Pragmatic Conventions For A Free Socialism (A Collection of Humble Suggestions)
Outlawing capitalist equity investing, confiscating the wealth of the investor class, and replacing private investing with “democratic” processes has been attempted in several societies. These societies have often encountered economic dysfunction and authoritarianism. A free approach to socialism should address the problems associated with private land ownership and capitalist equity investing while avoiding economic dysfunction and authoritarianism.
The following list contains a few suggestions for one form of free socialism.
1. Democratic processes could be used to distribute land rents and natural resource extraction fees to every citizen through a land value tax and UGI (Universal Guaranteed Income). This combination could be conceptualized as collecting and distributing an inheritance that all citizens are entitled to in a way that doesn’t constitute a tax in the traditional sense. Some societies that have very little private land ownership, such as Singapore and Hong Kong, host very successful capitalist free markets. The success of these markets seems to indicate that not allowing private land ownership does not inherently cause serious economic dysfunction.
2. A society could encourage its members to use their UGI payments to finance production in a way that is likely to distribute the profits broadly throughout a society. One way of accomplishing this is to create “mutual aid funds”. Mutual aid funds are investment funds where no member is allowed to invest more than the UGI they receive from the use of the natural resources they inherit. Allowing qualified private mutual aid funds to compete with one another could help to increase quality and keep costs low. Ideally these funds would operate tax free and, by distributing the profits broadly, help to reduce poverty, crime, health problems, and the need for government social services that are funded through mandatory taxes. Not only would an arrangement such as this provide a tax free opportunity for every member of the society to invest, it may attract the best investment opportunities in the market at any given moment. If the cost of capital offered by the mutual aid funds is similar to the cost of capital from other sources, then those seeking investment may prefer the mutual aid funds since distributing the profits widely through them nudges the society towards benefits those seeking investment are likely to value, such as lower taxes and safer communities, and for no addition cost to themselves.
In addition to competing to offer better services at lower costs, funds might also work together to do things like sponsor IPOs and locate mutual aid funds that are capable of vetting a particular investment opportunity. Fund managers are likely to desire the societal wide benefits of profits being spread broadly and working with other funds might sometimes help to nudge the society towards those benefits. A well funded collection of mutual aid funds cooperating with one another to finance the best direct investment opportunities in the market may leave investors outside the mutual aid funds with only second rate opportunities.
If the mutual aid funds tend to finance the best direct investment opportunities and the value of the land tends to be invested in them, then, over time, they may become the primary source of capital within a society. This could lead to the ownership of productive assets being widely distributed within a society compared to the very unequal distribution of ownership that is typical of capitalism. A shift to a post-capitalist society of this type might occur without needing to outlaw capitalist equity investing.
3. If mutual aid funds successfully reduce poverty, then the need for social services financed through mandatory taxes might substantially diminish.
If a $3,000/year UGI where invested at 7% interest for 50 years a husband and wife would each accumulate around $1,304,000. At 10% interest that same investment would accumulate to around $3,840,000 each. Their combined wealth would be greater than a million by the age of 30.
If parents were required to place their child’s UGI in a qualified mutual aid fund where the account is locked until adulthood (e.g. 18 years), then children could start life with a substantial amount of wealth. If a $3,000/year UGI grew at 7% per year, then a child would receive $112,000 at the age of 18. At 10% interest that same investment would grow to around $150,000. If $150,000 investment earned 10%, then the interest alone that year might be sufficient to keep the recipient above the poverty line.
At 10% interest, a recipient would be able to draw over $50,000 a year at the age of 30 without reducing the principle. This may enable them to protect their family from unemployment, take better advantage of educational opportunities, engage in more socially significant leisure activities, and be more entrepreneurial.
Some societies might place restrictions on how much of the principle in an investment can be accessed annually based on criteria such as age of the individual and size of the investment in order for the investment to qualify for tax free status.
Wealth in a mutual aid fund could also be accessed through low interest collateral backed loans that allow the investment to continue to grow while the loan recipient makes payments.
