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Basic
Principles of Economic and Social Justice
The Just Third Way
By: -
Norman Kurland
Presented
at the Fifth Annual Conference of the Center for the Study of Islam and
Democracy (CSID)
Wyndham Washington Hotel, Washington, D.C., May 28-29, 2004
Are there
limits to freedom?
Are there limits to democracy?
Are there limits to peace?
Are there limits to justice?
Think about these questions in terms of the present war in Iraq and the
Israeli-Palestinian conflict in the Holy Land. Think of the stated objectives
behind America's use of military power and the economic power of global
capitalism. I think you'll agree that, of these four values, only justice has no
limits. Without a clear understanding of justice, we cannot recognize the
limits, or the effective paths, to freedom, democracy and peace.
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What is Justice?
To paraphrase Victor Hugo: "More powerful than all the money and military might
in the world is an idea whose time has come." A new worldview of justice,
properly understood, is the most powerful force to be placed in the hands of
ordinary people and new leaders to transform degrading, oppressive and
dehumanizing systems. This new worldview points the way to a lasting and humane
solution to global conflicts. As Pope Paul VI reminds us, "If you want peace,
work for justice."
Before we can apply its principles, we need to ask ourselves, what is "justice"?
Louis Kelso (the philosophical father of the "Just Third Way") and Mortimer
Adler (the Great Books philosopher and Aristotelian scholar who once taught the
Philosophy of Law at the University of Chicago Law School) articulated a
classical definition of "justice":
"Justice, in its most general formulation, imposes the following moral duties or
precepts upon men who are associated for the purposes of a common life: (1) to
act for the common good of all, not each for his own private interest
exclusively; (2) to avoid injuring one another; (3) to render to each man what
is rightfully his due; and (4) to deal fairly with one another in the exchange
of goods and in the distribution of wealth, position, status, rewards and
punishments." [1]
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Understanding Social Justice and Social Charity
In his seminal work, The Act of Social Justice (1943), the late Marianist priest
Father William Ferree, a co-founder of our interfaith center, argued that the
dignity of t the human personality is the basis of any sound theory of justice.
Describing justice at the individual or personal level, Ferree wrote:
For Pope Pius XI [in his 1931 Encyclical, Restructuring of the Social Order],
the theory of justice is based squarely on the dignity of the human personality.
His position is that charity regulates our actions toward the human personality
itself, that Image of God which is the object of love because it mirrors forth
the Divine Perfections, and in the supernatural order shares those perfections.
The human personality, however, because it is a created personality, needs
certain "props" for the realization of its dignity. These "props" or supports of
human dignity, which include such things as property, relatives and friends,
freedom and responsibility, are all objects of justice. To attack a human person
in his personality itself, as by hatred, is a failure against charity; but to
attack him by undermining the supports of his human dignity, as by robbery, is a
failure against justice. [2]
In defining justice at the social level–how individuals should act when their
institutions are in need of reform–Ferree wrote:
The same thing is true in the field of social morality. The human community, as
such, shows forth the perfections of God in ways that are not open to
individuals. This fact is very clearly stated in paragraph 30 of the Encyclical
Divini Redemptoris:
"In a further sense it is society which affords the opportunity for the
development of all the individual and social gifts bestowed on human nature.
These natural gifts have a value surpassing the immediate interests of the
moment, for in society they reflect a Divine Perfection, which would not be true
were man to live alone."
Society itself, therefore, as thus revealing further the perfection of God in
His creatures, is worthy of love: of a love directed not only towards the
individuals who compose the society, but also toward their union with each
other. This love is social charity.
Moreover, as society thus makes available to man the further perfection of his
potentialities of mirroring the Divine Perfection, it is also a support for
these perfections, and hence is an object of the virtue of justice. This
justice, Social Justice, which is directed at the Common Good itself, requires
that the society be so organized as to be in fact a vehicle for human
perfection. [3]
Dr. Robert D. Crane, a global strategist, prolific writer on Islamic
jurisprudence and another co-founder of the Center for Economic and Social
Justice, has authored a brilliant paper published on the web site of the Global
Justice Movement. His paper discusses how the seven fundamental principles of
maqasid al shari'ah offer a "paradigm- for a spiritual renaissance in all faiths
that can transform the world." [4] Dr. Crane's writings are aimed toward
mobilizing "a minority of courageous Muslims determined to fill the intellectual
gap that has weakened the Muslim umma for more than six hundred years." These
fundamental principles of Islamic law are, in my opinion, consistent with the
"Peace through Justice" vision of our center, the founding ideals of America,
and the UN's Universal Declaration of Human Rights.
