Thursday, October 30, 2008

The Ownership Solution - Book by Jeff Gates

The Shared Capitalism Institute

Inquiry into the Global Economy

Testimony to the Select Committee on Economic Affairs

UK Parliament, House of Lords, London

8 October 2001

Jeff Gates, President

Summary: Globalisation is a finance-driven phenomenon. Its operations are based on an assumption inspired by neoliberal economics: “maximize financial returns and everything will turn out fine.” As I will show, that mechanistic model is naïve and dangerously dysfunctional. Its unbridled operations are a key reason wealth is being radically redistributed worldwide - from poor to rich, from poor country to rich country, from the future to the present -- with the support of rule-making crafted by the World Trade Organization (WTO). The problem with globalisation is not the corporate entity, as some insist. Nor is globalization a problem per se. The malady lies in: (a) the very narrow bandwidth of values (i.e., financial values) to which the corporate entity attunes its operations, and (b) the current state of corporate ownership – abstract, remote and concentrated. The solution lies in creating a policy environment designed to evoke changes in business methods such that private ownership patterns rapidly become more personalized, localized and human-sized. Only in that way will globalised private enterprise become attuned to the legitimate concerns of those influenced by its operations.

I. Response to Broad Questions Posed by the Committee:

1. How should economic globalisation be defined?

Globalisation has the potential to be a positive force of modernity. However, under current WTO rules, globalisation is best defined as a capital markets-led, government-backed process that redistributes wealth worldwide (I offer below 21 examples).

2. Does it mean anything different from an open and integrated world economy?

Rather than integrating the world economy, today’s dominant economic model divides people (both within and between nations), plunders natural resources, and imperils posterity. Instead of fostering free enterprise democracies, the WTO version of globalisation attunes its operations to a perilously narrow bandwidth of values (financial values) such that the “financially fit” are viewed as sufficient unto themselves and the rest are not worth the bother.

3. How does globalisation impact the UK economy, and how does it impact on UK national and international policy making?

Globalisation helped ensure that, in 1999, income disparities in the UK reached their widest level in 40 years. Trends fueled by WTO-style globalisation are unjust, unsustainable and undemocratic. If the UK fails to actively pursue policy-making that reverses these trends, that stance may be construed as support for a globalized form of modern-day fascism.

4. How does globalisation affect the major world economic institutions?

The globally dominant “emerging markets” development model converts those institutions into handmaidens of global capital markets.

5. Does globalisation require regulation and, if so, is this possible at the national level, or will the need for international regulation be reinforced?

Over the past two decades, the international financial institutions have focused on converting themselves from capital providers into “capital catalysts” with technical assistance focused on fostering policy environments worldwide that are attractive to foreign capital. That globally coordinated rule-making could ensure that global capital flows advance fundamental human rights: social, economic and environmental. Instead, numerous aspects of current rule-making are nonsensical. For instance, if private property is so clearly essential, how can the prevailing economic model credibly treat its patterns as irrelevant? Globalisation is a finance-led phenomenon. As international capital washes across national borders, law-making could ensure that its effects advance the common good (for example, with rule-making that transforms global capital into broad-based indigenous ownership). WTO rules, however, would view such locale-attuned regulation as a “restraint of trade.”

II. Statement & Evidence in Support

The current version of globalisation generates results that are inequitable, nonsensical, and unsustainable. Left unreformed, WTO rule-making is destined to evoke hostility and instability as its operations are often associated with oppression, exploitation, domination, corruption and disrespect. Today’s neoliberal-inspired model of globalisation requires a counter-force to the wealth-redistribution trends documented below.

Note: “wealth” stems from the Middle English welthe, an extended form of weal, implying “condition or state of well being.”

1. From the bottom to the top. As the US is the leading advocate for the WTO model of globalisation, the trends emerging there are instructive. The wealth of the Forbes 400 richest Americans grew an average $1.44 billion each from 1997-2000, for an average daily increase in wealth of $1,920,000 per person ($240,000 per hour or 46,602 times the minimum wage).[1] The financial wealth of the top 1 percent of US households now exceeds the combined household financial wealth of the bottom 95 percent.[2] The share of the nation’s after-tax income received by the top 1 percent nearly doubled from 1979-1997. By 1998, the top-earning 1 percent had as much combined income as the 100 million Americans with the lowest earnings.[3] The top fifth of US households now claim 49.2 percent of national income while the bottom fifth gets by on 3.6 percent.[4] Between 1979 and 1997, the average income of the richest fifth jumped from nine times the income of the poorest fifth to roughly 15 times.[5] The average hourly earnings for white-collar males was $19.24 in 1997, up from $19.18 in 1973.[6] These results reflect the key distributional principle embodied in both neoliberalism and globalisation: “Drink your fill and thirst for more.”

2. From democracies to plutocracies. Today’s capital markets-led “emerging markets” development model is poised to replicate US wealth patterns worldwide. For instance, 61.7 percent of Indonesia’s stock market value is held by that nation’s 15 richest families. The comparable figure for the Philippines is 55.1 percent and 53.3 percent for Thailand.[7] Worldwide, there’s now roughly $60 trillion in securitized assets (stocks, bonds, etc.), with an estimated $90 trillion in additional assets that will become securitizable as this model spreads. If the WTO succeeds in reviving the Multilateral Agreement on Investment, no member-nation could impose conditions on cross-border capital flows. Even without the MAI, neoliberal rule-making is poised to evoke a future where a handful of the world’s most well-to-do families will pocket more than 50% of that $90 trillion in financial wealth.[8]

3. From the future to the present. Unsustainable production methods are now standard practice worldwide, due largely to globalisation’s embrace of a financial model that insists on maximizing net present value (that’s largely what stock values represent). That stance routinely and richly rewards those who internalize gains and externalize costs (such as paying a living wage or cleaning up environmental toxins). Today’s shareholder value-maximizing model signals managers to embrace manufacturing practices such that worldwide, as of 1996, the biologically productive area needed to produce the natural resources consumed and absorb the carbon dioxide emitted was 30 percent larger than the area available.[9] This result reflects the key operational principle guiding neoliberal-inspired globalisation: “Maximize financial returns and, trust us, everything will work out fine.” US money managers now invest $17,000 billion in reliance on that mechanistic model (up from $1,900 billion just since 1980). Add to that funds now held by UK and other money managers. Just three investment managers hold $1,900 billion that’s “indexed” – invested in securities meant to mimic financial markets as a whole.[10] This WTO-endorsed “money on autopilot” paradigm assumes that any increase in numeric value automatically adds to the common good. That’s because the neoliberal model is “wired” to search solely for financial value. If that value is found, the model signals success, and this self-reflective process repeats itself ad infinitum.

