Why We Need a Social Wealth Fund
A social wealth fund could massively reduce wealth inequality — and democratize the economy at the same time.
An Alaska Railroad passenger excursion train at Spencer Glacier. Frank Kovalchek / Wikimedia
How can we attack wealth inequality in the United States?
In a report out today from the People’s Policy Project, Matt Bruenig proposes a federal-level social wealth fund — a permanent, publicly owned fund that would actively own and manage capital assets. Over time, the fund would seek to expand its ownership stake in private enterprises and use its shareholdings to accomplish social goals (like reducing carbon emissions).
The core purpose of the fund, Bruenig writes, would be to correct a situation in which “millionaires own 80 percent of the country’s wealth while the bottom third of families owns none of it. . . . As the assets under management increase, the value of the shares held by the citizen-owners will increase, causing wealth inequality to fall.”
Under Bruenig’s proposal, the money generated from investments would be paid out to every citizen in the form of an annual “universal basic dividend.” This “universal basic dividend” would amount to a basic income, but it would shore up the welfare state rather than undermine it (as right-wing proponents of a basic income want to do). By connecting people’s annual payments to the returns on capital in public ownership, it would create a direct, visible link between more public ownership and more household income for ordinary people. It would also avoid fueling a push for “welfare reform” by starting small and rising over time — nobody could make the case that the dividend could immediately “replace” unemployment benefits or disability insurance.
The most successful case of a social wealth fund is in Norway, where the public owns two large funds of this nature — one that invests in the Nordic economy, and another that invests outside the country. Norway’s social wealth funds are worth over $1 trillion (the equivalent of $62 trillion when scaled to the size of the US population).
The same model has also been around in Alaska since 1976. Most recently, the Alaska Permanent Fund paid a dividend of $1,100 to every state resident, or $4,400 for every family of four. Lauded by some as “the most popular program in the history of the US,” it is an important source of income for Alaskans, particularly for single and Native women. Bruenig argues we could do the same nationally.
In addition to reducing wealth inequality, the promise of social wealth funds is that a significant share of the economy could, from a technical standpoint, be brought under public ownership within a relatively short period of time. If successful, this would massively extend our capacity to exercise democratic control over US capital. The whip of “business confidence,” while still present, would become less of a threat.
Objections
Like the Norwegian social wealth funds, the Alaska Permanent Fund got most of its startup capital from oil reserves. Critics often point to this as proof of the wider inapplicability of the social wealth fund model. But the oil money does not fund the dividends — the financial investments do.
While it is true that both Norway and Alaska could do far more, their models make them less dependent on future oil revenues. By purchasing shares rather than spending directly, these funds grow in comparison to their fossil-fuel income. For jurisdictions that are dependent on finite resources, this builds up a durable buffer stock of renewable financial income that can pick up the slack from a declining fossil-fuel industry.
The Alaskan and Norwegian funds would expand more slowly if their oil money was cut off without a replacement, but they would not cease to exist — and alternative funding options (for both Norway and the United States) are certainly available. This is evident from past proposals by economists like Rudolf Meidner, the existence of public-sector pension funds (which are a type of social wealth fund oriented towards a very specific purpose — Ireland’s public sector pension fund was recently repurposed to invest strategically in the wider economy), and other proposals in Bruenig’s report.
Bruenig’s plan does not rely on finite or ecologically damaging resources — it specifies a range of alternative means to provide infusions of capital into the fund. Existing assets would be ring-fenced and moved into the fund, the state would levy a range of new capital taxes, monetary policy would fund asset purchases, and during economic downturns the fund would perform countercyclical asset purchases, reaping the rewards when the economy recovered.
Simply put, the social wealth fund is doable — and it’s one of the most promising radical reforms we have.
Looking Forward
I would suggest some possible extensions to Bruenig’s basic model. Following Meidner, I think it is worth considering multiple social wealth funds to be established along sectoral lines. Governance questions are relevant — and multiple funds could permit boards composed of many relevant groups tailored to each one, such as federal, state, and local government, organized labor, community groups, ethnic minorities and Native Americans, worker representatives from subsidiaries and industries that supply raw materials, and so forth. This would also allow for any public ownership of fossil fuels to be separated and put under the control of directors with a specific mandate to pursue the phased extinction of that industry.
It would still be possible to have an integrated point-of-contact for citizens to track their society’s investments (such as a centralized app, as Bruenig proposes), but the governance of each fund would be independently constituted.
We should also remember the political economy of these proposals. The Norwegian state has socialized a substantial majority of the nation’s wealth, but it was only possible because of past labor struggles in that country. Even a managed, voluntary model for collective capital accumulation like Norway’s was built upon one of the world’s strongest labor movements. We should not fool ourselves into believing it will be easy in the US — organized capital will treat this as a threat to their interests. However, it offers a potential tool to chip away at private ownership without provoking an immediate, unwinnable confrontation.
Bruenig’s proposal should be seen as a jumping-off point for a wider discussion of social wealth funds in the United States. Debates on this topic have been around in the United Kingdom for a while now, with several papers from leftist think tanks released just this year. The US left should take up the baton and continue the dialogue — considering the best ways to finance, grow, govern, and use social wealth funds for the benefit of the country’s broad, multiracial working class.