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Understanding Economic Justice
If social justice consists of organizing with others to change social
institutions, then the pursuit of economic justice is an indispensable part of
social justice. Principles of economic justice deal with all institutions
affecting the production, consumption and distribution of economic goods and
services. They deal with the more urgent material human needs, in contrast to
the higher spiritual, intellectual, cultural and social needs that must be
satisfied for the fullest development of every person. Since institutions are
artifacts created by people, not God, transforming and perfecting them is a
continuing responsibility of each of us, once we share a common vision and
common principles of effective action.
Among all the writings on the subject of economic justice, the clearest set of
principles I have encountered are in a 1958 book, The Capitalist Manifesto, [5]
co-authored by Louis O. Kelso and Mortimer J. Adler. While the book was a
best-seller when published, most scholars never got past the cover of book,
undoubtedly because of its (in my view) misleading title. Kelso and Adler
challenged basic assumptions of conventional paradigms of political economy.
They developed a simple yet profound theory of economic justice that sheds new
light on the impact of technology on human work and the development of modern
civilization. They described the systemic political and moral flaws of national
"full employment" policies and how today's global economic order creates an
ever-expanding gap in economic power, opportunity and incomes between a wealthy
elite and propertyless workers.
As a lawyer Kelso saw that the design of our "invisible" institutional
environment and social tools determines the quality of people's relationship to
technology. Such intangible things as our laws and financial systems determine
which people will be included or excluded from access to economic opportunity,
power and capital incomes.
Access to capital ownership, asserted Kelso, is as fundamental a human right as
the right to the fruits of one's labor. Kelso argued that the democratization of
money creation and capital credit is the "social key" to universalizing access
to future ownership of productive wealth. This social key could enable every
person, as an owner, eventually to gain income independence through the profits
from one's capital.
Kelso's general theory and vision have been trivialized and virtually ignored by
academia and the mainstream media. This explains in large measure why economists
cannot understand or solve within their outdated paradigms most of the problems
arising from economic globalization. Nevertheless, before his death in 1991,
Kelso gained international fame as the inventor of the Employee Stock Ownership
Plan or "ESOP," one of the tools he developed to democratize access to money and
credit.
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Kelso's Economics of Ownership and Justice
At the heart of what Kelso called "binary economics" [6] is a simple but
revolutionary proposition. Kelso stated that people could legitimately create
economic value through two (thus binary) factors of production:
.
Labor (which Kelso defined as all forms of economic work by people, including
manual, intellectual, creative, and entrepreneurial work, and so-called "human
capital"), and
Capital (defined by Kelso as anything non-human contributing to the production
of marketable goods and services, including tools, machines, land, structures
and infrastructural improvements, management systems, and patents). Kelso, like
another post-scarcity thinker, Buckminster Fuller, attributed most changes in
the productive capacity of the world since the beginning of the industrial
revolution to technological improvements in our capital assets, and a relatively
diminishing proportion to economic work.
Capital, in Kelso's terms, does not "enhance" labor productivity, i.e., labor's
ability to produce economic goods. It makes many forms of labor unnecessary.
According to Kelso, productive capital is increasingly the source of the world's
economic growth and therefore should become the source of added property incomes
for all.
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The Three Basic Principles of Economic Justice
Kelso based his ideal market system on three essential and interdependent
principles of economic justice:
(1) Participation, the input principle. If both labor and capital are
interdependent factors of production and if capital's proportionate
contributions are increasing relative to labor, then equality of opportunity
demands that the right to property (and access to the means of acquiring and
possessing property) must in justice be extended to all.
(2) Distribution, the out-take principle. Property rights require that income be
distributed based on the value of what one contributes to production–one's
labor, one's capital, or both. Assuming that capital ownership is spread
broadly, the free and open market under Kelso's system becomes the most
democratic and efficient means for determining just prices, just wages and just
profits. If both sales revenues and all labor costs are set by globally
competitive market forces, then profits, the revenues left over after all labor
costs of an enterprise are subtracted, represent a market-based return to
capital in the form of profits to be shared among all the firm's co-owners.
The principle of distribution for the virtue of charity (according to need)
complements the distributive principle for the virtue of justice (according to
contribution). Charity, however, should never be a substitute for justice.
Without justice people will not be motivated to produce enough wealth for
themselves and to engage in charitable acts for the needy, and the needy will
never become self-sufficient.
(3) Limitation, the feedback or, in moral terms, the anti-greed principle (which
some Kelsonians call the principle of "Harmony" and others call "Social
Justice.") This principle, exercised through organized efforts to transform
unjust institutions, guides the restoration of balance between "participation"
(input) and "distribution" (out-take) when either principle is violated. It puts
limits on monopolistic accumulations of capital and other abuses of property.
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The Four Pillars of an Economically Just Society
All wage systems ignore one or more of what can be called the "Four Pillars,"
the essential principles for building a more just economy. During periods of
economic reform, leaving out any one of these pillars weakens the entire fabric
of the economy and leads to eventual collapse. Applying the Kelso-Adler theory
of economic justice, policies for transforming unjust economies include:
.
