Distributing Our Technological Inheritance
Fourteenth Annual E. F. Schumacher Lectures
October 1994, Yale University
Edited by Hildegarde Hannum
Copyright © 1999 by the E. F. Schumacher Society (now New Economics Institute) and Gar Alperovitz
by Gar Alperovitz
The following essay, which appeared in Technology Review (October 1994), is published here, with minor changes, in place of the lecture delivered at the Fourteenth Annual E. F. Schumacher Lectures in October 1994. We acknowledge the kind permission of Technology Review to reprint this essay.
A variety of experiments are now beginning to explore the notion that all citizens should share in the benefits of a common and prodigious technological legacy. A critical issue is how we understand and build upon these benefits—both morally and practically.
"Many times a day," wrote Albert Einstein, "I realize how much my outer and inner life is built upon the labors of my fellow-men, both living and dead." This genius of an earlier era saw clearly how contemporary knowledge and technological advance depend to an extraordinary degree on the efforts of many contributors, not to mention a continuing cultural investment in science and numerous other areas of human endeavor. In fact, very little of what we as a society produce today can be said to derive from the work, risk, and imagination of citizens now living. Achievements from earlier eras, including fundamental ideas such as literacy, movable type, simple arithmetic, and algebra, have become so integrated into our daily lives that we take them for granted. What we accomplish stands atop a Gibraltar of technological inheritance. Seemingly contemporary transformations inevitably build on knowledge accumulated over generations.
Richard DuBoff, an economic historian at Bryn DuBoff College, observes that "synthesizing organic chemicals . . . could not have been done without an understanding of chemical transformations and the arrangement of atoms in a molecule. After 1880 this led to the production of coal tar and its derivatives for pharmaceuticals, dyestuffs, explosives, solvents, fuels, and fertilizers, and later petrochemicals. . . . By the early 1900s the new chemicals were already becoming an essential input for metallurgy, petroleum, textiles, and paper."
Present-day entrepreneurs such as Bill Gates—one of the world's richest individuals, with a personal fortune estimated at $8 billion and hailed as a technological genius for inventing software for the personal computer—should therefore be seen as beneficiaries of this long and fruitful history as well as of significant public investment.
The personal computer itself, without which Gates's software would not be possible, owes its development to sustained federal funding during World War II and the Cold War. "Most of [the] ‘great ideas in computer design’ were first explored with considerable government support," according to historian Kenneth Flamm in a Brookings Institution study. Now a specialist in technology policy in the Department of Defense, Flamm estimates that eighteen of the twenty-five most significant advances in computer technology between 1950 and 1962 were funded by the federal government and that in most of these cases the government was the first buyer of new technology. For example, in 1951 Remington Rand Corp. delivered UNIVAC, the original full-fledged U.S. computer, under contract to the U.S. Census Bureau.
The government's shouldering of huge development costs and risks paved the way for the growth of Digital Equipment Corp., which created its powerful PDP line of 1960s computers. In turn, Gates's colleague (and now fellow billionaire) Paul Allen created a simulated PDP-10 chip that allowed Gates to apply the programming abilities of a mainframe to a small, homemade computer. Gates used this power to make his most important technical contribution: rewriting the BASIC language, itself funded by the National Science Foundation, to run Altair, the first consumer-scaled computer. And indeed, Micro Instrumentation and Telemetry Systems, Altair's developer, could never have placed a microcomputer of any variety on the market without the long preceding period of technological incubation.
Thousands of links in a chain of development—our shared inheritance—were in fact required before Bill Gates could add his contribution. But if this is so, why do we not reflect more fully on why Gates, or any other wealthy entrepreneur, should personally benefit to such a degree? If we admit that what any one person, group, generation, or even nation contributes in one moment of time is minuscule compared with all that the past bequeaths like a gift from a rich uncle, we are forced to question the basic principles by which we distribute our technological inheritance.
Plainly put, the way we allocate the benefits of present and past economic activity that stem from this technological inheritance is irrational and unjust. The top one-fifth of U.S. society receives approximately 50 percent of all income, including interest, rent, and dividends. The bottom one-fifth—roughly 52 million people—makes do on less than 4 percent of such income. Even more striking, a mere 1 percent of U.S. families at the top reap as much income as the entire bottom 40 percent. The top 1 percent also holds more of the nation's wealth in the form of stocks, bonds, and real estate than the bottom 90 percent—some 232 million people.
