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Sharing the Wealth of the Commons
Institutionalizing the commons could promote both economic equality and environmental protection.
BY PETER BARNES
This article was originally published in The Wealth Inequality Reader. Order the reader here.
Were all familiar with private wealth, even if we dont have much. Economists and the media celebrate it every day. But theres another trove of wealth we barely notice: our common wealth.
Each of us is the beneficiary of a vast inheritance. This common wealth includes our air and water, habitats and ecosystems, languages and cultures, science and technologies, political and monetary systems, and quite a bit more. To say we share this inheritance doesnt mean we can call a broker and sell our shares tomorrow. It does mean were responsible for the commons and entitled to any income it generates. Both the responsibility and the entitlement are ours by birth. Theyre part of the obligation each generation owes to the next, and each living human owes to other beings.
At present, however, our economic system scarcely recognizes the commons. This omission causes two major tragedies: ceaseless destruction of nature and widening inequality among humans. Nature gets destroyed because no ones unequivocally responsible for protecting it. Inequality widens because private wealth concentrates while common wealth shrinks.
The great challenges for the 21st century are, first of all, to make the commons visible; second, to give it proper reverence; and third, to translate that reverence into property rights and legal institutions that are on a par with those supporting private property. If we do this, we can avert the twin tragedies currently built into our market-driven system.
Defining the Commons
What exactly is the commons? Here is a workable definition: The commons includes all the assets we inherit together and are morally obligated to pass on, undiminished, to future generations.
This definition is a practical one. It designates a set of assets that have three specific characteristics: theyre (1) inherited, (2) shared, and (3) worthy of long-term preservation. Usually its obvious whether an asset has these characteristics or not.
At the same time, the definition is broad. It encompasses assets that are natural as well as social, intangible as well as tangible, small as well as large. It also introduces a moral factor that is absent from other economic definitions: it requires us to consider whether an asset is worthy of long-term preservation. At present, capitalism has no interest in this question. If an asset is likely to yield a competitive return to capital, its kept alive; if not, its destroyed or allowed to run down. Assets in the commons, by contrast, are meant to be preserved regardless of their return.
This definition sorts all economic assets into two baskets, the market and the commons. In the market basket are those assets we want to own privately and manage for profit. In the commons basket are the assets we want to hold in common and manage for long-term preservation. These baskets then are, or ought to be, the yin and yang of economic activity; each should enhance and contain the other. The role of the state should be to maintain a healthy balance between them.
The Value of the Commons
For most of human existence, the commons supplied everyones food, water, fuel, and medicines. People hunted, fished, gathered fruits and herbs, collected firewood and building materials, and grazed their animals in common lands and waters. In other words, the commons was the source of basic sustenance. This is still true today in many parts of the world, and even in San Francisco, where I live, cash-poor people fish in the bay not for sport, but for food.
Though sustenance in the industrialized world now flows mostly through markets, the commons remains hugely valuable. Its the source of all natural resources and natures many replenishing services. Water, air, DNA, seeds, topsoil, minerals, the protective ozone layer, the atmospheres climate regulation, and much more, are gifts of nature to us all.
Just as crucially, the commons is our ultimate waste sink. It recycles water, oxygen, carbon, and everything else we excrete, exhale, or throw away. Its the place we store, or try to store, the residues of our industrial system.
The commons also holds humanitys vast accumulation of knowledge, art, and thought. As Isaac Newton said, "If I have seen further it is by standing on the shoulders of giants." So, too, the legal, political, and economic institutions we inheriteven the market itselfwere built by the efforts of millions. Without these gifts wed be hugely poorer than we are today.
To be sure, thinking of these natural and social inheritances primarily as economic assets is a limited way of viewing them. I deeply believe they are much more than that. But if treating portions of the commons as economic assets can help us conserve them, its surely worth doing so.
How much might the commons be worth in monetary terms? Its relatively easy to put a dollar value on private assets. Accountants and appraisers do it every day, aided by the fact that private assets are regularly traded for money.