Expanded Ownership of Productive Assets
Limited Economic Power of the State
The Restoration of Free and Open Markets
The Restoration of Private Property
Expanded Ownership of Productive Capital: The Moral Omission of All Existing
Economies
One of the most crucial problems that Marx addressed in his economic theories
was that ownership of productive assets–"capital"–was limited to the very few.
As a result, no high technology market system could possibly produce sustainable
growth, since working people would have only their labor to sell in direct
competition with labor-displacing technology and a growing world population of
workers willing to work for lower wages. Unfortunately, Marx's solution to this
mismatch between the rising productiveness of technology and market-based
consumption incomes was to concentrate productive wealth and power even more by
mandating state ownership of all productive assets. This resulted in enormous
concentrations of wealth and power in the hands of a new elite. The real problem
that Marx faced, however, was not private ownership of productive property, but
concentration of private ownership. Turning Marx upside down, Kelso would make
every worker an owner of a growing stake of income-producing property. This
would both achieve economic justice for all and stabilize and sustain growth in
any market economy.
Limited Economic Power of the State
Limiting the economic power of the state ultimately involves the goal of
shifting ownership and control over production and income distribution from the
state to the people. To do this, the economic power of the state should be
specifically limited to:
Encouraging sustainable and life-enhancing growth and policing abuses within the
private sector;
.
Lifting barriers to equal ownership opportunities, especially by reforming the
money-creating powers of the central bank to provide widespread access to
low-cost capital credit as the key to spreading ownership and economic
empowerment for workers;
Preventing inflation and providing a stable currency for sustainable
development;
Protecting property, enforcing contracts and settling disputes;
Ending economic monopolies and special privileges, except for limited terms for
holders of patents, copyrights and other intellectual property rights;
Encouraging democratic labor unions to become democratic ownership unions that
organize to turn all workers into owners and promote economic justice in the
ownership, governance and management of all private sector enterprises;
Protecting the environment; and
Providing social safety nets for human emergencies.
Within these limits the state would promote economic justice for all citizens.
Coincident with this objective would be the goal of reducing human conflict and
waste and erecting an institutional environment that would encourage people to
increase economic efficiency and create new wealth for themselves and the global
marketplace. Increased production would increase total revenues for legitimate
public sector purposes, reducing the need for income redistribution through
confiscatory income taxes and social welfare payments.
Restoration of Free and Open Markets
Artificial determinations of prices, wages and profits lead to inefficiencies in
the use of resources and scarcity for all but those who control the system.
Those in power either have too little information or wisdom to know what is
right, or will set wages and prices to suit their own advantage. Just prices,
just wages, and just profits are best set in a free, open and democratic
marketplace, where consumer sovereignty reigns. Assuming economic
democratization in the future ownership of the means of production, everyone's
economic choices or "votes" on prices and wages influence the setting of
economic values in the marketplace.
Establishing a free and open market would be accomplished by gradually
eliminating all special privileges and monopolies created by the state, reducing
all subsidies except for the most needy members of society, lifting barriers to
free trade and free labor, ending all non-voluntary, artificial methods of
determining prices, wages and profits. This would result in decentralizing
economic choice and empowering each person as a consumer, a worker and an owner.
Wealth distribution assumes wealth creation, and technological and systems
advances, according to recent studies, account for almost 90% of productivity
growth in the modern world. [7] Thus, balanced growth in a market economy
depends on incomes distributed through widespread individual ownership of the
means of production. The technological sources of productive growth would then
be automatically linked with the ownership-based consumption incomes needed to
purchase new wealth from the market. Thus, Say's Law of Markets—which both Marx
and Keynes attempted to refute—would become a practical reality for the first
time since the Industrial Revolution began.
Restoration of Private Property
Owners' rights in private property are fundamental to any just economic order.
Property is not the things that are owned. Property is the bundle of rights that
determines one's relationship to things. (In the modern era, we recognize that
property owners cannot legitimately treat other persons as "things," as in more
dehumanizing cultures.) Property secures personal choice, and is the key
safeguard of all other human rights. By destroying private property, justice is
denied. Private property is the individual's link to the economic process in the
same way that the secret ballot is his link to the political process. When
either is absent, the individual is disconnected or "alienated" from the
process.
Restoring the idea as well as the fact of private property–especially in
corporate equity?would involve the reform of laws that prohibit or inhibit
acquisition and possession of private property. This would include ensuring that
all owners, including shareholders, are vested with their full rights to
participate in control of their productive property, to hold management
accountable through shareholder representatives on the corporate board of
directors, and to receive profits commensurate with their ownership stakes.
Private property links income distribution to economic participation?not only by
owners of existing assets, but also by new owners of future wealth.
