Sharing the Wealth as We Recover Health
The Covid-19 recession is an opportunity to restructure capitalism and mend inequality.
As the Stanford historian Walter Scheidel has written in his book, “The Great Leveller,” inequality has only ever been seriously addressed in the wake of massive disruptions such as plagues or war. We are seeing this now as the Covid-19 epidemic, and its enormous economic consequences that fall so disproportionately on the less well off, fully exposes a social fracture that has been festering without remedy for so long.
The word “epidemic” first emerged in the Greek language in the 5th Century BCE during a series of plagues, chronicled by Hippocrates, in Thrace. “Epi-demios” means “on the people” — something that affects everyone in society. In this sense, Covid-19 is a democratic, equalizing, plague. Just as a similar generalized scale of suffering and sacrifice led to major social welfare reforms across the Western liberal democracies in the wake of World War II, so now it will be difficult to close the door on a radical restructuring of economic life the coronavirus has opened.
In short order, it has already prompted a response in the United States that has resulted in unprecedented healthcare and income benefits being rolled out for the broad public, robustly supported even by those political figures who built their careers opposing Obamacare and promoting tax cuts for the rich. In Germany, the near religious “black zero” admonition that dictated balanced budgets has been relaxed to stimulate a stalled economy and lift all boats.
Before the coronavirus outbreak, especially in the U.S., the yawning wealth gap comparable to the 1920s was already a front and center issue in the presidential campaign. When the hostile microbes retreat or are defeated, the central issue will become how the costs of the steep downturn as well as the fruits of recovery are distributed.
This presents an historic opportunity to reboot a much fairer type of capitalism that shares wealth far more equally than in the past. Whether this opportunity can be seized will depend on the backend of the taxpayer bailout of some of America’s most viable companies that have been hit hard by the virus and need a cash infusion. Quite simply those same taxpayers must share in the upside of their investment when the recovery is underway and prosperity is restored by sharing in the wealth creation they have enabled.
This can be done by establishing a sovereign wealth fund that pools the taxpayer’s ownership shares from all the bailed-out companies and distributes dividends to all citizens. In my recent book with Nathan Gardels, “Renovating Democracy: Governing in the Age of Globalization and Digital Capitalism” we call this “universal basic capital,” as distinct from universal basic income. Instead of only once again relying on redistribution of income to close the gap after the fact of wealth creation, we should complement it with what we call “pre-distribution” — sharing the wealth up front.
This new approach is especially critical as we move further into the digital age when productivity growth and wealth creation are being divorced from employment and income. In short, the best way to fight inequality is to spread the equity around.
There are many models out there in the world that can guide us on this path. As is well known, Alaska has long had a social wealth fund that pays dividends to citizens from the revenues of the state’s oil leases. Norway has a similar fund, also from oil revenues, that pays into that nation’s general pension system. Australia has what is called a Superannuated Fund, in essence a sovereign wealth fund financed by employee and employer as well as state contributions for its pension scheme that benefits all. The wealth in that fund now stands at $3 trillion, a sum greater than Australia’s GDP. over the last 20 years since it was established. Singapore has a similar scheme, the Central Provident Fund, from which citizens can also draw for health and housing needs. It is so profitable from its global investments that it is even able to fund some government services and help keep taxes low.
What is important at this point in the midst of the crisis is to recognize the opportunity for reducing social inequality that can be created by a fair an innovative approach to economic recovery. If everyone in this epidemic must share the economic downside, all must share in the upside. That would in so many ways restore health and fairness to society as a whole when the microbes subside.
Written By Nicolas Berggruen
Nicolas Berggruen is Chairman of the Berggruen Institute and Berggruen Holdings.