The economics of belonging

Why fairness between the generations requires a new approach to wealth

The RSA
RSA Journal

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By Asheem Singh

@RobinAsheem

We live in divisive times. Nowhere is this more evident than in the distribution of our wealth. In the UK, according to the Office for National Statistics, those whose income puts them within the top 10% of earners own more wealth than the bottom 50% combined. For young people, this divide runs even deeper. The total stock of UK wealth has increased from 2.5 times national income in the 1970s to almost seven times today. Most of this will be passed on to already wealthy young people, who are set to inherit more than four times as much as those with no property.

We tax wealth and inheritance in various ways, but, increasingly, such taxes are not keeping pace with these shifts. Plot a graph of yield versus share of GDP and you will see that the line representing money raised from these measures has for some time stayed flat. And this is without taking into account the rise in inheritance tax thresholds scheduled for 2020. In short, this means that wealth taxes are working less well each year, yielding proportionately less money for the exchequer to spend on essential public goods, while wealth is working harder for those who already have it. Incentives to recirculate assets are diminished. Hold on to what you have is the mantra of this generation, and will continue to be so for generations to come.

The effects of a life without wealth for the growing bulk of our young are grave and getting graver. The absence of pension planning, savings and future provision undermines individual economic security and impacts negatively on wellbeing.

There is a myth that in the 1980s the UK shifted to become a shareholder economy. Yet around 10% of shares in this country are today owned by individuals, compared with 54% in 1963. The dominant model of shareholder ownership has had many effects, and has played at least some part in the corporation becoming the pre-eminent force for social and environmental degradation, riding roughshod and rampant at the behest of fewer people.

Home ownership, the great prize of the opportunity economy, is — according to the English Housing Survey of 2015/16 — now at its lowest level since 1985. Schemes like Margaret Thatcher’s Right to Buy tended to benefit a small group of the fortunate in fits and starts. Taken in sum: the property-owning democracy of which the political class once dreamed never came to be.

Assets ignored

Is this really so surprising? One of the great failures of the social democratic consensus that emerged after the Second World War was that it chose to all but ignore levels of asset ownership — of wealth — among the very poor. Instead, we focused on levels of income. The telos of the Beveridge-inspired welfare settlement, located as it was in the idea of a universal personal ‘insurance’, was ‘relief in times of hardship’. Welfare and work were inextricably linked; welfare and citizenship less so.

Thus, when in the 1980s Thatcher’s government, and in the 1990s and 2000s, Blair’s administration, decided to embrace wealth or asset-based welfare, they did so through a narrow lens. They recognised that existing policy was inimical to asset building and saving. This, together with the rapid growth in public spend on middle-class tax reliefs on wealth-building, drove the appetite for new approaches.

“Assets”, said American academic Michael Sherraden, “are hope in concrete form”. He spent two decades observing the effects of asset ownership on low-income American families, the high point of which was his seminal 1991 text Assets and the Poor: A New American Welfare Policy. The idea that asset ownership builds self-reliance among the poor, encourages positive behaviour and helps foster a more egalitarian market economy was given succour by his work. This view was much admired by the Blair government, for whom asset ownership was essentially a personal lifestyle intervention that could be encouraged from Whitehall.

“We should say to our politicians: show me your policy on wealth and I will tell you what you think of our children’s futures”

This narrative was largely accepted across the political spectrum. Conservative politicians such as David Willetts and Iain Duncan Smith produced papers on the primacy of assets in the fights for popular capitalism and social justice. The Blair government, in the run up to the 2001 election, presented asset-based welfare as a new ‘fourth pillar’ of the welfare state, after work, income and public services.

Out of this came practical interventions — the Child Trust Fund and the Saving Gateway — that are worth spending a little time on. The former was considerable. The Child Trust Fund would provide all children born from September 2001 onwards with a sum of money to be invested at birth, topped up at age seven and then accessed at 18, with poor children receiving more support than the rest. The Saving Gateway was open to low-income households in receipt of benefits and tax credits. Government would match up to 50p in every £1 saved.

The Child Trust Fund spread quickly. By 2010, more than six million of these ‘baby bonds’ had been opened. The Saving Gateway was trialled between 2002 and 2007, with promising results. The plan was to roll it out nationwide in the event of a Gordon Brown victory in 2010, which never came to be.

Indeed, neither policy survived the axe of austerity. In an act of remarkable political butchery, George Osborne and David Laws ended the Child Trust Fund and kyboshed the Saving Gateway as one of the first and defining acts of the 2010 coalition. They would later be brought back in much abbreviated forms, which only reinforced the idea that, for all its importance, asset-based welfare was expendable. The opposition’s lack of sustained advocacy against the cuts compounded the sense that neither their heart nor their head was in this fight. If we are to take asset-based welfare seriously, we need a different approach.