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Money and Credit for Building a Just Market Economy
Control over money and credit (i.e., financial capital) largely determines who
will own and control productive capital in the future.
When the subject of money and money creation comes up, we sometimes forget that
money is a man-made thing, and is morally neutral. Its goodness or badness
depends solely on how it is created and how it is used. Like the secret ballot
in politics, money is a uniquely "social good," an invention of modern
civilization, a means for measuring economic values and enabling people to
participate in a market economy.
And that is the crux of the matter. Money is created and credit extended these
days systemically in ways that keep the rich wealthy, and the poor in their
place. Consumer credit, for example, is available virtually to everyone, while
access to capital (or "productive") credit is restricted to use by those who
meet the universal requirement for collateral, i.e., the rich. Thus, the poor
and middle-class get the most risky and highest cost credit, while the rich get
the lowest-cost and least risky kind of credit. It is more than an outworn
truism that you need money to make money, or that lenders will only extend
capital credit to people who don't need to borrow.
For example, let us look at the $2 trillion of growth assets added each year in
the US public and private sectors, consisting of new technology, plant and
equipment, physical infrastructure and rentable space. [8] Amounting to a growth
increment of $7,000 for every man, woman and child, these productive assets will
be financed in ways that add almost no new owners. If capital credit were to
become as universally accessible as the political ballot, capital assets could
become a growing source of independent capital incomes for all persons and their
families.
What makes capital credit special is that by nature it is procreative or
"self-liquidating." That is, capital credit is restricted to the purchase of
assets that are expected to pay for themselves out of the revenues generated
from the capital project which it financed, and thereafter these assets are
expected to earn a continuing flow of profit for whoever owns the assets.
Capital credit is inherently counter-inflationary. Consumer credit, on the other
hand, does not generate its own repayment, and any repayment must come out of
the user's other resources. When used to any significant extent, consumer credit
greatly reduces the purchasing power of the user.
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The Democratization of Productive Credit: A New Right of Citizenship
The primary social means to bring about expanded ownership of productive assets
involves the democratization of productive, self-liquidating credit.
By making productive credit available on a truly democratic basis, society moves
people toward economic self-sufficiency and independence. A broad dispersion of
wealth and power serves as the ultimate check against abuse of power by the
state or by the majority against minorities or individual citizens.
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Why is Access to Ownership the Antidote to the Injustices of Global Capitalism?
Americans generally and academics in particular, can describe problems. They
flounder, however, for new solutions in fighting threats to regional and global
peace, freedom and the rule of law. Many agree that economic growth equitably
shared is necessary for overcoming poverty – the taproot of conflict,
revolutions and war – within and among nations. But few ask new questions, such
as: What are the systemic flaws in current development models?
If "ownership is a sine qua non of development," as expressed by World Bank
President James Wolfensohn, why have the strategies of Western development
experts failed to create nations of owners, from the bottom-up? What in the
current system of economic globalization produces an ever-widening and dangerous
gap in economic power and economic self-determination between haves and
have-nots among nations and within all nations in the global marketplace? Can
free markets, free trade, private property and limited government be made
compatible with economic and social justice? What minor systemic changes could
be introduced to transform the globalization process into a blessing, especially
for the poorest of the poor, in Iraq, Gaza, on the West Bank, in Afghanistan,
Kashmir, Indonesia, the Philippines, Chechnya and other breeding grounds of
human hopelessness, group hatred, and the next rounds of suicide terrorism?
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A Different Perspective on Economic Globalization
Conventional development approaches are based on wrong-headed, win-lose
assumptions that argue that scarcity is inevitable and shared abundance is
impossible.
R. Buckminster Fuller, a post-scarcity thinker, architect, and engineer, refuted
the conventional wisdom by pointing out: "There is only one revolution tolerable
to all men, all societies, all political systems: Revolution by design and
invention." Besides offering a still untried vision for tapping technology's
untapped synergistic potential, Fuller then issued this challenge to the world:
"[M]ake the world work for 100% of humanity in the shortest possible time
through spontaneous cooperation without ecological offense or the disadvantage
of anyone." [9]
In contrast to Fuller's optimistic approach to global development, pessimism and
a sense of hopelessness around the world has been fueled by a growing awareness
of a force that is greater than the power of any nation state in the world – the
force of economic globalization. This is the conclusion of best-selling author
William Greider in his 1998 book, One World, Ready or Not: The Manic Logic of
Global Capitalism. Greider points out that economic globalization – driven by a
financial elite with the power to shift billions of dollars almost
instantaneously from one country to another – is a reality and will not go away.
The ability of those who control money and finance to topple seemingly
invulnerable heads of state was evidenced in the overthrow of the Suharto regime
in Indonesia.
