As the Stanford historian Walter Scheidel has written in his book, “The Great Leveler,” 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. Those without assets who are a paycheck away from poverty are suffering the most.
One key way to put some critical distance between poverty and the paycheck as the COVID-19 economic shock shakes the system is to fundamentally change our way of thinking about how to most effectively tackle inequality. Simply, that means finding a way to enhance the assets of the less well-off in the first place through a kind of national endowment fund where all in society share the wealth.
Before the coronavirus outbreak, especially in the U.S., the yawning wealth gap comparable to the 1920s was already front and center 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,” which is distinct from universal basic income. Instead of only once again relying on redistributing income to close the gap after wealth has been created, 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 that can guide us on this path. 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 the general pension system. Australia has what is called a superannuation fund, in essence a sovereign wealth fund financed by employees and employers as well as state contributions for its pension scheme that benefits all. The wealth in that fund now stands at almost $2 trillion, a sum greater than the country’s GDP. Singapore has a similar scheme, called 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.