Some of this disparity stems from the fact that anyone who happens to be lucky enough to work in an industry experiencing technological advance may be highly rewarded simply by virtue of being in the right place at the right time—as were many ordinary workers during Silicon Valley's boom years. Yet employees in industries suffering from severe international competition, such as auto manufacturing, lost their jobs during the same period despite their hard work, risk taking, and personal merit. Such disparities are even more striking when comparing residents of rich countries with those of poor ones: machine operators may be paid $17.85 an hour in the United States but just $2.70 to run the same equipment in Mexico, for example.
Our technological legacy is distributed unequally also because it is largely bestowed on the heirs of the privileged few. Though economists differ on precisely how much current income derives from inherited wealth, Harvard economist Lawrence Summers, now Undersecretary of the Treasury, has estimated, along with Laurence Kotlikoff of Boston University, that at least 46 percent of today's accumulated wealth is directly inherited—that is, goes to recipients because they were lucky enough to have been born into the right family rather than because of their own hard work or risk.
This system is largely self-perpetuating: people with access to money and the power that comes with it are in a position to obtain more. The fortunes amassed by the industrialists of one era beget generations of family wealth. Besides inheriting this wealth, children of the rich are able to go to the best schools and turn connections into high-paying jobs and further lucrative investments. A recent estimate by economist Edward N. Wolff of New York University suggests that over 70 percent of the growth in personal wealth since 1962 has resulted from initial holdings that have simply appreciated in value.
Democracy and Economic Power
Given that all current monetary gains depend so significantly on a free gift from the past, how might we allocate those gains more fairly? For one thing, inheritance taxes could be substantially increased. Andrew Carnegie, founder of Carnegie Steel and one of the nineteenth century's greatest "captains of industry," believed that accumulated resources should go to the community as a whole rather than largely to the progeny of rich individuals. "Men who continue hoarding great sums all their lives, the proper use of which for public ends would work good to the community, should be made to feel that the community . . . cannot . . . be deprived of its proper share," Carnegie wrote in 1889. "By taxing estates heavily at death the state marks its condemnation of, or at least its imposition of time limits on, such selfishness." The contradiction between democracy and inheritance so bothered James B. Conant, former president of Harvard University, that he proposed we confiscate all property "once a generation" to "prevent the growth of a caste system."
James Meade, a Nobel-Prize-winning economist now retired from Cambridge University, has suggested a system in which "every gift or legacy received by any one individual would be recorded in a register against his name for tax purposes. He would then be taxed . . . according to the size of the total amount which he had received over the whole of his life by way of gift or inheritance."
Yet we clearly confront a far deeper problem than inheritance of individual wealth and property. If we agree that today's technological progress is akin to a pebble resting on a mountain of previous achievements, then a substantial portion of society's current income should go as a matter of equal right to each individual—apart from the amount he or she earns from current work or risk—or to the entire community.
Public ownership of patents and copyrights after an individual's or company's control has expired might be one mechanism for accomplishing this. Rather than simply allowing whoever is best situated to take advantage of such knowledge for free, the national treasury would accrue licensing revenues on the principle that the invention resulted largely from general knowledge created over time by the whole society. The government could distribute such revenues equally among all citizens or use the funds to support public institutions such as schools. Education would be an especially appropriate outlet, given that businesses rely on schools to produce skilled citizens who have absorbed society's accumulated prowess.
Louis Kelso, a prominent corporate lawyer based in San Francisco who died fairly recently, proposed another tack. Aware from experience that the rich commonly gain title to new wealth by borrowing against what they already have, he sought some mechanism for the nonrich to do the same. He reasoned that a government trust fund could function as a guarantee, as do the portfolios of old wealth that some individuals use as collateral, to allow those without capital to obtain loans for purchasing and holding stocks. The stock would be held in escrow until the government-guaranteed loans were paid off. Because he also proposed that corporations pay out all profits to stockholders, Kelso estimated that seven years of dividends would be needed to pay back the loans plus interest, at which time those previously without capital would become full stockholders and receive, as a second income, all further dividends.