The subordination of most world political leaders to the controllers of money
was predictable at least a century ago when one of the world's earliest
financial capitalists, Baron Mayer Anshel Rothschild, was quoted as saying,
"Permit me to control the issuance of a nation's money and credit, and I care
not who makes the laws." [10]
For most people, however, economic globalization means a growing gap between
rich and poor, technological alienation of the worker from the means of
production, and the phenomenon of "wage arbitrage." It means an environment in
which global corporations and strategic alliances can force workers in high-cost
wage markets to compete with labor-saving tools and lower-paid foreign workers.
Even the United States, which today seems to be enjoying relative economic
prosperity in the midst of the world's financial downslide, is showing similar
symptoms. The USA has one of the widest gaps between the "haves" and
"have-nots." [11] American business has the widest pay gap between CEOs and
ordinary workers. Low unemployment masks an underlying displacement of workers
by technology and cheaper foreign labor, resulting in greater economic
uncertainty and shakier retirement incomes.
This lack of direction is reflected in growing demands that "something be done,"
but with a conspicuous absence of anything substantive, other than the stale
prescriptions of the past.
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Is There a "Just Third Way"?
Media pundits continue to mention a "Third Way," but none of them seems to know
quite what it is. People on the left who are positive toward the idea present it
as socialism with a capitalist whitewash; people on the right present it as
capitalism with a socialist veneer.
Many skeptics, correctly in our opinion, view the "muddled middle" formula for
the "Third Way" as an attempt to give moral legitimacy to the Wall Street
capitalist approach to economic globalization. This formula attempts to blend
political democracy with economic plutocracy, an inherently unstable mix. The
Washington Post on August 30, 1998 editorialized that "there is in fact no third
way."
In contrast to the intellectual fuzziness now pervading high policy circles,
this paper asserts that no third way is a true third way or a "Just Third Way"
if it:
Does not
economically empower the people,
Keeps economic and social power, especially over advanced technologies,
concentrated in the hands of an elite,
Keeps most people in a status of servile dependency on the state or other
people,
Lacks a coherent theory and principles of economic justice to guide policy
makers,
Lacks a structured system for closing the gap between the rich and the poor
within the evolving global marketplace,
Ignores the central role of such "social tools" as money, capital credit and
central banking in determining how all people can acquire access to assets and
economic power in the future, and
Remains trapped by inherently bankrupt Social Security and other income
redistribution schemes, instead of encouraging asset-backed systems to link
future consumption incomes with future wealth production.
Is there a solution? Yes. There is a "Just Third Way" that goes beyond the
traditional answers supplied by the right and left. It offers a new vision and
alternative model for development for countries of the world in which they can
succeed to their fullest potential within the framework of a global marketplace.
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The Just Third Way
Let's examine more closely the Washington Post's statement that no third way
exists. On the one hand there is capitalism, an economic system governed by
market forces but where economic power is concentrated in the hands of a few who
own and control productive capital. An illustration of this system is Bill
Gates, who without any extra effort, went from $16 billion to over $40 billion –
a greater accumulation of assets than those of 50% of the American people
combined. Most workers-for-hire have great difficulty meeting their consumer
debt, let alone accumulating any income-producing assets. Indeed, "capital
breeds capital" but only for those who own most of it.
On the other hand, socialism, in all its forms, is an economic system governed
centrally by a political elite that enjoys even more highly concentrated
ownership and economic power. And in practice, socialism doesn't work. The world
is full of examples of traditionally state-dominated economies that cannot meet
their massive foreign debt obligations or compete effectively in the emerging
global marketplace.
Logically, a "just third way" would be a free market system that economically
empowers all individuals and families through direct and effective ownership of
the means of production.
A mistake made by many academics and economists today is to equate democracy and
the market system with the top-down, Wall Street capitalist model, with its
growing gap of wealth and power between the rich and the poor. That there is
excessive corruption under capitalism and socialism, even where governments are
democratically elected, should come as no surprise. Lord Acton warned us years
ago about the inherent corruptibility of systems that concentrate power. And
without a workable market-based version of economic democracy, extending the
political ballot to a majority of propertyless poor people in a developing
economy is a recipe for political upheaval, as India learned in its recent
election.
Capitalist theorists like Milton Friedman pay no attention to concentrated
ownership of labor-displacing technology. Marxist theorists do, but conclude
that the state should own and regulate all means of production. Keynesians offer
a feeble synthesis between these two models of development based on the premise
that maldistribution of ownership is acceptable, perhaps even necessary. [12]
The "Third Way" model of the muddled middle follows the Keynesian model.
As recognized by William Greider in chapter 18 of One World, Ready or Not, Louis
O. Kelso fathered a comprehensive systems approach to solving the structural
problems faced by Russia, Indonesia and many other economies that have become
dependent on those who today control money and credit.