This isnt the case with most shared assets. How much is clean air, an intact wetlands, or Darwins theory of evolution worth in dollar terms? Clearly, many shared inheritances are simply priceless. Others are potentially quantifiable, but theres no current market for them. Fortunately, economists have developed methods to quantify the value of things that arent traded, so its possible to estimate the value of the "priceable" part of the commons within an order of magnitude. The surprising conclusion that emerges from numerous studies is that the wealth we share is worth more than the wealth we own privately.
This fact bears repeating. Even though much of the commons cant be valued in monetary terms, the parts that can be valued are worth more than all private assets combined.
Its worth noting that these estimates understate the gap between common and private assets because a significant portion of the value attributed to private wealth is in fact an appropriation of common wealth. If this mislabeled portion was subtracted from private wealth and added to common wealth, the gap between the two would widen further.
Two examples will make this point clear. Suppose you buy a house for $200,000 and, without improving it, sell it a few years later for $300,000. You pay off the mortgage and walk away with a pile of cash. But what caused the house to rise in value? It wasnt anything you did. Rather, it was the fact that your neighborhood became more popular, likely a result of the efforts of community members, improvements in public services, and similar factors.
Or consider another fount of private wealth, the social invention and public expansion of the stock market. Suppose you start a business that goes "public" through an offering of stock. Within a few years, youre able to sell your stock for a spectacular capital gain.
Much of this gain is a social creation, the result of centuries of monetary-system evolution, laws and regulations, and whole industries devoted to accounting, sharing information, and trading stocks. Whats more, theres a direct correlation between the scale and quality of the stock market as an institution and the size of the private gain. Youll fetch a higher price if you sell into a market of millions than into a market of two. Similarly, youll gain more if transaction costs are low and trust in public information is high. Thus, stock thats traded on a regulated exchange sells for a higher multiple of earnings than unlisted stock. This socially created premium can account for 30% of the stocks value. If youre the lucky seller, youll reap that extra cashin no way thanks to anything you did as an individual.
Real estate gains and the stock markets social premium are just two instances of common assets contributing to private gain. Still, most rich people would like us to think its their extraordinary talent, hard work, and risk-taking that create their well-deserved wealth. Thats like saying a flowers beauty is due solely to its own efforts, owing nothing to nutrients in the soil, energy from the sun, water from the aquifer, or the activity of bees.
The Great Commons Giveaway
That we inherit a trove of common wealth is the good news. The bad news, alas, is that our inheritance is being grossly mismanaged. As a recent report by the advocacy group Friends of the Commons concludes, "Maintenance of the commons is terrible, theft is rampant, and rents often arent collected. To put it bluntly, our common wealthand our childrensis being squandered. We are all poorer as a result."
Examples of commons mismanagement include the handout of broadcast spectrum to media conglomerates, the giveaway of pollution rights to polluters, the extension of copyrights to entertainment companies, the patenting of seeds and genes, the privatization of water, and the relentless destruction of habitat, wildlife, and ecosystems.
This mismanagement, though currently extreme, is not new. For over 200 years, the market has been devouring the commons in two ways. With one hand, the market takes valuable stuff from the commons and privatizes it. This is called "enclosure." With the other hand, the market dumps bad stuff into the commons and says, "Its your problem." This is called "externalizing." Much that is called economic growth today is actually a form of cannibalization in which the market diminishes the commons that ultimately sustains it.
Enclosurethe taking of good stuff from the commonsat first meant privatization of land by the gentry. Today it means privatization of many common assets by corporations. Either way, it means that what once belonged to everyone now belongs to a few.
Enclosure is usually justified in the name of efficiency. And sometimes, though not always, it does result in efficiency gains. But what also results from enclosure is the impoverishment of those who lose access to the commons, and the enrichment of those who take title to it. In other words, enclosure widens the gap between those with income-producing property and those without.
Externalizingthe dumping of bad stuff into the commonsis an automatic behavior pattern of profit-maximizing corporations: if they can avoid any out-of-pocket costs, they will. If workers, taxpayers, anyone downwind, future generations, or nature have to absorb added costs, so be it.
For decades, economists have agreed wed be better served if businesses "internalized" their externalitiesthat is, paid in real time the costs they now shift to the commons. The reason this doesnt happen is that theres no one to set prices and collect them. Unlike private wealth, the commons lacks property rights and institutions to represent it in the marketplace.
