Matt Bruenig of the People’s Policy Project recently wrote an article in The New York Times suggesting a policy idea that seems extremely promising and woefully overlooked. That idea is what Bruenig calls a social wealth fund — a government-owned portfolio of stocks, bonds and real estate whose dividends would be paid out directly to the citizenry.
This is similar to what economist Miles Kimball and others have been calling a sovereign wealth fund, which is the typical name for funds that some natural-resource exporters use to invest the proceeds from their state-owned oil and gas companies. But Bruenig’s name is better. The state-operated funds of countries such as Saudi Arabia are used in a discretionary manner, which often means their benefits end up flowing to the country’s richest. A social wealth fund, while having the same acronym, would guarantee that the income from capital assets gets distributed widely — perhaps as a universal basic income. A U.S. social wealth fund would rely on tax revenues to purchase assets, rather than natural resource revenues, but the principle is the same.
Bruenig undersells his own idea. He frames a social wealth fund as a way to combat inequality and provide macroeconomic stability — and it certainly would do both of those things. But it’s also a way to insure the American middle and working class against technological change.
As technologies such as machine learning become more advanced, there’s a real possibility that automation could start making human labor superfluous on a large scale. So far, nothing like that appears to be happening; as machines improve, humans keep finding new valuable things to do. But there’s no guarantee that it won’t happen in the future. So it’s important to have some way to protect a broad swath of the populace against this scenario.
A social wealth fund provides just such a way. If automation replaces human labor, it means the labor share of income will continue to fall:
That would mean the share of income going to capital owners — corporate profit, land rent and interest income — would go up. A social wealth fund would automatically redirect that increased capital income back to the same people whose labor income fell, canceling out much or all the harmful impact. In other words, a social wealth fund is a way to redistribute benefits of the robots.
The beauty of this policy is that it doesn’t require the government to take a stand on whether automation will hurt workers. If automation proves to be a boon to workers instead of a threat, as in the past, then wages will stay high and the social wealth fund’s payouts will be more modest. Either way, workers and the middle class are protected against change that’s almost impossible to predict.
Actually, a social wealth fund would protect against other big economic changes. Labor’s share of income is already going down — probably due to globalization, industrial concentration, falling worker bargaining power, land price appreciation and other forces. Every one of those trends sends more money into the hands of shareholders, landlords and bondholders. So a social wealth fund would provide insurance against the future intensification of any or all of these developments.
There are also difficulties and dangers involving implementation of the social wealth fund. The main challenge is the issue of corporate control.
As the government owns a bigger and bigger slice of corporate America, there’s the danger that companies will stop competing with each other. Some economists think this has already been happening, as large diversified institutional investors take over the stock market. If a giant investor such as a mutual fund owns multiple companies in an industry, it has very little incentive to push those companies to compete with each other. The result is de facto collusion without official monopoly.
A social wealth fund could have the same effect, only more so. If less competition meant more money flowing into government coffers, the people controlling the fund would have a strong incentive to reduce competition. The result would be higher prices and worse service for consumers.
One partial way around this is to have the social wealth fund not cast any shareholder votes — to limit its role to that of a silent partner, exercising ownership but no control. But the presence of a large non-voting block of shareholders might still reduce the pressure on companies to compete with each other.
Another solution would be to have not one social wealth fund, but many. Each fund would pay its proceeds to all or most U.S. citizens. But each would be independently managed, and its managers paid on their performance. So unless the funds all copied each other, there would still be a bunch of independent shareholders pushing companies to improve productivity. The social wealth funds could even be given incentives to act as patient, long-term capital, combating the problem of corporate short-termism.
So while the implementation needs to be nailed down, a social wealth fund — or an army of social wealth funds — is still a fundamentally good and underappreciated idea. It could be just what the country needs to reverse the negative trends that have afflicted the middle and working classes during the past several decades.
By Noah Smith, a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