Kelso's revolutionary insights helped him to solve an economic enigma: How Say's
Law of Markets –rejected both by Marx and Keynes– could achieve sustainable and
balanced growth in a modern global economy. His legal background enabled him to
see how the structuring of basic laws and institutions creates a system that
either concentrates or decentralizes ownership and economic power, that
encourages participation by all or creates barriers to participation. Blended
with the keen insights of Buckminster Fuller's design science revolution in
physical technologies, Kelso, a master architect of social technologies,
provided the comprehensive institutional framework and practical financial
tools, like the ESOP, for lifting up the world's poor without pulling down the
world's rich.
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Lessons from the First American Revolution
The connection between widespread distribution of property and political
democracy was evident to America's founders. This understanding was reflected in
the 1776 Virginia Declaration of Rights, the forerunner of America's Declaration
of Independence and Bill of Rights. Following John Locke's triad of fundamental
and inalienable rights, the Virginia Declaration of Rights declared that
securing "Life, Liberty, with the means of acquiring and possessing Property" is
the highest purpose for which any just government is formed.
With the abolition of slavery and feudalism, the United States insured that no
American would ever again become the property of another. Through this and other
limitations on the rights of private property, a just government transcends the
weaknesses of a pure laissez-faire approach to ownership rights. However, by
fulfilling its duty to all its citizens to lift barriers to private property in
the means of production, government builds a permanent political constituency
for a sustainable free market economy.
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Looking Beyond Socialism and Capitalism
Power exists in society whether or not particular individuals own property. If
we accept Lord Action's insight that "power tends to corrupt and absolute power
corrupts absolutely," our best safeguard against the corruptibility of
concentrated power is decentralized power. If Daniel Webster is also correct
that "power naturally and necessarily follows property," then democratizing
ownership is essential for democratizing power.
In the economic world, property performs the same power-diffusion function that
the ballot does in politics. It does more. It makes the ballot-holder
economically independent of those who wield political power.
Both socialism and capitalism concentrate economic power at the top. It makes
little difference that under capitalism the concentration is in private hands
and under socialism the concentration is in the hands of the state. Both systems
are excessively materialistic in their basic principles and overall vision.
Both, in their own ways, degrade the individual worker. Both bring forth
economic systems that ignore and hinder the intellectual and spiritual
development of every member of society.
Amalgams of the two systems, as in America's so-called "mixed economy" or the
Scandinavian welfare state model, differ only in their degree of social
injustice, corruption, economic inefficiency, human insecurity and alienation
which permeate each level of class-divided societies. What then would be a
genuine alternative economic model for moving toward a freer, more just and
economically classless society?
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Mistakes of the Left and the Right
Most schemes being promoted by experts keep repeating the mistakes of the past.
From the academic right come proposals that assume that free markets alone will
bring prosperity and justice to workers. However, the right never explains how
the unrestrained forces of the market can ever match consumer production (i.e.,
aggregate supply) with consumption incomes (i.e., aggregate demand), where
ownership of advanced labor-displacing technology is owned by a tiny fraction of
the world's consumers, and old capital "breeds" (i.e., finances) new capital in
ways that create few if any new owners. A systemic mismatch is inevitable,
together with social conflicts, disorder and a growing gap between the rich and
the rest of society. Bill Gates of Microsoft, with his $43 billion, and his
fellow billionaires [13] cannot possibly spend all the consumption income earned
by their productive assets.
From one side of the muddled middle come ideas to fight economic globalization
by retreating behind defensive proposals to restore mercantilism, protectionism
and economic balkanization. Others in the middle react to the dangers of
globalization with "Marshall Plan" proposals to pump billions in new foreign
money each year into transforming economies They promote welfare state systems
that would ensure every worker displaced by privatization a wage packet in
return for his labor, while ignoring a worker's right to own and share profits
from new and denationalized enterprises.
And from the academic left, clinging to the cobwebs of socialism, come proposals
to rectify imbalances from maldistribution of capital ownership, generally by
fighting the immutable laws of supply and demand in favor of new forms of
collectivism and redistributive taxation. This would ensure systemic dependency
by putting all citizens on the dole, regardless of their efforts or the demands
of justice. And it would concentrate economic power and leave even fewer checks
than under capitalism.
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Beyond the Wage System
Higher wages are not the focus of the Just Third Way. The Just Third Way is a
systematic approach, balancing the demands of participative and distributive
justice by lifting institutional barriers that have historically separated
owners from non-owners. [14] This involves removing the roadblocks preventing
people from participating fully in the economic process as both workers and
owners. Then more people can then begin earning higher incomes from their own
capital, as well as from their labor.
The emphasis of the Just Third Way is not on redistribution of income. Its focus
is on providing people with social means and a legal system that will encourage
them to create their own new wealth and share in profits broadly and equitably.