Collective wealth

There is a venerable strand of political and historical thought that identifies asset ownership as an essential component, not only of individual economic security or of an egalitarian society, but also as an expression of our collective identity. Through owning we belong, and through owning we become.

These philosophical, political and even religious ideas are found in texts as diverse as the Rerum Novarum of Pope Leo XIII and the Carta de Foresta of common rights established in Britain in the 13th century. They stretch through the agrarian experiments in universal basic income (UBI) supported by the new American republic’s Thomas Paine, and even find voice in the work of development economists like Hernando de Soto, whose work from 2000, The Mystery of Capital, discerned remarkable changes in communities from the formalisation of individual and collective property rights and ownership. Whether enabling individuals to survive, groups to thrive, or communities to take control of the things that matter to them, a continuum of individual and collective wealth-building is at the heart of our flourishing.

In the past decade these movements have made their way into public discourse and opened up a new front in the assault on wealth inequality. Not before time. An RSA survey from 2018 revealed that people under 45 are least likely to back increases in taxes to support higher public spending, and are also more likely to want to see cuts in taxes and spending. This is despite the same generation — in relatively high numbers — voting for the tax and spend policies of the Labour Party in the 2017 general election. The RSA’s Anthony Painter has argued that young people are losing faith in the ability of the current dispensation and its actors to deliver; new thinking is required.

To this end, the RSA has supported the development of UBI models. Everyone should have a claim on a discrete sum of money that gives them a base from which to build. Placing UBI alongside the kinds of individual savings-building experiments trialled by organisations like Prosperity Now in the US — of which the Saving Gateway was a government-driven instance — has the potential to put money directly and sustainably in the savings accounts of all citizens. These ideas, although contested, are gathering momentum.

UBI is a fascinating idea; its dividend is a form of individual wealth-building, but the capital that undergirds the dividend is a contribution to the wealth of all. Whether you support UBI or not, building that collective capital lies at the heart of the wealth inequality challenge.

Activists have recently found that local development policy can also yield fruit. Here, community wealth, as it is known, is taken seriously and built incrementally. Local institutions build local skills bases and encourage community ownership of services and assets. The work of the Democracy Collaborative in Cleveland in the USA and Preston City Council in the UK show the way. Both engage citizens in that process of enlarging collective assets.

Crucially, these ideas can also put money in the pockets of individual citizens. Consider, for example, the work of Dag Detter, whose scheme to create local funds with individual dividends by better managing municipal assets was conceived in Sweden and trialled in Pittsburgh. Local and national wealth funds, such as the Alaskan Opportunity Fund, can leverage natural resources to create what I refer to as a citizen bounty. A minimum inheritance, such as that proposed by the RSA in our 2018 report Pathways to Universal Basic Income, of £10,000 for every citizen under the age of 55, can draw on this capital and be increased thereby.

What is more, the bits and bytes that embody citizens’ digital footprints should support citizens’ flourishing. Open assets are a new, evanescent form of ownership, at once individual and collective, apparently unrooted in time and space yet no less real, that could be worth so much to us. The data pertaining to localities is used for local good. In Barcelona, one of the most data-driven modern cities, new civic leaders with a background in grassroots activism are working hard to turn this data to society’s ends. We should follow their lead.

Belonging

We have the potential here to create a new story that is about owning and being, of personal flourishing and collective identity, that is summarised in one word: belonging. The desire to own and to be part of something unites both old and young. In our divided times we must work harder at understanding belonging, not just in its spiritual but also in its material form. We must be hungry to understand the personal, local and national dimensions in ever greater detail, for it is through giving primacy to belonging that our deepest divisions may be overcome.

That is our task: the RSA will play its part in moving the individual, community and open wealth agendas forward. If ever-more hoarded wealth is indeed to be an ever-greater determinant of life chances in our time, let us resolve to spread that wealth, through new ideas and better taxes, but also through the most innovative and evidenced practical interventions imaginable.

Thatcher will forever live on in some voters’ hearts as the spreader of homeownership and the purveyor of Right to Buy. Blair’s Child Trust Fund was an example of New Labour at its most socially just. Neither of these policies were wealth-spreading panaceas, but they did capture the imagination. The prize here is to do much, much better and thus define the economics of a generation. We should say to our politicians: show me your policy on wealth and I will tell you what you think of our children’s futures. We should demand of them: show me an agenda that takes seriously the economics of belonging.

Asheem Singh leads the RSA’s Economy team

The RSA Economy team is organising an event with Fellows to discuss taking our work on wealth and the economics of belonging forward. If you would like to get involved, please get in touch with Asheem at asheem.singh@thersa.org

This article first appeared in the RSA Journal — Issue 4 2018–19

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The RSA
RSA Journal

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