4. From poor nations to rich. Today’s version of globalisation assumes that unrestricted economic flows will benefit the 80 percent of humanity living in developing countries as well as those 20 percent living in developed countries. Yet the UN Development Programme (UNDP) reports that 80 countries have per capita incomes lower than a decade ago.[11] Sixty countries have grown steadily poorer since 1980.[12] In 1960, the income gap between the fifth of the world’s people living in the richest countries and the fifth in the poorest countries was 30 to 1. By 1990, the gap had widened to 60 to 1. By 1998, it had grown to 74 to 1.[13] Meanwhile, the world’s 200 wealthiest people doubled their net worth in the four years to 1999, to $1,000 billion.[14] Their combined wealth (165 of the 200 live in OECD countries) equals the combined annual income of the world’s poorest 2.5 billion people.[15] Three billion people presently live on $2 or less per day while 1.3 billion of those get by on $1 or less per day..[16] With global population expanding 80 million each year, World Bank President James D. Wolfensohn cautions that, unless we address this “challenge of inclusion,” 30 years hence we could have 5 billion people living on $2 or less per day. UNDP reports that two billion people suffer from malnutrition, including 55 million in industrial countries. Current trends suggest that in three decades, today’s version of globalisation could create a world where 3.7 billion people suffer from malnutrition. UNDP’s assessment: “Development that perpetuates today’s inequalities in neither sustainable nor worth sustaining.[17]

5. From families to financial markets. How is globalisation affecting OECD countries? The work-year for the typical American has expanded 184 hours since 1970. That’s an additional 4-1/2 weeks on the job for about the same pay.[18] Household working hours reached 3,149 in 1998, roughly 60 hours a week for the typical family, moving Americans into first place worldwide in the number of hours worked.[19] According to the US Bureau of Labor statistics, American workers now work 350 hours more per year than typical Europeans while parents in the US spend 40 percent less time with their children than 30 years ago.[20] The US Census Bureau reports that pretax median income was $1,001 higher in 1998 than in 1989, for a decade-long average annual raise, adjusted for inflation, of $111.22, or 0.3 percent, while productivity over that period soared 33 percent. In the 7 years since passage of the North American Free Trade Agreement, 33,000 US farms with under $100,000 annual income have disappeared, a rate six times steeper than the pre-NAFTA period. During those seven years, farm income declined (in the US, Mexico and Canada), consumer prices rose, and Congress had to appropriate emergency farm supports every year.[21] Over that same period, several of the giant agribusinesses who pushed these policies reported record profits as mega-mergers became a common phenomenon in this key sector.[22] Prosperity is not trickling down – the assumption underlying globalisation -- it’s gushing up.

6. From consumers to oligopolists and monopolists. Prior to the dot-com collapse, Wired magazine projected Microsoft’s Bill Gates would become a trillionaire by March 2005 and, by March 2020, a quadrillionaire (a million billionaire).[23] With the Bush II Administration reneging on the Justice Department’s pledge to bust-up this acknowledged monopoly, US baby-boomers can look forward to a future where a single person could have more financial wealth than their entire generation combined, 76 million strong. Far-fetched? ` From 1983-1997, only the top five percent of US households saw an increase in net worth, while wealth declined for everyone else.[24] Yet nothing in today’s neoliberal model of globalisation suggests that ownership patterns bear any relationship to fiscal foresight, once considered a benchmark of genuine conservatism.

7. From democratic effectiveness to financial efficiency. The neoliberal focus on finance-calibrated efficiency makes the modern near-monopoly and the megastore appear an appealing phenomenon, despite their impact on the distribution of wealth and income, on communities and on democracy. Wal-Mart alone, with its 4,251 outlets worldwide and $191 billion in 2000 sales, accounts for six percent of US retail spending, giving the five heirs of Sam Walton a combined wealth of $85 billion. Yet neither major US political party voiced any concern that proposed Medicare payments for prescription drugs would flow to Wal-Mart’s 2,428 pharmacies, further enriching the Walton clan. The Home Depot and Lowe’s account for one-quarter of nationwide hardware sales. Rite Aid, Walgreens, and CVS, with a combined 9,000 stores and $37 billion in 1999 revenues, dominate what were once locally owned pharmacies. Independent bookstores in the US saw their market share plummet from 58 percent in 1972 to 17 percent in 1999, as Borders and Barnes & Noble captured 45 percent of the market. In the mid-1970s, 50 firms accounted for 50 percent of US media outlets. By 2000, they numbered just six. Seven firms now account for 74% of domestic trade book sales, down from fifty just since 1993. According to research at the State University of Iowa, between 1983 and 1993 alone, Wal-Mart’s expansion closed 7,326 businesses, eliminating a generation of sole proprietors, long the nation’s most robust source of civic leadership. In 1999, mergers and acquisitions worldwide totaled $3,440 billion. While the global economy grows 2 to 3 percent each year, transnational firms typically grow 8 to 10 percent annually.[25] The 200 largest firms account for 28 percent of global economic activity while employing less than one-quarter of one percent of the global workforce. The wave of cross-border megamergers is fast concentrating economic power in megacorporations while the public’s airwaves are being converted into immense “conglomediates,” jeopardizing an array of democratic values – diverse views, community-attuned self-reliance, civic cohesion. By 1998, the top 10 firms in pesticides controlled 85 percent of a $31 billion market while the top 10 companies in telecommunications controlled 86 percent of a $262 billion market.

8. From developing nations to developed nations. The widening wealth and income gap between poor and rich nations is matched by a steady redistribution of the world’s natural capital from poor to rich nations. In all three ecosystems suffering the worst declines (forests, freshwater and marine), the most severe damage has occurred in the southern temperate or tropical regions. Thus, we must add to today’s fast-widening economic divide the fact that industrial nations (located mainly in northern temperate zones) are primarily responsible for the ongoing loss of natural capital elsewhere in the world.[26] In its July 2001 report, the International Panel on Climate Change confirms that relentlessly rising global temperatures -- due primarily to hydrocarbon use in the world’s 30 most developed economies – are poised to create catastrophic conditions worldwide. Agricuture, health, human settlements, water, animals – all will feel the impact on a planet that’s warming faster than at any time in the past millennium. Throughout the 1,000 pages of predictions in the panel’s 2,600 pages of analysis, one theme remains constant: the poor of the world will be hardest hit. With 4.5% of the world’s population, the US accounts for 25% of the hydrocarbon emissions that contribute to global warming. According to GEO 2000, a 1999 UN environmental report: “The continued poverty of the majority of the planet’s inhabitants and excessive consumption by the minority are the two major causes of environmental degradation.” The report reflects the assessment of 850 specialists and thirty environmental institutes.