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The Transformation of Human Work
In striving to "make every worker an owner," the Just Third Way recognizes that
by nature every person is a worker. Under the wage system framework, the concept
of "work" has been stripped of much of its dignity, consigned only to that
portion of human endeavor dealing with "making a living." In its larger context,
however, work involves physical, mental, entrepreneurial and spiritual forms of
human activity, from manual labor to meditation.
Within the paradigm of the Just Third Way, the highest form of work is not
economic labor, but unpaid "leisure work"–the work of building a civilization,
work that no machine can perform. Throughout history, creative work has mainly
been engaged in by individuals with independent incomes, those who were
supported by a patron or by someone else's labor. The Just Third Way provides a
means whereby more people can engage in "leisure work" and be supported by an
independent capital income produced by their own "technology slaves."
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The Homestead Act: A Historical Precedent
In the 1860s, Abraham Lincoln's Homestead Act turned thousands of people into
owners of frontier land, the single most valuable productive asset at the time,
by giving them the opportunity to earn ownership of one hundred and sixty acres.
The land itself wasn't given away. Each homesteader had to develop the land and
work it for five years. He was then granted title.
Since ever-improving technology accounts for most of the newly produced wealth
in the today's world, limiting everyone to ownership opportunities in the land
and natural resources would merely result in a growing population dividing up a
static amount of wealth into ever smaller pieces, ensuring poverty for
themselves and their descendants. There are, however, social technologies that
can be used to democratize individual ownership of a type of wealth–new tools of
production being added to the world's expanding technological frontier–that has
no limits save human creativity and ingenuity.
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One New Social Tool: The Employee Stock Ownership Plan
One modern financial technology to enable the acquisition of companies by their
employees is known as the Employee Stock Ownership Plan (ESOP). The ESOP has
been enacted into over twenty US laws and is being increasingly used in the
United States, the United Kingdom and a growing number of other countries. What
makes it different from other ways for workers to purchase ownership shares is
that the ESOP is a credit democratization vehicle designed specifically to
attract capital credit to enable many workers with little or no assets to gain
significant ownership opportunities, and to pay for their shares from corporate
profits, not reduced take-home income.
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The Capital Homestead Program:
A National Plan for Growth through Economic Democracy
The ESOP was designed by Kelso for workers in the corporate sector as a first
step toward a capital homesteading plan for all citizens. For America's domestic
and foreign economic policies to work for the greatest number of people, such
policies have to build a universal political constituency for free enterprise
growth. A Capital Homestead Program [15] promotes such a broadened constituency
by applying principles of justice at both the macro- and micro-economic levels.
Components of a national Capital Homesteading plan are interdependent,
supporting the total program like the legs of a tripod:
Conforming national monetary policy to supply-side economic goals,
Simplifying the national tax system, and
Linking tax and monetary reforms to the goal of expanded capital ownership.
Reforming national monetary policy to conform to supply-side economic goals.
Central banks were invented to create money. Speaking somewhat flippantly, the
economist Paul Samuelson calls central banks "legal counterfeiters." They can
create good money linked to productive growth or bad money with no asset
backing. Only the latter is inflationary.
Through Capital Homesteading reforms economic growth would be freed from the
slavery of past savings (old money), while creating a domestic source of new
interest-free money and expanded bank credit to finance new capital repayable
out of "future savings." [16] A two-tiered interest policy by the central bank
would sharply distinguish between productive and non-productive uses of credit.
Under the first tier future increase in the money supply would be linked to
actual growth of the economy's productive assets, creating new owners of new
capital through widespread access to low-cost capital credit repayable with
future profits. Thus, the central bank would create (i.e., "monetize")
interest-free credit. Lenders would add their normal markup as service fees
above the cost of money, establishing an unsubsidized minimal rate for financing
technological growth. This would provide the public with a currency backed by
increasingly more efficient instruments of production.
The second tier would allow substantially higher interest rates for
non-productive purposes, for which "past savings" would remain available. The
central bank would be restrained from future monetization of national deficits
or encouraging other forms of non-productive uses of credit, causing upper-tier
credit to seek out already accumulated savings at market rates.
Through capital credit insurance Capital Homesteading would also provide a
rational way to deal with risk, as well as an additional check on the quality of
loans being supported by the central bank. Capital Homesteading would promote
private sector insurance and reinsurance pools to offset the risk that the
enterprises issuing new shares on credit might fail to repay the loans. Such
capital credit default insurance would substitute for "collateral" demanded by
most lenders to cover the risk of non-payment, thus enabling the poor and others
with few assets to overcome the collateralization barrier that excludes poor
people from access to productive credit.
Simplification of the national tax system.
