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Economic Analysis by Keith Rankin.

Public Equity

[caption id="attachment_1450" align="alignleft" width="150"]Keith Rankin. Keith Rankin.[/caption]

In a series of recent articles, a book-chapter, and a presentation to the New Zealand Fabian Society, I have discussed how, practically, a Universal Basic Income – as a core component of a conceptual reform of income taxes – can be implemented in New Zealand, and can open the door to reveal a future that does not require there to be poverty in the midst of plenty.

I suggest a move away from the name Universal Basic Income; a name that I adopted in 1991 through the following construct: “a universal tax credit available to every adult – the universal basic income (UBI) – and a moderately high flat tax rate” (from my The Universal Welfare State; incorporating proposals for a Universal Basic Income, most easily accessed here).

In the present debate, Universal Basic Income has come to too many to mean a rigid and politically unsaleable something‑for‑nothing proposal, funded implicitly through levels of taxation much higher than New Zealanders are familiar with. The name for the universal payment that I now advocate – noting that language is very important – is Public Equity Dividend (PED). A PED is an unconditional payment from public revenue that may be small or large, and that is seen as a complement to rather than as a substitute for other forms of social assistance. A ‘public equity dividend’ represents a distribution from a capitalist fund that reflects public property rights, somewhat analogous to distributions from private equity funds.

The central concept that can take us forward is that of ‘public equity’; a concept of public income that finds common ground between the philosophies of the liberal capitalist right and the liberal egalitarian left. The presumption is that the public is an equity partner to market production. As such, public equity offers a new way to clearly demark the division between publicly‑sourced and privately‑sourced incomes, and can facilitate the regrowth of a genuinely liberal economic order. Public equity can become a way of distributing some income equally, enabling gains from past and future productivity increases to be available to all, and making it easier for people to make more sustainable and less pressured life choices.

We note that the historical sources of productivity gains are essentially public (eg the application of public knowledge and other public domain resources to productive processes). The PED, more than ever, needs to be understood as a productivity dividend, which adjusts sufficiently to ensure that productivity gains do not become causes of increased inequality or exploitation.

The underlying concepts are not usefully injected into the party-political environment of a general election campaign, where sound-bites, bumper stickers and pledge-cards reign. Rather the ideas presented here, which are essentially apolitical – all political parties represented in the New Zealand parliament advocate liberal capitalism – may be incorporated into public finance reform in New Zealand from as soon as 2018, regardless of who becomes government after the 2017 election.

Distributional Challenges of Liberal Capitalism

Reforms informed by the concept of public equity are essential if liberal capitalist societies are to meet the distributional challenges of rising economic productivity. Such societies require adequate – indeed more than adequate – spending capacity on the part of the ordinary (especially middle‑decile) people who constitute the markets for the ‘wage goods’ whose production is the hallmark of liberal capitalism. If the system cannot distribute income to those for whom these goods and services are designated, then the whole capitalist edifice eventually fails; such failure is delayed only by a spiralling indebtedness that compensates to some extent – and only temporarily – for present failures of income distribution.

In the process of meeting the distributional challenges that can sustain liberal capitalism, ordinary people are able to make labour supply choices – work‑leisure trade‑offs – that cannot be made when systemically‑inadequate wages and consumer debt are their sources of purchasing power. Maintaining a more elastic labour supply – with people working shorter hours in normal times – is the key to the sustainability of the natural environment as well as the sustainability of capitalism itself.

Income security in high productivity societies is neither unaffordable nor a luxury. Rather, income security extends the core liberal capitalist concept of ‘consumer sovereignty’ to sovereignty over household time as well as over consumer choices. A mature liberal capitalist society that acknowledges and values public equity has a mechanism to recycle income to all its equity‑holder households in such a way that they can make genuine choices about spending and sustainable living. Their governments could easily adjust the core fiscal parameters (especially the income tax rate and the size of the ‘public equity dividend’) to ensure that nobody is left behind, and that nobody is forced to enter into exploitative labour contracts or degrading self‑employment in the informal economy.

Public Equity Dividends are our best means to keep in circulation the money that represents our disposable incomes, and that atrophies when concentrated in private hoards. Public Equity Dividends represent capitalism’s option of economic freedom; of a happy liberal future. Capitalism begets other illiberal futures if we do not have the imagination, or if we are too cynical, to acknowledge and enforce our public property rights.

Public Equity and Social Assistance

Please refer to my longer essay Public Equity and Social Assistance (PDF) for a practical step‑by‑step guide to integrated tax-benefit reform in New Zealand, based on liberal equity principles.




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