If wealth in a free socialist society became very common, then those who fall on hard times may often find sufficient support within their network of friends and family without the need for government aid. Wealthy individuals may also be more likely to contribute voluntarily to mutual aid organizations that provide private aid to members of a community. The combination of these two things may result in very little need for government supplied aid, however, some societies may still find it desirable to require mandatory payments to a social insurance fund that protects the members of the society from encountering hardship at a time when their mutual aid fund investments are not sufficient for their needs. Means testing could determine if someone qualifies for a payment from a social insurance pool. If the mutual aid fund and mutual aid organization system work well, then the need to draw from social insurance may not be very great and the size of the mandatory social insurance payments may be small compared to the social security payments made today.
If returns to mutual aid funds are unusually high, then allowing qualified mutual aid organizations to participate in the funds might encourage a high quality, diverse collection of organizations to form in a way that reduces the need for government programs. A government office could monitor the effectiveness of private mutual aid organizations and collect mandatory taxes for government programs when deemed necessary. A society might experiment with allowing tax payers to direct their tax dollars to the qualified private organizations of their choice. The scheme might require them to distribute a fraction of their tax dollars into several different categories (e.g. education, health, defense, research). Participants could be allowed to delegate their tax distribution to someone else, such as a friend or elected official. If a need is not being met well, then citizens might establish new qualified private organizations and encourage others to send their tax dollars. Members of a society could be encouraged to invest their tax dollars well by enacting policies that lower mandatory taxes when social service costs decline.
4. If most members of a society become wealthier then the demand for working in a way that grants the worker substantial decision making power and the right to profits may become more common, since wealthier workers have a increased ability to refrain from low quality work opportunities. Many workers may find that they prefer working in workplace democracies. Workplace democracies and mutual aid funds are a natural fit since they both align with socialist values, however, some common problems with workplace democracies may need to be address in order make them more likely to form and be viewed as high quality investment opportunities. The following reforms may help.
a. Investors could be sold shares that promise some percent of profits and wages per the number of issued shares that must be paid at regular intervals (e.g. 1% every 5 years). Promising regular payments in this way could protect investors from worker-owners moving profits into wages while allowing the worker-owners to maintain control of the board of directors. Existing investors could be included in determining the number of shares to be issued in each new issuance to protect themselves from unreasonable dilution. As new issuance are made, prior issuances dilute so that the percent of profits and wages being paid remains reasonable. For instance if there were an initial issuance a 1000 shares at 1% of profits and wages per issued share to be paid out by a 5 year deadline, and then a second issuance of another 1000 shares at .5% by the same 5 year deadline, then the amount to be paid out every 5 years would be:
Notice that the first issuance is now divided by 2000 shares since this is the total number of issued shares after the last issuance. This scheme combines some of the features of stocks and bonds (i.e. virtually guaranteed regular payments and unlimited upside) and requires that the worker-owners to behave like owners and place some of their own wages at risk when seeking investment. Since there will almost certainly be wages as long as an enterprise operates, investors know that they will likely receive some payment by the agreed to deadline. Failure to do so could result in the status of the enterprise being downgraded, similar to what occurs in bond markets. Allowing for long deadlines could provide worker-owners with a flexible repayment scheme during growth periods, where wages are not diminished and the amount owed is paid using profits whenever they become available. Since (profits+wages) is likely to be a substantial amount, offering only a small fraction of this amount per issued share may be sufficient to attract investors. A promise to make regular payments from (profits+wages) may be a small price to pay in exchange for substantial capital investments and the right of the worker-owners to maintain control of the board.
b. Workplace democracies might also be organized into work units that attempt to match the worker-owners by type of productivity (such as in the capitalist enterprise Nucor). Work units of this type should lead to worker-owners making decisions about and sharing profits from worker-owners engaging in production in a way that is similar to themselves. This may reduce free riding, brain drain, and workers-owners having a counterproductive amount of influence over lines of production they are unfamiliar with. Each work unit could maintain its own profit and loss statement and engage in contracting with other work units. If contract obligations made amongst the work units are not met, then a board of directors that is elected by all members could be allowed to take the lead in renegotiating contracts, reorganizing the collection of work units, and adjusting who is assigned to each unit.