9. From public health to private wealth. The financial benefits of globalized production practices are harvested predominantly by a financially sophisticated few while costs are habitually imposed on the public. For instance, there’s now 75,000-plus manmade chemicals in use worldwide; all are heading somewhere. Where? More than 500 measurable chemicals are found in our bodies that were not in anyone’s body before the 1920s, including a range of endocrine-disrupting chemicals linked to an array of adverse (and transgenerational) health effects, including weakened immune systems, reproductive problems, metabolic maladies and functional deficits in intelligence, sexual function and behavior.[27] Relying on trend data suggesting that almost half of US males (and one-third of females) will contract a non smoking-related cancer, Dr. Samuel Epstein, a specialist in cancer prevention, documents as the causal factor our non-optional exposure to carcinogenic elements, resulting in a particularly high incidence of cancer among children.[28] Civilized governments have rules that imprison those who cause intentional harm to others. Yet WTO rule-makers may well object were lawmakers to propose sanctions on managers who dump known carcinogens into the environment. The WTO has ruled against every environmental and conservation law it has reviewed, dismissing each as a “non-tariff barrier.”[29]

10. From free-traders to protectionists. OECD nations channel $326 billion a year in subsidies to their own farmers while (a) restricting agricultural imports from developing countries, and (b) insisting that debtor nations repay their foreign loans in foreign currency, which they can earn only by exporting.[30] According to a World Bank study, the elimination of import barriers against textiles, sugar and other key exports of developing nations would raise their export earnings by more than $100 billion a year – enough, if those restrictions had been removed since 1982, to repay all debts presently owed. In other words, the richest nations have insisted that poor nations pay debts but have refused the entry of goods offered in payment.[31]

11. From debtors to creditors. In 1999, leaders of the G-7 nations announced the debt initiative for Heavily Indebted Poor Countries, aiming to cap debt service for each of the world’s 41 poorest country’s at 15-20 percent of export earnings. By comparison, after World War I, the victors set the limit on German reparations at 13-15 percent of exports.

12. From law-abiders to law-evaders. Financial experts report that roughly $8,000 billion is hidden in tax havens worldwide, ensuring that many among the most well-to-do can harvest the benefits of globalisation without incurring any of the costs.[32] If WTO rule-making identified the owners of that $8 trillion, held in an estimated 1.5 million offshore corporations (up from 200,000 just since the late 1980s), an annual “freeloader levy” of 3.5 percent, less than the typical value-added tax, could generate $280 billion each year.[33] That’s 165 times the current budget for all UN development programs. Or 93 times the UN’s annual expenditure for peacekeeping operations, now raised pass-your-hat style. That’s enough to build 140,000 schools at $2 million apiece. That’s also the bulk of the $300 billion that environmental researchers at Cambridge and Sheffield Universities report would be required to “save the planet.”[34] Media mogul Rupert Murdoch openly boasts how advisers shuttle his complex financial affairs through tax-haven shell companies, providing him a global competitive edge. As he candidly puts it: “Isn’t that one of the advantages of being global?”

13. From welfare to warfare. UNDP identifies six core ingredients as minimal conditions for a decent life: safe drinking water (1.3 billion people lack access to clean water),[35] adequate sanitation, sufficient nutrition, primary health care, basic education (one in seven children of primary school age is out of school),[36] and family planning services for all willing couples. UNDP calculates the ongoing cost at $35 billion each year. That’s about what the US spent in 1999 to maintain its nuclear readiness, a decade after the fall of the Berlin Wall. For the world community to bear the annual cost would require 1/7 of 1 percent of global GDP. The US typically contributes to the UN roughly 0.09 percent of its GDP.[37] Every jet fighter sold to a developing country costs the schooling of three million children.[38] The cost of a submarine denies safe drinking water to 60 million people. The current US defense budget tops $343 billion in annual outlays. According to the UN Food and Agriculture Organization, more than 35,000 children die each day from conditions of starvation.[39]

14. From diverse cultures to monocultures. The dominance granted financial values is reflected in a neoliberal metaphor that guides policy-making worldwide, commonly stated as the goal of ensuring a “level playing field” as the ideal policy environment so that the forces of finance can operate unimpeded by the petty distractions of public policy. By granting that narrow bandwidth of values not just deference but multilateral, policy-enforced dominance, today’s version of globalisation ensures the steady crowding out of diverse values – and diverse cultures – worldwide. That process is led by a few financially dominant nations insistent that this cramped range of value, this One Single Idea, prevail worldwide.

15. From personal freedom to financial freedom. The free enterprise component of democracy is founded on the sensible notion that free markets provide an opportunity for free people to freely express their free choices and thereby enjoy the dignity of self-determination, democracy’s most treasured freedom. Though terrific in theory, the map fails to match the territory. To equate markets with expression of the common will is misleading, even deceptive. Markets don’t respond to people, but to people with money. Embrace a policy mix, like today’s, that concentrates income, and that mix is destined to undermine both self determination and markets, the moral foundations of free enterprise democracies. Similarly, private enterprise is based on the sanctity of private property as a bedrock component of democracy. Yet private property depends for its legitimacy on its lack of exclusivity. Embrace a policy mix, like today’s, that concentrates ownership, and that mix is destined to endanger both private enterprise and democracy. In the US, the difficulties facing campaign finance reform unfold against the backdrop of a neoliberal-attuned Supreme Court that equates unlimited personal cash outlays with the right to unlimited free speech.