A just tax system would encourage accelerated rates of sustainable and
life-enhancing growth in wealth-producing assets, enable all citizens to become
economically self-sufficient in the process through growing "Capital Homestead"
accumulations, and tax every citizen's consumption incomes above poverty levels
at a rate sufficient to balance the government's budget. Each citizen could
establish from the time of birth a tax-deferred Capital Homestead Account (CHA)
to provide him or her a dividend income for supplementing income from other
sources and to provide for his or her retirement. The tax system would also
eliminate the traditional double taxation of corporate profits in ways that
would maximize greater savings and investments in new plant and equipment, and
would remove other features that discourage ownership. Such a simplified tax
system would also force political candidates at all levels of government to
compete on which of them could provide the best government at the lowest cost.
Taxes on property and capital improvements would be discouraged as impediments
to development. Inheritance, gift and wealth taxes would be redesigned to spread
broadly ownership of large aggregates of existing wealth, rather than passing
monopolistic accumulations of wealth and economic power from one generation to
the next. [17]
Linking tax and monetary reforms to the goal of expanded capital ownership.
Once Capital Homesteading is elevated as a major objective of national economic
policy, monetary and tax policy makers and all public sector economic
institutions would be encouraged to upgrade their programs to maximize ownership
opportunities for all citizens. [18]
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Immediate Applications for Fighting Global Terrorism.
Oil Shares for Iraqi Citizens: One Cost-Free Application of the Just Third Way
[19]
America, its coalition allies and the UN should support denationalization of the
oil fields of Iraq to serve as a catalyst for building a "Just Third Way"
economy independent of foreign capital or international development assistance.
First, the Iraqi National Oil Company would be converted into a professionally
managed joint stock corporation. A single non-transferable, lifetime share in
the enterprise controlling all the country's oil resources would be issued at no
cost to every oil worker and Iraqi citizen -- uniting Shiites, Sunnis, Kurds and
other Iraqis in one fell swoop -- and guarantee each of them first-class
shareholder rights to the profits and voting control of the company. A new share
in the oil company would be issued for each newborn Iraqi and former citizen
returning from exile. A dividend tax could be withheld from oil dividends to
cover the costs of government at all levels.
Growth of the economy would also be financed through new asset-backed money and
interest-free credit created by the central banks and allocated equally to
citizens through personal accounts established at local banks to enable them to
acquire newly issued shares in new or expanding companies. These citizen shares
would be insured against default and would be structured to be repaid wholly
with future dividends. To lay the foundations for Iraq's future economy,
projects to be owned by Iraqi citizens should be launched using advanced U.S.
technologies that produce power and water from sea water and waste. Future
government revenues would then come from increased citizen incomes, making the
state dependent on the will and consent of the people and reducing the potential
of corruption from a non-accountable political or military or political elite,
or by foreign oil interests.
One cautionary note: Experience shows that expanding access to property rights
to former propertyless citizens needs leaders who teach, empower, and empower
others. and structures and processes for diffusing economic power and ownership.
One such leadership philosophy is called "Justice-Based Management," [20] which
systematically builds internal ownership cultures necessary to educate all
co-owners and managers to the new social contract and philosophy of leadership.
The Abraham Federation: A Just Third Way Solution to the Israeli-Palestinian
Conflict [21]
The initial rush to recognize a "Palestinian State" by the US State Department
and many European leaders, though well-intentioned, is unlikely to achieve a
lasting peace through justice for Palestinians, Israelis and other persons
living in the disputed territories. Who wants to be a non-Jew in a "Jewish
state," a non-Muslim in an "Islamic state," a non-Christian in a "Christian
state" ? or, for that matter, a Jew in a "Palestinian state"? What is needed now
is a much bolder vision to stop terrorism and bring all parties into a new
framework – beyond the exclusionary two-state formula – to begin negotiating
beyond zero-sum politics.
Over perhaps a decade of peace and reconciliation, justice-oriented Israelis and
Palestinian leaders, supported by an international police force, could establish
a new model nation-state based on a radically new "inclusionary" process of
nation building, where economic justice would become the basis of social and
political justice in the daily lives of each citizen. It would offer a modern
fulfillment of the biblical concept of "Jubilee" [22] , but instead of
redistributing land, a finite resource, the new nation would redistribute future
opportunities for every citizen to become an owner of land and whatever can be
built upon the land.
Under an "economic bill of rights" every citizen would gain equal access to
future ownership opportunities, guaranteeing a level playing field in citizen
participation as property owners in future economic growth and profit sharing.
By decentralizing access to economic power and economic independence through
Capital Homesteading policies and a federation central bank, citizens would
control government, not vice versa. Everyone's faith, spiritual life and
political beliefs would then be respected and guaranteed by the rule of law.
National "sovereignty" would be built from the ground-up, based on securing the
inherent sovereignty of every individual and the sanctity of the family unit.
With "ownership-sharing" economics surpassing politics in the daily lives of its
citizens, economic power would be widely diffused and the power of the state
would be subordinated to the power of the people. [23]
http://www.ahl-alquran.com/English/show_article.php?main_id=2739
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