The stock market is "democratizing" wealth, we're told-almost incessantly. Half of all Americans now own stock, the business press proudly announces. What's largely ignored is the deeper truth, that three out of four Americans own little stock-less than $10,000-or none at all. Debts are climbing faster than financial assets. Data from the Economic Policy Institute tells the true tale: From the late 1970s to the late 1990s, the 1 percent richest families increased their share of national household wealth from 33 percent to nearly 40 percent. Wealth is not spreading today. It is concentrating. Reversing this concentration, and promoting a genuine spreading of capital ownership, is more vital than ever.

COG's Industrial Homestead discussion sought out new ideas designed to more rapidly remedy the onslaught of capital concentration. This article summarizes several of twenty new policy ideas proposed in Industrial Homestead policy discussion. It offers some truly innovative-and compelling-ideas, which we hope will soon find their way into the national policy arena.

The Fair Exchange Fund
This proposal offers a way to promote both wealth creation for families and protection of public resources at the same time. It's based on the principle that when business extracts natural resources, uses up clean air or water, receives tax abatements, or enjoys other public subsidies or contracts, it should provide a fair exchange to the public. It's a matter of quid pro quo ("this for that"). We propose this fair exchange be a provision of corporate stock. The stock would be placed in non-governmental community trust funds, with individual accounts for families. Since all taxpayers have made the investment in companies, all should get some benefit. The community trust can reinvest in employee or community owned businesses, and pay out a portion of its return to citizens. At one blow, this structure would deter local governments from competing for corporate location, build a diverse stock portfolio for every citizen, and secure a vote in corporate decisions by a diverse citizenry.

The closest example of this in operation is the Alaska Permanent Fund, created by Governor Jay Hammond in 1978 to share the windfall of revenue from public oil reserves. As Peter Barnes says, "Hammond felt strongly that Alaska's oil wealth belonged to its people, not its government." The state uses oil revenues in three ways: (1) spending a portion on schools, highways, and other infrastructure; (2) returning a large portion to citizens in an annual cash dividend; (3) investing the remainder in a portfolio of stocks and bonds, so when the oil is gone, dividends will continue. Between 1982-when the first dividend checks went out-and 1998, Alaskans pocketed more than $7 billion. The per-capita dividend in 1998 totaled $1,540 which is an impressive $6,160 for a household of four. That's real money-and it comes from real public resources. Though the fund was controversial in the beginning, and was forced to overcome a Supreme Court challenge, Alaskans are now in love with the Permanent Fund.

Peter Barnes advocates giving every American "a share in the sky," so that polluting it would cost corporations-and would capture a trillion dollar windfall for individual Americans. We propose companies pay for all public resources. And we propose payment be made not in cash, but in stock-making it more palatable to business, and giving citizens a voice in the businesses in which they've invested tax dollars. The idea is to recognize new property rights for a new era, and to give those property rights not to government, but to citizens.

Citizen property rights is an idea whose time has come.

Ownership Transfer Corporations
Here the idea is to encourage corporations to become owned and controlled directly by stakeholders, such as employees, suppliers, customers and local government suppliers of infrastructure. The transfer to stakeholders would be based on the amount of business or financial value of their contribution to the business, like a cooperative patronage dividend. It involves reducing the corporate tax rate, to make it more profitable for stockholders to transfer, without payment, a small amount of equity each year to stakeholders. Halving the corporate tax rate could provide sufficient incentive to transfer 5 percent of equity each year. In this way, an Ownership Transfer Corporation (OTC) will transfer ownership to stakeholders entirely over 20 years.

A proposal based on this idea was recently made as part of the Zimbabwe Enterprise Development Project. It requires foreign investors to have a local partner for 30 percent of total ownership in the services sector, or 65 percent in selected other sectors. But investors could be allowed up to 100 percent ownership, if they agree to a "fade-out" arrangement. Investors would retain full ownership for a payback period-perhaps five to seven years-allowing them to recover their investment plus a return. The year after the payback period, 5 percent of shares would be transferred without compensation to a trust representing employees, until employees own a specified percentage. Similar obligations on foreign investors to transfer shares to indigenous persons after the payback period have been applied in certain cases in Malaysia and Australia.