16. From the personal to the financial. Both markets and democracies are based on the universally appealing principle that people should have an influence on forces that have an influence on them. Today’s remote-control, finance-dominant, globally-attuned economic model would strike Adam Smith, the father of free enterprise, as a freak of free enterprise. He assumed that financial capital would remain in the country where it originated. Smith envisioned not financial markets but an engaged and community-attuned humanity as the animating force that converts private gain to the public good. First and foremost a moral philosopher, he urged that we place our faith not in financial markets but in “human sympathies” because only personal relationships are capable of reflecting a sufficiently broad range of community-attuned values. As we’ve belatedly discovered, over-reliance on today’s numeric model – often disconnected from the legitimate concerns of either people or place -- shows up as gains in finance-calibrated efficiency at the cost of societal effectiveness, civil cohesion, fiscal foresight, cultural diversity and environmental sustainability.

17. From the common good to uncommon greed. In 1980, the total federal debt in the US was $909 billion. By 2000, it topped $5711 billion. A nation’s fiscal capacity is a public asset held in trust and available for any purpose to which policy-makers agree – education, health care, environmental restoration, military spending, investment incentives, homeland security, etc. In 1981, at the urging of Reagan-Bush conservatives, the US Congress approved a $872 billion tax cut, much of it “supply-side” investment incentives, all of it deficit-financed. In 1982, $91 million was required for inclusion on the Forbes 400 list where average wealth was $200 million and the list included 13 billionaires. By 1986, average wealth was $500 million. By 2000, $725 million was required for admission to a list where average wealth was $1.2 billion and the list included 274 billionaires. US government debt securities (sold to finance each year’s deficits) are also owned dominantly by upper-income households. The latest figures show that tax-exempt interest on US government securities was reported on just 4.9 million tax returns, about 4 percent of all taxpayers. Total tax-exempt interest income was $48.5 billion in 1997.[40] The long-term fiscal cost of the Bush II tax cut enacted in 2001 is more than double the long-term Social Security shortfall.[41] The top one percent will receive three-eighths of the benefits once that law is fully phased in.

18. From job-holders to wealth-holders. The largest tax now paid by three-quarters of Americans (90% of Generation X) is the Social Security payroll tax, a hugely regressive “flat tax” imposed at a fixed 15.3 percent on all earnings up to $80,400. Social Security entitlements are now the largest single “asset” for a majority of Americans (i.e., the assurance of a future income stream funded with a job tax). Bush II proposals to “privatize” Social Security would redirect approximately $100 billion per year of payroll job tax revenues into financial markets where, from 1983 to 1998, 53% of market gains flowed to the top one percent of households.[42] For every age group under 55, home ownership remains below where it was in the early 1980s.[43] Yet after three centuries of labor-saving progress, US progressives propose not less work and more wealth-sharing but “full employment.” Meanwhile, US conservatives pit the employed against a global labor pool, ensuring that capital gravitates to wherever labour costs are lowest. Ignoring ownership patterns, neoliberal lawmakers (in both major political parties) to focus on jobs -- and personal savings from one’s labour -- as the portal to personal capital accumulation. The result: a windfall for those who own capital alongside fast-growing overcapacity as labor-cost savings abroad show up back in the US as weakened consumer demand and record-breaking consumer debt (personal bankruptcy filings nation-wide averaged 7,000 per hour for the past four years). Plus such concentrations of wealth and income that baby-boomer retirement needs are poised to create a fiscal nightmare.

19. From rank-and-file employees to management employees. In 1980, US money managers held approximately $1,900 billion in assets. By 2000, they held more than $17,000 billion, 48% of that due to tax incentives meant to encourage employee benefit plans, now the largest annual fiscal expense in the US. While those tax-favored funds were under the control of plan fiduciaries, the pay gap between top executives and production workers in the 362 largest US companies grew from 42:1 in 1980 to 475:1 in 1999.[44] As yet, there’s been no effort to remove those fiduciaries who facilitate this ongoing skimming of capital value. In 1998, Disney CEO Michael Eisner received a pay package totaling $575.6 million, 25,070 times the average Disney worker’s pay.[45] Oracle Corporation CEO Larry Ellison exercised stock options in early September 2001 with a gain of $706 million in a company in which Forbes reports he already owned $58 billion.[46]

20. From education to incarceration. Since 1980, US prison outlays have increased at a pace six times that for higher education.[47] States spent roughly $25 billion during the 1990s on prison construction while annual operating costs for state and federal prisons totaled roughly $30 billion. In 1973, the US imprisoned 350,000 people nationwide. By early 2000, the prison population exceeded two million or roughly 687 people per 100,000 (6,926 per 100,000 for African-American men). Europe-wide, the imprisonment rate is 60 to 100 per 100,000. Florida now spends more on corrections than on colleges. The bellwether state of California spent ten percent of its 2000 budget on prisons (projected to top 16 percent by 2005). Since 1980, mandatory drug sentencing increased by 25 times the number of “Drug War” offenders behind bars in California.[48] The largest single contributor to California Governor Gray Davis’s gubernatorial race: prison guards. On a typical day, one of every three African-American men ages 20 to 29 is either in prison, in jail or on probation/parole (up from one in four a decade ago). Three-quarters (76%) of African-American 18 year-olds living in urban areas can now anticipate being arrested and jailed before age 36, ensuring that each will acquire a criminal record. By the late 1990s, federal statisticians were predicting that one of every three adult black males could anticipate being sentenced to a federal or state prison at some time during his life. Nationwide, 1.4 million black males – 13 percent – can no longer vote due to felony convictions (one of three in Alabama). In 1865, African-Americans owned 0.5 percent of the nation’s net worth. By 1990, their net worth totaled 1 percent.[49]

21. From the real to the abstract. Today’s neoliberal-dominated perspective on progress insists that globalisation has helped the US achieve two decades of unprecedented financial prosperity. Yet social, fiscal, cultural, political and ecological indicators confirm that the world’s “richest” nation is experiencing a steady 20-year decline across a broad array of key quality-of-life indicators, and in numerous living systems.

The US was founded to escape remote political tyranny. Now the entire world confronts a modern economic and transgenerational tyranny, an array of interrelated systems imperiled by the global spread of a paradigm ill-suited to the realities we face. What keeps this dysfunctional model not only intact but insistent on its worldwide spread? Today’s version of globalisation fosters not free enterprise democracies but economies that people experience as disconnected, speeded-up and dumbed-down. Living democracies require a “wired-in” capacity to adapt to the values of those they effect. That ongoing adaptation requires a structure that recognizes the value in optimizing combinations of diverse values. Instead, today’s globalization spreads a standard model with but one goal: the maximization of shareholder financial value. Tyranny becomes structural when rule-making enforces behavior attuned to too narrow a bandwidth of values.