The seeds of such institutions, however, are starting to emerge. Consider one of the environmental protection tools the U.S. currently uses, pollution trading. So-called cap-and-trade programs put a cap on total pollution, then grant portions of the total, via permits, to each polluting firm. Companies may buy other firms permits if they want to pollute more than their allotment allows, or sell unused permits if they manage to pollute less. Such programs are generally supported by business because they allow polluters to find the cheapest ways to reduce pollution.
Public discussion of cap-and-trade programs has focused exclusively on their trading features. Whats been overlooked is how they give away common wealth to polluters.
To date, all cap-and-trade programs have begun by giving pollution rights to existing polluters for free. This treats polluters as if they own our sky and rivers. It means that future polluters will have to pay old polluters for the scarcehence valuableright to dump wastes into nature. Imagine that: because a corporation polluted in the past, it gets free income forever! And, because ultimately well all pay for limited pollution via higher prices, this amounts to an enormous transfer of wealthtrillions of dollarsto shareholders of historically polluting corporations.
In theory, though, there is no reason that the initial pollution rights should not reside with the public. Clean air and the atmospheres capacity to absorb pollutants are "wealth" that belongs to everyone. Hence, when polluters use up these parts of the commons, they should pay the publicnot the other way around.
Taking the Commons Back
How can we correct the system omission that permits, and indeed promotes, destruction of nature and ever-widening inequality among humans? The answer lies in building a new sector of the economy whose clear legal mission is to preserve shared inheritances for everyone. Just as the market is populated by profit-maximizing corporations, so this new sector would be populated by asset-preserving trusts.
Here a brief description of trusts may be helpful. The trust is a private institution thats even older than the corporation. The essence of a trust is a fiduciary relationship. A trust holds and manages property for another person or for many other people. A simple example is a trust set up by a grandparent to pay for a grandchilds education. Other trusts include pension funds, charitable foundations, and university endowments. There are also hundreds of trusts in America, like the Nature Conservancy and the Trust for Public Land, that own land or conservation easements in perpetuity.
If we were to design an institution to protect pieces of the commons, we couldnt do much better than a trust. The goal of commons management, after all, is to preserve assets and deliver benefits to broad classes of beneficiaries. Thats what trusts do, and its not rocket science.
Over centuries, several principles of trust management have evolved. These include:
Trustees have a fiduciary responsibility to beneficiaries. If a trustee fails in this obligation, he or she can be removed and penalized.
Trustees must preserve the original asset. Its okay to spend income, but dont invade the principal.
Trustees must assure transparency. Information about money flows should be readily available to beneficiaries.
Trusts in the new commons sector would be endowed with rights comparable to those of corporations. Their trustees would take binding oaths of office and, like judges, serve long terms. Though protecting common assets would be their primary job, they would also distribute income from those assets to beneficiaries. These beneficiaries would include all citizens within a jurisdiction, large classes of citizens (children, the elderly), and/or agencies serving common purposes such as public transit or ecological restoration. When distributing income to individuals, the allocation formula would be one person, one share. The right to receive commons income would be a nontransferable birthright, not a property right that could be traded.
Fortuitously, a working model of such a trust already exists: the Alaska Permanent Fund. When oil drilling on the North Slope began in the 1970s, Gov. Jay Hammond, a Republican, proposed that 25% of the states royalties be placed in a mutual fund to be invested on behalf of Alaskas citizens. Voters approved in a referendum. Since then, the Alaska Permanent Fund has grown to over $28 billion, and Alaskans have received roughly $22,000 apiece in dividends. In 2003 the per capita dividend was $1,107; a family of four received $4,428.
What Alaska did with its oil can be replicated for other gifts of nature. For example, we could create a nationwide Sky Trust to stabilize the climate for future generations. The trust would restrict emissions of heat-trapping gases and sell a declining number of emission permits to polluters. The income would be returned to U.S. residents in equal yearly dividends, thus reversing the wealth transfer built into current cap-and-trade programs. Instead of everyone paying historic polluters, polluters would pay all of us.