In the U.S., a related structure was used in the Chrysler Loan Guarantee Act of 1980. As part of the government's loan guarantee to Chrysler, the company was required to set up an Employee Stock Ownership Plan and contribute $162.5 million worth of stock to it by 1984.

Labor-Sponsored Investment Funds
This proposal would create state or federal tax credits to encourage individual investment of IRA or 401(k) funds in labor-sponsored venture capital funds, focusing on employee ownership. This would provide a much-needed source of capital for creating majority-employee-owned companies. Several Canadian provinces-including Quebec, Manitoba, British Columbia, Saskatchewan, and Ontario-have followed this template. The Canadian funds invest within their own provinces, in companies with proven track records and long-term profitability. To the extent that they focus on employee ownership, they particularly seek out companies with retiring owners who have no succession plan. Their primary focus is retaining local jobs and local control. To obtain tax credits for individual investors, a labor federation must sponsor the funds. Quebec's Solidarity Fund, which has raised over $3 billion for investment in Quebec, and saved, created, or retained over 65,000 jobs. Manitoba's Crocus Fund, with assets of $165 million, has a preference for employee ownership. It's provided a higher rate of return than the Toronto Stock Exchange index. Here in the U.S., Union Labor Life Insurance Co. manages a direct private equity placement fund, targeting the creation of union jobs. From 1992-99, it provided an internal rate of return in excess of 100 percent a year, according to Michael Calabrese of the Center for National Policy.

Promoting Majority Employee Ownership
While there are tax incentives already in place to promote Employee Stock Ownership Plans, there is no special benefit for firms that are majority employee owned. There should be. There should also be incentives for firms that allow employees a voice in management and governance-which has been shown to lead to improved financial performance. In the recent past, when banks made loans to finance employee ownership, they were allowed a tax deduction on the interest paid. That tax benefit was repealed-and we propose it be reinstated. This time around, the lender deduction should be contingent on (1) substantial or majority employee ownership (at least 30 percent), and (2) enhanced employee voice in governance. In a variation, tax benefits for the corporation and selling owner could be made available on a sliding scale-based on how much they meet the above requirements. Congress repealed an estate tax deduction that allowed families a tax-advantaged way to turn a business over to employees. That tax deduction should be restored-on a sliding scale. For example, if owners sell 10 percent of their stock to an ESOP, they would receive 20 percent of tax benefits. If they sell 20 percent, they get 40 percent of benefits, and so on-up to full tax benefits for those who sell 50 percent to employees.

Internal Capital Accounts
New companies could be created-or the bylaws of existing companies rewritten-in a new structure offering "internal capital accounts" for employees. The idea is to create a democratic corporation, where membership rights (rights to current profits and the right to vote) are personal rights attached to one's work in the firm. These would be like citizenship rights, rather than property rights that can be bought and sold.

Each person working in a firm would have a capital account, like an internal savings account. Profits retained each year (not paid out as dividends) would be allocated to these employee accounts-rather than to a general "stockholder equity" account, as in joint stock companies. Share of profit would be based on one's contribution to the company, rather than one's account balance. This proposal encourages us to re-think firm membership: Why is corporate "membership" based solely on property ownership? Why aren't employees members of the company? The best example is the Mondragon worker cooperatives in Spain. But there are a number of Mondragon-style co-ops across the U.S.- like the Community Home Health Care cooperative in the South Bronx. Professional partnerships like law firms also have this structure. Legislation promoting this structure-offering, for example, tax breaks-should be facilitative, not coercive.

Ownership Impact Statements
Just as we assess environmental impact before taking significant societal actions, we should also assess ownership impact. For example, we might look at proposed tax breaks, government subsidies, or trade treaties, and as a society ask formally: Does this lead to a concentration of wealth, or a widening of wealth? National and international agencies should report annually on the degree of wealth concentration. Publicly traded companies could be required to report on proportion of shares owned by employees. This kind of ownership reporting might build the awareness to make the other proposals here seem vitally necessary, as we believe they are. This is one of many ideas Jeff Gates proposes in his excellent book on this subject, The Ownership Solution (1998).

Capital Homestead Act for America
This is a proposal to provide tax, monetary, inheritance policy and other structural reforms to national economic policy to provide every citizen an equal opportunity to own, control and share profits from productive capital. Facilitated by the monetization of capital credit under Federal Reserve policy and reinforced by loan default insurance as a substitute for traditional collateral, the Capital Homesteading reforms would enable every citizen to establish at a qualified local lending institution a tax-exempt Capital Homestead Account (CHA) to purchase and accumulate dividend yielding shares to supplement his income from other sources, including Social Security when he retires.