c. In many cases investors may only be willing to invest if the workplace democracy is planning to add a large number of new worker-owners. Investment agreements might require that worker-owners be offered recruitment bonuses in order to better align their interests with growth. To combat chronic underinvestment, investors may also require that they be allowed to set minimum levels of reinvestment in an explicitly agreed to set of categories of reinvestment. Worker-owners could be allowed to reinvest in these categories in any qualified way they like and an official arbitration process could allow the investors to referee which reinvestments are considered qualified.
5. Traditional forms of capitalist equity investing tend to distribute resources and decision making to a small fraction of the population who may often be far removed from important local information. A society in which the typical member is enabled to help in the development of the economy, and incentivized to do so, may function with greater collective intelligence than a society based on traditional capitalist equity investing. A free socialist society might dedicate large amounts of research and development to characterizing this collective intelligence and directing it towards productive ends.
Wealthier workers and wealthier customers in a free socialist society may have different tendencies than what is typical in capitalist societies due to workers being more able to refrain from low quality work opportunities, customers being more able to pay premiums, and both being likely to have their human potential more completely developed. These communities may engage in more elaborate and socially focused practices where goods and services are part of a cultural dialog and a foundation for strong personal relationships that greatly enhance quality of life in ways that more generic and anonymously produced goods and services tend not to. A free socialist society might also encourage other societies to adopt free socialism whenever they fill the marketplace with low cost items produced through traditional capitalism. Characterizing these tendencies and enhancing them through ethical means may also be an important area of research and development in a free socialist society.
6. A functional free socialism could enable a variety of alternative forms of living, including voluntary only communist communes that deemphasize private wealth accumulation (e.g. Public Wealth Communism). A mutual aid fund system should make it easier for members of a society to refrain from joining communities they don’t like and to exit communities they no longer wish to participate in. Enhancing the ability of the members of a society to refrain from participating in communities and to create new communities could lead to a diverse, high quality collection of voluntary communities.
7. If free socialism successfully alleviates poverty and distributes control over the workplace and other institutions within a society, then many voters may be willing to reduce federal regulations and allow local communities to have more control over their own local rule regimes. This could create a large marketplace of rule regimes where participants are able to easily relocate amongst a large number of options and tailor their community’s rules to their local conditions in a way that may correlate with increased productivity, enthusiasm, and innovation. Communities may choose no minimum wage and very few mandatory safety regulations for workplace democracies and other enterprises where the workers can demonstrate that they possess wealth above a threshold that is deemed sufficient to protect them from coercive labor relations. Mandatory integration could be replaced with incentivization schemes where tax benefits or other benefits could be offered to those enterprises that voluntarily integrate.
8. Improvements in environmental protection may occur in a free socialist society since members of the community may seek to preserve the value of the land for themselves and their descendants, and to make the communities they live and work in more pleasant. They may do so by engaging in collective monitoring for abuse, passing local legislation, and encouraging the enterprises they finance to use environmentally friendly practices. Higher levels of wealth in the society may make members more willing to pay a premium for better protection of the natural resources they co-own.
9. In a society where there is no official government, operating a mutual aid fund system may still be desirable. If mutual aid funds are effective at reducing poverty, crime, health problems and the desire for government services financed through mandatory taxes, then acknowledging that the land is inherited by all members of a society and distributing it as a UGI that members of the society are encouraged to invest in a mutual aid fund might be thought of as an “anti-tax”. It might be possible to obtain voluntary funds for some public goods using Dominant Assurance Contracts if the public goods are expected to increase the value of commercial land and business investments in a region where members of a mutual aid fund collect their UGI and heavily invest.
Even if these humble suggestions are not found to be practical, hopefully they’ll help to inspire a free socialism that is. Questions and comments are welcome!