Just as a Sky Trust could represent our equity in the natural commons, a Public Stock Trust could embody our equity in the social commons. Such a trust would capture some of the socially created stock-market premium that currently flows only to shareholders and their investment bankers. As noted earlier, this premium is sizeableroughly 30% of the value of publicly traded stock. A simple way to share it would be to create a giant mutual fundcall it the American Permanent Fundthat would hold, say, 10% of the shares of publicly traded companies. This mutual fund, in turn, would be owned by all Americans on a one share per person basis (perhaps linked to their Social Security accounts).
To build up the fund without precipitating a fall in share prices, companies would contribute shares at the rate of, say, 1% per year. The contributions would be the price companies pay for the benefits they derive from a commons asset, the large, trusted market for stocka small price, indeed, for the hefty benefits. Over time, the mutual fund would assure that when the economy grows, everyone benefits. The top 5% would still own more than the bottom 90%, but at least every American would have some property income, and a slightly larger slice of our economic pie.
Sharing the Wealth
The perpetuation of inequality is built into the current design of capitalism. Because of the skewed distribution of private wealth, a small self-perpetuating minority receives a disproportionate share of Americas nonlabor income.
Tom Paine had something to say about this. In his essay "Agrarian Justice," written in 1790, he argued that, because enclosure of the commons had separated so many people from their primary source of sustenance, it was necessary to create a functional equivalent of the commons in the form of a National Fund. Here is how he put it:
Enclosure of the commons, he went on, was necessary to improve the efficiency of cultivation. But
The appropriate compensation for loss of the commons, Paine said, was a national fund financed by rents paid by land owners. Out of this fund, every person reaching age 21 would get 15 pounds a year, and every person over 50 would receive an additional 10 pounds. (Think of Social Security, financed by commons rents instead of payroll taxes.)
A Progressive Offensive
Paines vision, allowing for inflation and new forms of enclosure, could not be more timely today. Surely from our vast common inheritancenot just the land, but the atmosphere, the broadcast spectrum, our mineral resources, our threatened habitats and water suppliesenough rent can be collected to pay every American over age 21 a modest annual dividend, and every person reaching 21 a small start-up inheritance.
Such a proposal may seem utopian. In todays political climate, perhaps it is. But consider this. About 20 years ago, right-wing think tanks laid out a bold agenda. They called for lowering taxes on private wealth, privatizing much of government, and deregulating industry. Amazingly, this radical agenda has largely been achieved.
Its time for progressives to mount an equally bold offensive. The old shibbolethslets gin up the economy, create jobs, and expand government programsno longer excite. We need to talk about fixing the economy, not just growing it; about income for everyone, not just jobs; about nurturing ecosystems, cultures, and communities, not just our individual selves. More broadly, we need to celebrate the commons as an essential counterpoise to the market.
Unfortunately, many progressives have viewed the state as the only possible counterpoise to the market. The trouble is, the state has been captured by corporations. This capture isnt accidental or temporary; its structural and long-term.
This doesnt mean progressives cant occasionally recapture the state. Weve done so before and will do so again. It does mean that progressive control of the state is the exception, not the norm; in due course, corporate capture will resume. It follows that if we want lasting fixes to capitalisms tragic flaws, we must use our brief moments of political ascendancy to build institutions that endure.
Programs that rely on taxes, appropriations, or regulations are inherently transitory; they get weakened or repealed when political power shifts. By contrast, institutions that are self-perpetuating and have broad constituencies are likely to last. (It also helps if they mail out checks periodically.) This was the genius of Social Security, which has survivedindeed grownthrough numerous Republican administrations.
If progressives are smart, well use our next New Deal to create common property trusts that include all Americans as beneficiaries. These trusts will then be to the 21st century what social insurance was to the 20th: sturdy pillars of shared responsibility and entitlement. Through them, the commons will be a source of sustenance for all, as it was before enclosure. Life-long income will be linked to generations-long ecological health. Isnt that a future most Americans would welcome?
Peter Barnes is a successful entrepreneur who co-founded Working Assets and has served on several business boards. He is now a fellow at the Tomales Bay Institute and author of Who Owns the Sky? (Island Press, 2001).
Issue #256, November/December 2004
Copyright © 2004 Economic Affairs Bureau, Inc.