Like ESOPs the citizen would put up no money but through the CHA would gain access to self-liquidating capital loans at low service charges to buy equity shares that are expected to recover their purchase price out of future pretax dividends. The loan default insurance, whose premiums would be paid out of dividends, would cover the risk that the loan failed to be self-liquidating. CHA loans could be invested in shares of (1) the company he or a family member works for, directly or through an ESOP, (2) the companies he regularly buys from, directly or through consumer stock ownership plans (CSOPs), (3) a Community Investment Corporation (CIC) to link him to profits from and control over local land planning and development, and (4) a variety of blue-chip growth companies with a track record of profits. The double tax on corporate profits would be eliminated for companies that sell full dividend payout shares to CHAs.

A key feature of these ideas is that those who have no capital should have equal access to credit to acquire capital, and that that credit should be made available by the government's central bank and allocated through local lenders for financing the capital needs of the productive economy. (In today's US economy productive capital is growing annually at a rate exceeding $7,000 per capita.) The idea behind Capital Homesteading is that there is no reason that those who already have capital (and collateral to qualify for capital loans) should have a monopoly over the government's ability to create more wealth through credit.

Tax Policies for Building Equity
Alan Zundel made several proposals to reduce the tax burden on low-asset individuals and households trying to build equity. First, employment income (wages, salaries, fees) and capital income (interest, dividends, capital gains) should each be treated separately in individual income tax filing, applying personal exemptions, the standard deduction, and progressive tax rates to each type of income individually instead of both together. Instead of paying taxes on the income from their savings and investments at the top rate for their labor income (currently capital income is, in effect, piled on top of labor income), they pay zero or low tax rate on capital income until it reaches some predetermined size, after which tax rates gradually rise as the income rises. This benefits small savers and investors in two ways: (1) helps their nest egg grow by reducing taxes on the income from it, and (2) gives them more of an incentive to save and invest. Second, make dividend payments tax-deductible against corporate profits. This eliminates the double-taxation of dividends, but with the separation of labor and capital incomes in the income tax (as above) it primarily benefits small savers and investors. Large capital incomes would be taxed at rates high enough to recapture (at least some of) the loss from the corporate income tax. Third, end regressive taxation. In U.S. there has been a trend towards greater reliance on regressive taxes such as payroll taxes, sales taxes, gas and cigarette taxes, and so forth. Reversing this trend would make it easier for low and moderate-income individuals and households to save and build equity.

The tax rate for inheritance and gift taxes should be based on the wealth of the recipient, not the wealth of the estate. This encourages donors to spread equity ownership among heirs/recipients. This is one of Kelso's ideas.

Directly Subsidized Ownership
A series of ideas were proposed to provide low asset individuals with means to build ownership. For example, Prof. Michael Sherraden's proposal for Individual Development Accounts (IDAs), provide for dual account savings plans, where an employer, non-profit organization, government agency or other entity matches deposits made by low-asset savers. Accounts must be used for designated purposes such as education, starting a micro-enterprise (very small business), or down payment on first home.

Universal Savings Accounts (USAs). Similar to IDAs, Sherraden's proposed government matching deposits for low-asset citizens who start special retirement accounts.

Citizens' Grubstakes were proposed by Profs. Bruce Ackerman and Anne Alstott. A "grubstake" would be a one-time government grant of $80,000 (for education, starting a business, buying a home, or saving/investing for retirement) for each citizen when they come of age. It would be funded by a dedicated tax, and repaid at death by those who haven't lost it, and eventually become self-financing. They think this would be more politically feasible than any kind of guaranteed annual income.
As proposed by Terry Mollner of the Calvert Social Investment Fund, Trusteeship Trusts were similar in concept to Ackerman and Alstott's "grubstake" idea, but not dependent upon the federal government. State and local governments, non-profits, banks, philanthropists, professional/civic organizations and/or community groups could set up a program for any community (however defined). All that would be required would be some seed money, including some entity (perhaps state/local government) to guarantee a seed loan if necessary. Mollner also believed such a program would eventually be self-financing as initial recipients paid back their stake at death.