As I point out in two recent books,[50] that pathology will remain commonplace until lawmakers provide a policy environment in which ownership patterns become more personalized, localized and human-sized. The corporate entity is “wired” to maximize shareholder value, with financial value viewed as a proxy for shareholder value. Only with a component of “up-close capitalism” will privately owned commercial enterprises be “wired” so that their operations also take into account the concerns of people, place and pace. The issue is not one of ideology but of designing common sense systems. In “systems-eze,” the challenge lies in how best to smarten-up free enterprise by re-wiring its signaling systems into more robust patterns so that it learns ongoingly and, ideally, transgenerationally. At present, the corporate entity has no method for taking into account the values of those whose lives it influences. Though envisioned as a self-organizing model, it’s missing a means for locale-sensitive self-correction. That’s because those affected have no property-based right to have their voice heard. If the maladies that accompany globalisa-tion are re-framed in terms of economic relationships, it becomes clear that policy-evoked elements of “localisation” offer a means to counter today’s finance-dominant globalisation.


Given the nature of the threats our nations now face -- global, systemic, multidimensional, interdependent, transgenerational -- the best risk-management strategy lies in our joint commitment to prove the truth of an age-old axiom: “If you want peace, work for justice.” Today’s immature and dumbed-down model generates results that alternate between disappoint-ing and appalling. The solution lies in a paradigm that evokes relationships capable of reflecting the full spectrum of human rights – social, economic, cultural, political and ecological. At a minimum, globalisation requires a model that stops today’s radical redistribution of wealth. There too lies the only sensible strategy for long-term national security.

During wartime, we’re assured that we place our forces in harm’s way in order to make the world safe for democracy. Globalisation suggests an altogether different proposition, urging that our nations join forces to make the world safe for financial forces, on the neoliberal assumption that the free flow of global capital will evoke free enterprise democracies that are robust, just and sustainable. Instead, our insistence on that naively mechanistic prescription has ravaged the natural world, ignored the legitimate needs of the poor, and fed the unbridled greed of a privileged few. A globalised free enterprise democracy must mean something more than the right to choose poverty in an impoverished and plutocratic world. There is no freedom without justice.

We have it well within our capacity to evoke genuinely inclusive free enterprise democracies worldwide. Without a doubt, we can design a future where we wipe the scourge of poverty from the anguished face of humankind. To a certainty, we can inhabit a world where just, sensible, sustainable and restorative business practices become commonplace. Indeed, the technological and financial means are at hand to provide prosperity for all. As usual, the solutions are in plain sight if only we have the eyes to see. And if only we muster the political will to act with the long-term vision expected of political systems meant to endure “for the ages.”

Endorsements re The Ownership Solution (1998)

“This book focuses on the central issues that have to be addressed if the 21st century is to transcend the simplistic dilemma of capitalism versus socialism and create a new, sustainable civilization.”

-- Mikhail Gorbachev

“In the book The Ownership Solution I found an original and promising proposal for the implementation of an appropriate ethic for capitalism in the next millennium."

-- Oscar Arias, 1987 Nobel Peace Laureate; former President of Costa Rica

“This book may save capitalism.”

-- Stephan Schmidheiny, founder, World Business Council for Sustainable Development

"In The Ownership Solution, Jeff Gates does more than point the way to broadening the base of ownership in society. He may have put his finger on the possibility of a historical convergence. If capitalism can be prevented from concentrating ownership and wealth, social democrats will avoid the danger which they are pledged to fight as they pursue the imperative of social equity. Equally, if social equity can be achieved without frustrating entrepreneurship and undermining market forces, the conservatives will be assured of the preservation of those sources of economic energy which they are pledged to guard. Let's both get on with it!"

-- Michael Manley, Prime Minister of Jamaica (1972-80; 1988-92)

“A brilliant and innovative exploration of new ways to spread wealth ownership and foster wealth

creation. The Ownership Solution is a blueprint for the new age of capitalism."

-- Dr. Madsen Pirie, President, The Adam Smith Institute (UK)

"Jeff Gates... has written the best book on economics for a generation. The Ownership Solution is full of insight and description, assembled in an accessible and readable manner."

-- Labor MP Denis MacShane (UK)

“Fantastic! Jeff Gates has achieved the impossible. The Ownership Solution is eminently readable yet produces in cogent form why broad based ownership is the sine qua non of private enterprise. This is a genuine watershed in policy making, destined to be a classic.”

-- Rodger J. Pannone, President of the Law Society, 1995-96 (UK)

“The great value of Jeff Gates’s book is that it offers proven and practical ways to restore a sense of pride and ownership to industry, and how to marry capitalism to ethical values. It couldn’t be more timely."

-- Geoff Mulgan, Director, DEMOS (UK)

“Ownership is the great neglected issue of contemporary left-wing politics. Jeff Gates has brought us the most serious effort to date to address that gap; his book will be enormously influential.”

-- Ian Hargreaves, Editor, New Statesman (UK)

"The Ownership Solution succeeds brilliantly in showing how broad based personal ownership can strengthen communities and make global sustainable development possible."

-- Dick Gephardt, Democratic Leader of the U.S. House of Representatives

"Jeff Gates is that most unusual of individuals, the practical visionary."

-- Edward W. Kelley, Jr., Governor, U.S. Federal Reserve

"Expansion of ownership and greater access to capital will both strengthen and spread democracy and market economies throughout the world. This is a compelling account of how to help bring it about."

-- Jack Kemp, former Republican vice presidential candidate

”A wonderfully different and original line of thought.”

-- John Kenneth Galbraith, Harvard University

“Jeff Gates outlines a creative, yet credible strategy for empowering working people with a more vital interest in private enterprise. If capitalism can indeed have a human face, the reforms proposed in this provocative book merit careful consideration."

-- Coretta Scott King, founder, The King Center

"Long-term, sustainable development requires a balancing of economic, social, fiscal and environmental goals. In The Ownership Solution, Jeff Gates provides a thoughtful and thought-provoking approach to understanding these goals and how broad-based capital ownership can help to achieve them."

-- Bill Bradley (U.S. Senator, 1979-1997)

"How do we close a growing gap between successful owners and investors and an increasingly anxious underclass? One way that would help - more participants in ownership! No one knows more about how that should be done than Jeff Gates and he offers his spectacular insight in this cornucopia of philosophical and practical ideas."

