President Bush says he wants America to be an “ownership society.” What does that mean?
People have known for a long time that individuals take better care of things they own. Aristotle wrote, “What belongs in common to the most people is accorded the least care: they take thought for their own things above all, and less about things common, or only so much as falls to each individually.” And we all observe that homeowners take better care of their houses than renters do. That’s not because renters are bad people; it’s just that you’re more attentive to details when you stand to profit from your house’s rising value or to suffer if it deteriorates.
Just as homeownership creates responsible homeowners, widespread ownership of other assets creates responsible citizens. People who are owners feel more dignity, more pride, and more confidence. They have a stronger stake, not just in their own property, but in their community and their society. Maintaining dignity and confidence is no doubt difficult for those with few economic choices. Geoff Mulgan, a top aide to British prime minister Tony Blair, explains, “To escape from poverty you need assets—assets which you can put to work. There is a good deal of historical evidence…as well as abundant contemporary evidence, that ownership tends to encourage self-esteem and healthy habits of behaviour, such as acting more for the long term, or taking education more seriously.”
Former prime minister Margaret Thatcher had that goal in mind when she set out to privatize Great Britain’s public housing. Her administration sold 1.5 million housing units to their occupants, transforming 1.5 million British families from tenants in public housing to proud homeowners. She thought the housing would be better maintained, but more importantly she thought that homeowners would become more responsible citizens and see themselves as having a real stake in the future and in the quality of life in their communities. And yes, she thought that homeowners would be more likely to vote for lower taxes and less regulation—policies that would tend to improve the country’s economic performance—and thus for the Conservative Party, or for Labour Party candidates only when they renounced their traditional socialism.
Margaret Thatcher saw that private ownership allows people to profit from improving their property by building on it or otherwise making it more valuable. People can also profit by improving themselves, of course, through education and the development of good habits, as long as they are allowed to reap the profits that come from such improvement. There’s not much point in improving your skills, for instance, if regulations will keep you from entering your chosen occupation or high taxes will take most of your higher income.
The United States today has the most widespread property ownership in history. This year an all-time high of 68.6 percent of American households own their own homes. Even more significantly, increasing numbers of Americans are becoming capitalists—people who own a share of productive businesses through stocks or mutual funds. About half of American households qualify as stockholding in some form. That’s up from 32 percent in 1989 and only 19 percent in 1983, a remarkable change in just 20 years. That means almost half of Americans directly benefited from the enormous market appreciation between 1982 and 2000 and are prepared to see their wealth increase again when the current stock market slump ends.
But it also means that about half of Americans are not benefiting as owners from the growth of the American economy (though of course they still benefit as wage-earners and consumers). In general, those are the Americans below the average income. The best thing we could do to create an ownership society in America is to give more Americans an opportunity to invest in stocks, bonds, and mutual funds so that they too can become capitalists. And the way to do that is obvious.
Right now, every working American is required to send the government 12.4 percent of his or her income (up to $87,900) via payroll taxes. That’s $4,960 on a salary of $40,000 a year. But that money is not invested in real assets, and it doesn’t belong to the wage-earner who paid it. It goes into the Social Security system, where it’s used to pay benefits to current retirees. If we want to make every working American an investor—an owner of real assets, with control of his own retirement funds and a stake in the growth of the American economy—then we should let workers put their Social Security taxes into private retirement accounts, like IRAs or 401(k)s. Then, instead of hoping someday to receive a meager retirement income from a Social Security system that is headed for bankruptcy, American workers would own their own assets in accounts that couldn’t be reduced by Congress.
President Bush has talked about such a reform since his first campaign, and his President’s Commission to Strengthen Social Security proposed three ways to achieve this goal. If he chooses to make Social Security reform part of his reelection campaign, then we may see congressional action in 2005. Sen. John F. Kerry has pledged never to “privatize Social Security.” He should be asked why he thinks working-class Americans should not be allowed to invest their savings in stocks and bonds, as his family has done so successfully.
Other reforms that could enhance the ownership society include school choice—which would give parents the power to choose the schools their children attend—and wider use of Health Savings Accounts, which transfer control over health care decisions from employers, insurance companies, and HMO gatekeepers to individual patients.
Advancing an ownership society can also improve environmental quality. People take care of things they own, and they’re more likely to waste or damage things that are owned by no one in particular. That’s why timber companies don’t cut all the trees on their land and instead plant new trees to replace the ones they do cut down. They may be moved by a concern for the environment, but the future income from the property is also a powerful incentive. In the socialist countries of Eastern Europe, where the government controlled all property, there was no real owner to worry about the future value of property; consequently, pollution and environmental destruction were far worse than in the West. Vacláv Klaus, prime minister of the Czech Republic, said in 1995, “The worst environmental damage occurs in countries without private property, markets, or prices.”
Another benefit of private property ownership, not so clearly economic, is that it diffuses power. When the government owns all property, individuals have little protection from the whims of politicians. The institution of private property gives many individuals a place to call their own, a place where they are safe from depredation by others and by the state. That aspect of private property is captured in the axiom, “A man’s home is his castle.” Private property is essential for privacy and for freedom of the press. Try to imagine “freedom of the press” in a country where the government owns all the presses and all the paper.
The many benefits of an ownership society are not always intuitively obvious. The famous Harvard economist John Kenneth Galbraith wrote a bestselling book in 1958 called The Affluent Society, in which he discussed the phenomenon of “private opulence and public squalor”—that is, a society in which privately owned resources were generally clean, efficient, well-maintained, and improving in quality while public spaces were dirty, overcrowded, and unsafe—and concluded, oddly enough, that we ought to move more resources into the public sector. Thousands of college students were assigned to read The Affluent Society, and Galbraith’s ideas played a major role in the vast expansion of government during the 1960s and 1970s.
But Galbraith and American politicians missed the real point of his observation. The more logical answer is that if privately owned resources are better maintained, then we should seek to expand private ownership.
Widespread ownership of capital assets has many benefits for society: It means that property is better maintained and long-term values are higher, including environmental quality. It means that people have a greater stake in their community and thus become better citizens. It protects people from the arbitrary power of government and gives them more freedom and more confidence as citizens. It produces prosperity because markets can’t work without private property. Private retirement accounts and reduced taxes on investment would encourage more ownership for all Americans.