In this conservative lawyer's view, both economic well-being and democracy were at stake: "Any society seriously caring about freedom must structure its economic institutions so as to widely diffuse economic power while keeping it in the hands of individual citizens," Kelso held. "Nor can freedom in an industrial democracy be long maintained unless the economic well-being of the majority is reasonably secure. Never in history has universal suffrage been built on a sound economic foundation; it is this defect, not the ordinary man's inability to cope with freedom, that accounts for the notorious fragility of democratic institutions."
Harvard law professor Roberto Mangabeira Unger proposes still another possibility: that the government establish a "rotating capital fund" to democratize the use of society's wealth. "Capital takers"—entrepreneurs and other business investors—would pay a substantial interest charge and thus establish a large flow of income back to the public, to be distributed to individuals or invested in public needs. No one would have a permanent right to the use of capital: it would be on loan from the community. Each capital fund would distribute its resources through auctions, at which capital takers could buy one another's resources, or through a rotation system, in which the fund would take a more direct role in planning the allocation of capital. Clear limits would be set on the amount any individual or group could accumulate before returning the funds to the community or transferring them to other uses.
Until recently, socialism—the notion that the state should own all property on behalf of the people—was the most common mechanism for protecting and distributing society's technological inheritance. Aside from the practical difficulties of creating a well-functioning economy based on such ownership, a central problem with this idea is that power attaches itself to wealth. As with private corporate property under capitalism, but far more intensely, concentration of wealth usually leads to excessive state power. Still, more limited forms of public control of capital may enable citizens to reap the benefits of technological advance.
Ensuring a "Social Wage"
Though the efforts are clearly very limited, some countries and communities are beginning to experiment with mechanisms for ensuring a more sound foundation for democracy by awarding citizens a "social wage" simply because they are part of the community. In 1976, for instance, voters established the Alaska Permanent Fund Corp., which calls itself "a public trust for investing in Alaska's future." Created from leasing fees paid by oil companies and other mining companies drilling on state-owned lands, the fund is designed to enable all Alaskans to reap "permanent benefits from its great oil bonanza." The trust, which collected 18 percent of the state’s oil revenues between 1977 and 1993, operates independently of the normal state budget and invests in real estate, stocks, and similar vehicles that add further value to the pool.
The Alaska Permanent Fund has awarded some 41 percent of its earnings—over $4.1 billion—directly to Alaskan citizens since 1977. In 1992 half a million residents received $916 each from a principal of over $12.3 billion, and the fund is expected to pay out more than $16 billion in dividends by 2010. A family of four that invests these dividends until the year 2005 at an 8 percent rate of return will accumulate an asset worth $67,752 in today's dollars.
Other states are finding additional ways to ensure public control of capital. North Dakota's seventy-five-year old state bank and Wisconsin’s state-owned insurance company earn money for the public treasury, for example. And many states are experimenting with entrepreneurial programs. Connecticut has established a program that provides start-up capital and grants to promising small businesses developing new products; the state receives royalty income in return. Minnesota and Wisconsin also supply venture capital to private investors. Public-employee pension funds have similarly become powerful economic actors while gaining income for state workers: Retirement Systems of Alabama, for example, earns an average of over 9 percent on its investments, which include local lumber, chemical, steel, and aircraft industries. This growing trend toward "entrepreneurial government" is demonstrating practical mechanisms for new ways of distributing the benefits of accumulated capital and our technological inheritance.
Even more interesting, and perhaps more important, are activities at the local level: cities that have in some way communitized capital ownership. David Osborne and Ted Gaebler, in Reinventing Government, have cataloged community-owned cable systems, hotels, fertilizer-manufacturing companies, towing services, real-estate development efforts, and professional sports teams from the Green Bay Packers in the National Football League to the Toledo Mud Hens in minor-league baseball. Supplementing this list are thousands of efficiently run city-owned electric utilities.