-- Mario Cuomo, Governor of New York (1983-1995)

"A book full of original and stimulating ideas to which those who want to keep up with the times should expose themselves."

-- Prof. Franco Modigliani, 1985 Recipient of Nobel Memorial Prize in Economic Science

The Ownership Solution is nothing less than a Capitalist Manifesto, a blueprint for spreading the benefits of capitalism more broadly.”

-- Ralph Nader, Public Citizen News

"Elegantly researched. A masterful statement by a creative author -- a remarkable book."

-- David McLaughlin, President-Emeritus, The Aspen Institute

"The most incisive and fascinating analysis yet of how broader capital ownership can help drive faster U.S. growth -- and in the bargain repair the moral basis of American capitalism."

-- Robert J. Shapiro, Vice President, Progressive Policy Institute

"With this book, a long-time explorer and discoverer, Jeff Gates, hands over his carefully constructed maps to direct policy-makers, business and workers to a common destination of greater economic vitality and power."

-- U.S. Senator John D. Rockefeller IV

"Jeff Gates has produced a view of sustainable growth that at last puts more faith in humans than governments. Splendid!"

-- Malcolm Wallop (U.S. Senator, 1977-1995); Chairman, Frontiers of Freedom Institute

"A compelling account of how widespread capital ownership is the 'missing piece' needed to strengthen both democracies and private property economies worldwide.”

-- Senator Russell B. Long (U.S. Senator, 1949-87)

"An important proposal from which all those concerned with helping the poor will want to learn."

-- Michael J. Novak, American Enterprise Institute

"Ownership is a sine qua non of sustainable development.... an interesting intellectual contribution to the evolving debate."

-- James D. Wolfensohn, President, The World Bank

“In the dynamic age of globalization, Mr. Gates stretches the envelope of conventional thinking on the critical issues of ownership and equity.”

-- James Gustave Speth, Administrator, United Nations Development Program

"An ingenious and compelling look at the power inherent in widespread personal ownership. Engrossing, insightful and persuasive."

-- Gerald Greenwald, Chairman and CEO, United Airlines

"The world has turned its back on the state ownership of the means of production. The free enterprise system is the best we have for generating wealth. But there is a risk that if economic disparities widen - and there is some evidence that is happening - it may also give rise to discontent. Jeffrey Gates has given much thought to how this could be avoided and capitalism given a broader base of stakeholders and beneficiaries. He sets out his ideas in this stimulating and timely book."

-- Sir Shridath Ramphal, Secretary-General of the British Commonwealth (1975-90)

"Development will be truly sustainable only when Jeff Gates' ideas are put into practice."

-- Dr. Norman A. Bailey, Senior Director of National Security Planning, National Security Council (Reagan Administration)

"In countries like my own, Nicaragua, the rich and political elites should read Jeff Gates' The Ownership Solution for inspiration on how to stop the impending social conflagration which we have been stirring for generations."

-- Arturo J. Cruz, Senior, former Nicaraguan Ambassador to the U.S.

"The twenty first will be the 'Century of the Corporations.' Jeff Gates gives an exciting and well written preview of this New World and the 'owners' whose informed involvement will be essential for the continued welfare of the planet."

-- Robert A.G. Monks, author, Power and Accountability and Corporate Governance

"One of the most important books of this decade. The Ownership Solution is really a solution -- one of the most significant contributions to restoring a civil society."

-- Warren Bennis, University Professor and Distinguished Professor of Business Administration, University of Southern California; author, On Becoming a Leader

"The community we all long for can't be realized with only 6% of the population having any share in ownership. We have a long way to go to change this and Jeff Gates is leading the way."

-- Bob Swann, President, E.F. Schumacher Society

“Jeff Gates has literally written the book on how to reverse centuries of capital concentration and economic polarization. If we are to have any chance of creating just and stable societies, the answer will hew closely the the pragmatism, intelligence, and creativity offered here.”

- Paul Hawken, author, The Ecology of Commerce, Growing a Business

"[The Ownership Solution] might be the only solution for the confusion of formerly centrally planned economies after the collapse of communism."

-- Kiichi Mochizuki, President, The Pacific Institute

“Why does capitalism create so few capitalists? Jeff Gates asks and answers the central economic question, the source of our deepest social and political conflicts. He provides a humane and convincing blueprint for reforming capitalism, bringing clarity and humanity to the taboo subject of concentrated wealth."

-- William Greider, author, One World, Ready or Not; Who Will Tell the People; Secrets of the Temple. National Editor, Rolling Stone.

"Around the world, the chasm between the haves and have-nots is growing. Can that threaten capitalism, peace and prosperity? Jeff Gates' solution for broadening ownership is the cutting edge, free market way to avoid that threat and improve lives."

-- Mary K. Bush, former Alternative Executive Director, IMF

"A delightfully refreshing strategic overview for utilizing the vehicle of capitalism to bring us, as a people, back into compassionate community."

-- Ram Dass, author, lecturer

“An unparallelled effort by a unique individual with the mind of a chief financial officer and the heart and soul of a prophet."

-- John Feldmann, Director, Center for Ethics, Capital Markets and Political Economy

Endorsements re Democracy at Risk (1998)

“We all know that in the transition to the 21st century there are many paradigm shifts. Jeff Gates' book helps to understand the new direction.”

-- Professor Klaus Schwab, Founder & President, World Economic Forum/Davos

“Written with uncommon clarity and candor, Democracy at Risk should be read by everyone who is concerned with liberty and equitable distribution of power and wealth. The more prosperous and powerful you might be, the more important it is to pay attention to what Jeff Gates has to say.”

-- Dee Hock, Founder and CEO Emeritus, VISA; author, Birth of the Chaordic Age

“Jeff Gates is a new kind of populist. He makes some folks uncomfortable by wanting to correct a

capitalism in which the wealth of the wealthiest 1% exceeds what 95% of Americans have to live on. But he also wants to make capitalism worth conserving—by making it more civilized and more democratic, by making owners of all those who contribute to its success. Democracy at Risk is a tough diagnosis, with a fresh and future-oriented prescription attached.”

-- Harlan Cleveland, President, World Academy of Art and Science; former U.S. Ambassador to NATO; author, Birth of a New World, The Global Commons

Democracy at Risk argues for widespread ownership of capital resources in an era of massive disparities of wealth that subordinate democracy to plutocracy. Gates is a practical man, which means he offers politically practical and financially feasible ways toward a broad-based prosperity around the world. His facts will enrage you into higher expectation levels for what a modern economy should look like and be for.”

