown 2018) at 5.
[4]A Sovereign Wealth Fund is a state-owned investment fund or entity often established from fiscal surpluses and/or proceeds from natural resource exports. Sovereign Wealth Fund Institute, What is a SWF?, available at https://www.swfinstitute.org/sovereign-wealth-fund/.
[5]Not all citizens have bank accounts. Electronic transfers of some form are the most appropriate means of delivery for regular cash transfers, as they can be executed instantaneously, at a low cost, with low potential for corruption. An alternative would be to disperse payments via a mobile phone-based financial services application like M-Pesa, a service Vodafone and the British Department for International Development launched to facilitate money transfers in parts of Africa. M-Pesa users can visit banks to receive cash for digital money in their M-Pesa accounts. Lowry supra note 3 at 80.
[6]These speculations are based purely on my intuition that investments that would generate dividend payments large enough to make a meaningful difference in people’s lives, after being divided equally across an entire population, would require starting capital that would be quite burdensome to a state treasury. The precise size of this initial investment, the appropriate measures to fund it, and the expected return from dividends in the form of monthly payments to citizens would require sophisticated economic analysis that is beyond the scope of this paper. I aim to merely provide a novel conceptual framework that can guide further research.
[7]Senator Elizabeth Warren, for instance, proposed legislation in the U.S. Senate that would require corporate directors to consider the interests of all stakeholders. See John Ellerman and Ira Kay, A Proposed Alternative to Corporate Governance and the Theory of Shareholder Primacy. Harvard Law School Forum on Corporate Governance and Financial Regulation (2018).
[8]Supporters of universal basic income include Mark Zuckerberg, Hillary Clinton, the Black Lives Matter movement, Bill Gates, and Elon Musk.Id.at 5.
[9]Lowry supra note 3 at 7.
[10]Id.at 6.
[11]Oxford University economists predict that technological advancements will soon eliminate about half of American jobs, including many white-collar jobs. Carl Benedikt Frey and Michael Osborne, The Future of Employment (working paper),The Oxford Martin Programme on Technology and Employment (2013).
[12]UBI pilots are underway or beginning in Germany, the Netherlands, Finland, Canada, Kenya, and India. Id.
[13]In Kenya, for instance, a U.S.-based charity sent $20 cash per month to thousands of adults, which promptly lifted an entire village out of poverty. Id.at 77.
[14]Japan, Singapore, Hong Kong, Taiwan, South Korea, and China all have partially state-owned or controlled enterprises that have spurred development. Yougesh Khatri, State Capital, Development, and Growth in Asia.Chatham House(2018).
[15]In Singapore, the government is the controlling shareholder of 37% of total stock market capitalization. Per capita incomerose from$500 a year in 1959 to $52,000 a year today. See Tan Cheng-Han, Dan Puchniak, Umakanth Varottil, State-Owed Enterprises in Singapore: Historical Insights into a Potential Model for Reform, 28 COLUM. J. ASIAN L. Issue 2 (2015) at 6.
[16]Xinhua, Poverty relief fund financed by State-owned enterprises helps develop industries in poor areas. China Daily(2018).
[17]For example, South Korea favors “national champion” companies Samsung and Hyundai by protecting them from competitions, offering cheap loans, and providing other market advantages. Iain Marlow, South Korea’s Chaebol Problem, The Globe and Mail(2018).
[18]Saudi Arabia made monthly cash payments to citizens to subsidize living costs last year. Rosie Perper, Saudi Arabia is giving many of its citizens $3000 for free.Business Insider (2018).
[19]Aya Batrawy, Despite Wealth Gap, Ordinary Emiratis Ride UAE Gravy Train. The Times of Israel (2014).
[20]Id.
[21]A basic income is generally considered to be “enough money to live on, but just barely. It might cover a room in a shared apartment, food, and bus fare…But it would not be enough to live particularly well on.” Lowry supra note 3 at 4.
[22]A supplementary income, in contrast, would be a small amount — maybe a few hundred dollars a month — that would supplement other sources of income, like part-time, contract, or gig work. Should work opportunities continue to diminish and should the USIF scheme succeed, perhaps payments could rise gradually to an amount large enough to constitute a basic income. But for the sake of introducing the concept, it should be understood as a small amount that will help the poorest families the most.
[23]A 2016 Oxfam report indicates that the fifty largest United States corporations evaded taxes by storing over a trillion dollars in offshore shell companies in recent years and “tax dodging by multinational corporations cost the US approximately $111 billion each year.” Oxfam America, Broken at the Top, Oxfam Media Briefing (2016).