Another strategy for broadly distributing technological gains taps into increases in the value of land. Ebenezer Howard, Britain's turn-of-the-century father of modern city planning, proposed that planned communities along the lines of his famous "garden city" vision buy up cheap agricultural land, which would be "vested in trustees, who hold it in trust for the whole community, so that the entire increment of value gradually created becomes the property of the municipality." Like the private developer who builds a shopping center, the community would obtain its returns by renting property at rates appropriate to the value of the site and its supporting infrastructure. This mechanism would allow social control over local enterprises, since citizens would decide whom to lease land to and on what terms. According to Peter Hall, Professor of City and Regional Planning at the University of California at Berkeley, Howard believed "he had found a third socio-economic system superior both to pure capitalism and to socialism. Local communal ownership of land would supply abundant resources for generous public services, creating a local welfare state, directly responsible to the citizenry."
Dozens of communities—urban, small-town, and rural alike—have established land trusts based on this general principle, often using revenues to help build affordable housing. According to a recent study by the Urban Land Institute, eighty-four projects between 1982 and 1985 combined public ownership of land with economic development. In 1984, for example, the city of Santa Clara paid $88.5 million for two hundred acres owned by the Marriott Corp., which had operated a "Great America" theme park on the land. Santa Clara sold the amusement park—but not the land—to Kings’ Entertainment Corp., which agreed to pay $5.3 million a year for the next fifty years for the lease, enough to cover the initial costs of the acreage within fifteen years. Santa Clara thus took part of its future out of the hands of developers and put it into the hands of the community while making money for public use. Similarly, to maximize revenue the Washington (D.C.) Metropolitan Area Transit Authority has promoted development of office and other commercial buildings on Metro-owned real estate at seven rail stations since the mid-1970s. And the Port of San Diego, a public agency, manages the area's harbor and airport as well as other commercial development on publicly owned land.
If owning capital permits greater access to the flow of technology's benefits, then another obvious possibility is to democratize the ownership of capital directly—the goal of worker-owned enterprises. As Yale political scientist Robert Dahl puts it, "By dispersing income from ownership more broadly and by bringing executive salaries and bonuses into line [typical of the better worker-owned firms], a system of self-governing enterprises would produce a more equitable distribution of wealth and income.
Experimentation in this direction is also far more widespread than commonly recognized. The number of U.S. firms with some form of company-wide stock ownership approaches 10,000 and encompasses over ten million people—more than the membership in private-sector labor unions. United Airlines is the latest example. Some of these companies engage all employees in decision-making while others retain a traditional management structure. They range from tiny shops to large manufacturing enterprises, among them plywood firms in the Pacific Northwest, Avis Rent-a-Car and Weirton Steel.
In a similar vein 4,000 consumer-goods co-ops, 13,000 credit unions, nearly 100 cooperative banks, more than 100 cooperative insurance companies, 1,200 rural cooperative utilities, nearly 5,000 housing co-ops and 115 telecommunication and cable co-ops enable members to share in income.
Toward a New Economic System
At the federal level both Republicans and Democrats support an expensive measure that acknowledges the inequity of the U.S. economy's traditional mechanisms for allocating income. The system of earned-income tax credits (E.I.C.) provides direct cash payments to working families who do not earn a livable wage. Under legislation passed in 1993 families with two or more children making less than $27,000 would ultimately receive up to $3,370, with smaller families earning lesser amounts also receiving payments. Although as of this writing the E.I.C., like all social programs, is being scaled back, it had been projected to distribute $24.7 billion to 15 million families and 4.5 million childless workers by 1997. Along with the other proposals and experiments now on the table or underway, this tax credit does not squarely confront the irrationality of our present economic system or try to determine exactly what portion of current production stems from the free legacy our society receives from the work and ideas of previous generations versus the small amount individuals add today. Yet each initiative begins to challenge the once hallowed idea that ownership of property or current labor should confer primary title to our technological inheritance. Eventually such experiments could also challenge the principles at the heart of both traditional capitalism and traditional socialism, perhaps one day spawning a new economic system based on the notion of common inheritance.
The question before us is how those who seek a new society learn from—and build upon—steadily unfolding new experience.
Gar Alperovitz, president of the National Center for Economic Alternatives, is the author of Rebuilding America (Pantheon, 1984) and The Decision to Use the Atomic Bomb (Knopf, 1995). He is working on a book exploring economic and political systems that might succeed socialism and capitalism. Parts of this article draw on the work of research associates Thad Williamson, Dawn Nakano, and Ted Howard. Dr. Alperovitz is the Harrison Research Professor in the Department of Government and Politics at the University of Maryland, College Park.