-- Ralph Nader

“In this provocative study, Jeff Gates addresses a rich array of problems of fundamental --significance, and suggests approaches to them that should stimulate serious thought, and committed action, on the part of people who view the present world, and the possibilities for a better future, from many different perspectives.”
-- Noam Chomsky, author; professor, Massachusetts Institute of Technology

“Put [Democracy at Risk] in front of every student who’s studying economics, every politician and every financial journalist for their consideration…. At the center of this book is the cry to hold on to what is silently slipping through our fingers—democracy.”

-- Anita Roddick, OBE; founder, The Body Shop

“Tom Paine is back and he is not pleased. But he has done his homework. Democracy at Risk is not a book, it is a bible for a powerful populism that will arise after the latest Gilded Age is over. Read it and run, or read it and recover your sense of what it could mean to actually live in a democratic society.”

-- Paul Hawken, author, Natural Capitalism, The Ecology of Commerce

Democracy at Risk is a highly original, gutsy, carefully thought through work that offers practical alternatives for a new economics and politics—and in the process reclaims populism from demagogues who have used it to divert people from the core issues Jeff Gates so thoroughly documents. This is an important and timely book.”
-- Riane Eisler, author, The Chalice & The Blade, Tomorrow’s Children, and Sacred Pleasure

Democracy at Risk invites—no, compels—us to open our eyes to what seems to be an ominous contrast between the capitalism of today and the fundamental ideals of an inclusive democracy. It is, at the very least, a wake-up call—if you can speak of an exploding stick of dynamite as a wake-up call. Yet, the solutions offered leave us gratefully optimistic that a truly democratic capitalism is in fact attainable—but that there is not a moment to waste.”
-- Jacob Needleman, author, Money and the Meaning of Life

“Jeff Gates is an insider who knows how wealth and the investment system really works -- and it fills him with rage. Beneath his righteous anger, there's a deep sadness for what has happened to our democracy and also the conviction that it doesn't have to be that way. This is populist thunder that enthralls and educates and also ought to mobilize us.”

-- William Greider, author, One World, Ready or Not: The Manic Logic of Global Capitalism

“With passion and precision, Jeff Gates reminds us that capitalism does not have to be an exclusive system. We make the rules! Here, from the man who helped bring us employee stock ownership is compelling commonsense for how we can make capitalism work for all of us by "ownerizing" it. Mind expanding. Hope inducing. And we need both!”

-- Frances Moore Lappe, author, Diet for a Small Planet, Rediscovering America’s Values, coauthor, The Quickening of America

“Jeff Gates is a phenomenon. He is turning the economics searchlight on ownership and demanding to know why the morally unbearable maldistribution of wealth and income is taboo in classical and contemporary economics. Jeff has achieved this focus, in two books two years apart, to the profound benefit of economics and democracy. He comes straight from top-of-the-mark work on Capitol Hill for Russell Long and the Senate Finance Committee to the crisis for democracy in which we Americans are all now mired, whether we want to be or not. American democracy is in great danger, if it's not already over the cliff, and Jeff Gates is making his special heroic effort to help save it and free enterprise. Can it be done? I don't know.”

-- Ronnie Dugger, founder, Alliance for Democracy; former editor, The Texas Observer; author, The Politician: The Life and Times of Lyndon Johnson; On Reagan: The Man and His Presidency

“Meticulously documents the need for broadening capital ownership in the United States—not only for overall efficiency and social development—but to fully release the talents and motivations of all our citizens in growing a more prosperous, just and ecologically sustainable society.”

-- Hazel Henderson, author, Beyond Globalization and Building a Win-Win World

“In the aftermath of the citizen uprising against the World Trade Organization in Seattle, the need to bring democracy to our economic systems is clearer than ever. Gates reminds us that without democracy in our financial world we can't really expect to have real democracy anywhere. Democracy at Risk puts forth series of bold and practical proposals to redesign democracy and capitalism to be things the earth and future generations can afford. After Seattle, I think the world is ready to listen.”

-- David Brower, Founder and Chairman, Earth Island Institute; author, Let the Mountains Talk, Let the Rivers Run

“In Democracy at Risk, Jeff Gates has presented us with an urgent and passionate polemic in support of a renewed democracy based on broadly shared ownership and economic power. He calls for an immediate populist insurgency to bring about a democratic sharing of wealth and power, and a broadening of the criteria of success to include the host of environmental, educational, cultural, community, intergenerational and global concerns which have the potential to threaten, or to enhance, the future of our civilization and, indeed, of our planet.”
-- Lynn R. Williams, president, United Steelworkers of America (retired)

“Gives us hope that capitalism and humanism are not necessarily mutually exclusive.”

-- Paul Krassner, editor, The Realist

[1] See To compare wealth accumulation with earnings of the typical employee, the figures assume that wealth was amassed untaxed over a 40-hour week and a 50-week year.

[2] Edward N. Wolff, “Recent Trends in Wealth Ownership,” a paper for the conference on “Benefits and Mechanisms for Spreading Asset Ownership in the United States,” New York University, December 10-12, 1998.

[3] Congressional Budget Office Memorandum, Estimates of Federal Tax Liabilities for Individuals and Families by Income Categoy and Family Type for 1995 and 1999, May 1998.

[4] See (“income” at Table H-2).

[5] Reported in The Economist, June 16-22, 2001.

[6] Jill Anderson Fraser, White Collar Sweatshop: The Deterioration of Work and Its Rewards in Corporate America (New York: W.W. Norton, 2000).

[7] Stijn Claessens, Simeon Djankov and Larry H.P. Lang, “Who Controls East Asian Corporations?” (Washington, D.C.: The World Bank, 1999).

[8] A nominal 3.5 percent globalised levy on the average $5 billion of financial wealth held by the world’s 200 most well-to-do individuals would generate a badly needed $35 billion per year to address widespread abject poverty left in the wake of today’s dysfunctional development model. Three-quarters of those 200 people live in the 30 richest nations; sixty live in the U.S. This group of 200 saw their wealth double in the four years to 1999, to $1,000 billion. Financial markets are a global commons, similar to a shared pasture in which everyone grazes their livestock. No one owns the pasture, yet everyone profits from its use. Globally, financial securities can only rightly be called “securities” because international law, backed by the force of cross-border treaty, underwrites the enforceability of property rights in financial securities – from which a remarkably small portion of humanity pockets the bulk of the benefits. In addition to the risk-reducing opportunity to diversify, capital markets offer security-holders an opportunity to convert their financial property into cash. That commons-facilitated liquidity boosts the value of a traded security by roughly 35% when measured against an untraded security in a comparable firm. Thus, this levy should be seen as a “capital commons user fee.” At 3.5% -- less than a typical value added tax – it would recoup for the commons just 10% of the financial value that’s attributable solely to a feature the commons now provides free. By contrast, the Tobin tax is directed at transactions in financial markets when, in truth, it’s the opportunity for a transaction that’s the source of financial value. The difference in the Tobin tax and the Capital Commons User Fee can be likened to the difference between kinetic energy and potential energy. A tradable financial security has more value than one not tradable, regardless whether it’s actually traded, as evidenced by the fact that its potential liquidity enhances its value as collateral.

[9] See Living Planet Report 2000 by United Nations Development Program and World Wildlife Fund.

[10] The three money managers are Barclays Global, Merrill Lynch and Fidelity.

[11] United Nations Human Development Report 1999 (New York: Oxford University Press, 1999), p. 2.

[12] Ibid. at p. v.

[13] Ibid. p. 28.

[14] Ibid.

[15] United Nations Human Development Report 1998 (New York: Oxford University Press, 1998).

[16] United Nations Human Development Report 1999, Ibid., at p. 3.

[17] United Nations Human Development Report 1996 (New York: Oxford University Press, 1996), p. 4.

[18] Juliet S. Schor, The Overworked American (New York: Basic Books, 1992) indicating that the annual work year increased by 139 hours from 1969-1989. The Washington, D.C.-based Economic Policy Institute found that the annual hours worked expanded by 45 hours from 1989-1994.

[19] Steven Greenhouse, “So Much Work, So Little Time,” The New York Times, Sept. 5, 1999, p. WK1.

[20] Charles Handy, The Hungry Spirit (New York: Broadway, 1998), p. 17.

[21] The pending Farm Security Act of 2001 would cost US taxpayers $170 billion over 10 years.

[22] Public Citizen’s Global Trade Watch, Down on the Farm: NAFTA’s Seven-Year War on Farmers and Ranchers in the U.S., Canada and Mexico (Washington, D.C.: Public Citizen, June 2001), pp. i-v.

[23] Evan L. Marcus, “The World’s First Trillionaire,” Wired, September 1999, p. 163.

[24] Federal Reserve Bulletin, January 2000, p. 10.

[25] Colin Hines, Localization (London: Earthscan, 2000), p. 14.

[26] Lester Brown, et al., State of the World 2001 (Washington, D.C.: Worldwatch Institute, 2001).

[27] Theo Colborn, Dianne Dumanoski and John Peterson Myers, Our Stolen Future (New York: Plume, 1997).

[28] Samuel Epstein, The Politics of Cancer Revisited (Fremont Center, N.Y.: East Ridge Press, 1998).

[29] Lori Wallch and Michelle Sforza, Whose Trade Organization (Washington, D.C.: Public Citizen, 1999), pp. 12-51.

[30] David M. Roodman, Still Waiting for the Jublilee, Washington, D.C.: Worldwatch Institute, April 2000.

p. 66.

[31] Susan George, A Fate Worse than Debt: The World Financial Crisis and the Poor (New York: Grove Press, 1988), p. 61; terms of trade from IMF, International Financial Statistics Yearbook 2000 (Washington, DC, 2000), pp. 144-45; trade barriers from World Bank, Global Economic Prospects and the Developing Countries 2001 (Washington, DC 2000), pp. 17-23, cited in Roodman, Ibid., p. 34.

[32] The IMF estimates that the amount in offshore tax havens grew from $3.5 trillion in 1992 to $4.8 trillion in 1997. Other estimates put the amount as high as $13.7 trillion. See Douglas Farah, “A New Wave of Island Investing,” The Washington Post National Weekly Review, October 18, 1999, p. 15. Alan Cowell and Edmund L. Andrews, “Undercurrents at a Safe Harbor,” The New York Times, September 24, 1999, p. C1.

[33] See Jeff Gates, Democracy at Risk (Cambridge, Massachusetts: Perseus Books, 2000), pp. 207-209.

[34] The Times (London), September 23, 1999.

[35] United Nations Human Development Report 1999, Ibid., p. 28.

[36] Ibid.

[37] See Mahbub ul Haq, “Charter of Human Development Initiative,” State of the World Forum (San Francisco, October 3, 1996). The US is presently $500 million in arrears on its UN dues.

[38] See Oscar Arias, “Stopping America’s Most Lethal Export,” New York Times, June 23, 1999, p. A23.

[39] See

[40] “Tax Report,” The Wall Street Journal, July 21, 1999, p. 1

[41] This projection assumes that the tax cut provisions enacted in 2001 are made permanent rather than, as now, assuming they will automatically expire in 2011. Washington, D.C.: Center on Budget and Policy Priorities, August 3, 2001. See

[42] Edward N. Wolff, “Where has all the Money Gone?,” The Milken Institute Review, Third Quarter 2001, p. 34.

[43] Homeowners are also now much more highly leveraged than in the 1980s, with down payments at record lows and mortgage levels at record highs. Lou Uchitelle, “In Home Ownership Data, A Hidden Generation Gap,” The New York Times, September 26, 1999, p. BU4.

[44] “Executive Pay Special Report,” Business Week, April 7, 2000, p. 100.

[45] Reportedly, it was only after strenuous objection from institutional investors that Eisner agreed to remove his personal attorney from the compensation committee of Disney’s board of directors.

[46] “Oracle’s Ellison Has Windfall on Options,” The Wall Street Journal, September 4, 2001, p. B6. See also (under “lists”).

[47] “Debt to Society,” Mother Special Report,

[48] “Too Many Behind Bars,” The Washington Post National Weekly Edition, August 2-7, 2001, p. 24.

[49] Dalton Conley, Being Black, Living in the Red (Berkeley: University of California Press, 1999).

[50] The Ownership Solution (Cambridge, Massachusetts: Perseus Books, 1998; London: Penguin/UK); Democracy at Risk – Rescuing Main Street from Wall Street (Perseus, 2000).

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