Libertarianism, Liberalism

Property-Owning Democracy is Unjust

In my on-going series on Property-Owning Democracy (POD), I have explained the idea of a POD, examined the case for POD and argued that POD is unworkable. In this post, I shall argue that POD is unjust on Rawlsian grounds. I will make two arguments to this effect:

(1) The Rawlsian Arguments for POD are Weak

(2) POD Does Not Realize Rawlsian Justice

In the next post, I’ll also focus on the injustice of POD in light of John Tomasi’s important revisions to Rawls (which gives me a chance to reply to O’Neill and Williamson’s recent review of Tomasi’s Free-Market Fairness in the Boston Review). So yes, I added a post to the series. Deal with it!

In any case, let’s begin with claim (1).

I: The Rawlsian Arguments for Property-Owning Democracy Are Weak

I don’t need to say much here beyond what I discussed in my second post. There I analyzed three arguments given for POD, arguments based on Rawls’s difference principle, his fair equality of opportunity principle and the political liberty proviso of the first principle (the liberty principle) requiring institutions to guarantee the fair value of political liberties.

I reviewed O’Neill’s convincing arguments (in his contribution to Property-Owning Democracy: Rawls and Beyond) that POD’s distinguishing feature – its focus on the wide dispersion of capital amongst all citizens and workers – cannot be justified in terms of fair equality of opportunity and the political liberty proviso. O’Neill worries about the political liberty argument for POD on the grounds that effective campaign finance reform laws, progressive taxation and equal access to public services (especially to education) will go a long way towards guaranteeing the integrity of the democracy process. Maybe large concentrations of capital will threaten the process but this is far from clear given an extensive welfare state.

The argument from fair-equality of opportunity is undermined by the fact that a welfare state can go a long way towards guaranteeing fair equality of opportunity. After all, it includes social insurance, universal access to public education and a clean democratic process, so there are a great many processes that can ensure fair equality of opportunity without appealing to capital dispersion.

It is interesting that Rawls relies most on the fair equality of opportunity and political liberty arguments to vindicate property-owning democracy over welfare state capitalism, considerations he thinks demonstrate that welfare state capitalism is unjust and so not an ideal regime type. It’s clear that Rawls does not believe that difference principle based arguments alone can vindicate property-owning democracy.

Interestingly, O’Neill disagrees with Rawls on the best arguments for POD. The advantage of POD is that it ensures a more equitable distribution of wealth by dispersing capital rather than by engaging in financial redistribution, and so POD best satisfies the difference principle. It compresses inequalities in a more systematic way to reduce the probability that some will socially dominate others.

I think the reason that Rawls didn’t want to rely on the difference principle alone to vindicate POD is that the institutionalization of the difference principle depends on a wide range of empirical factors. The difference principle holds that all inequalities in the holding of primary goods should be arranged to be to the maximal benefit of the least-advantaged. But it’s far from clear even in ideal theory that a government so powerful and lumbering as a property-owning democracy will maximize the position of the least-advantaged. To vindicate POD over the welfare state, we’d need an extensive empirical argument that only property-owning democracy can maximize the position of the least-advantaged and that an extensive welfare state cannot. Rawls, O’Neill and Williamson provide no such argument.

Remember that the argument for POD has to show that POD is better than welfare-state capitalism at realizing Rawls’s principles. Otherwise we have no reason to assign the state the greater power necessary to disperse capital, as advocates of POD would have it. O’Neill has given us little more than speculation in his own work.

So I think its clear that the arguments for property-owning democracy are weak given that O’Neill himself provides good arguments that fair equality of opportunity and political liberty considerations cannot vindicate POD over welfare-state capitalism. And I think Rawls is right that the difference principle alone can’t vindicate POD over welfare-state capitalism.

Also worth noting is that in Political Liberalism, Rawls drops the difference principle as a criterion of a reasonable political conception of justice. So his argument for property-owning democracy cannot rely on the difference principle. That’s why he relies on the political liberty proviso, because it’s the only proviso that he thinks liberal democratic citizens share. So a difference principle-based case for POD cannot survive Rawls’s political turn (I’ll argue this in the final post).

II: Property-Owning Democracy Does Not Realize Rawlsian Justice

I want to strengthen my criticism: POD frustrates Rawlsian justice. Here are a few arguments to this effect.

(1) A POD state is too powerful to effectively protect basic liberties in general. Why? Our only real experience with state-wide coercive dispersion of capital to create worker cooperatives is Tito’s Yugoslavia and a handful of other non-democratic, authoritarian regimes. To my knowledge, there has never been a property-owning democracy and given the evidence provided by the 20th century, it is hard to see how giving the state that much power would be safe enough to rest easy about the protection of basic liberties generally.

Welfare states obviously do not lead us down the road to serfdom, but all liberal societies have guaranteed extensive rights of private property and property in capital ownership. They have also relied largely on redistributive mechanisms is help the least well-off. So we simply have no reason to think that a state that could basically molest capital owners as it pleases to be an effective rights protector. PODs have too much power to encroach on liberties and too many temptations to do so.

You could argue that these encroachments won’t happen at the level of ideal theory. To be sure, in ideal theory such abuses will happen less. However, in O’Neill and Williamson’s recent review of John Tomasi’s Free-Market Fairness, they constantly chide him for having empirically unrealistic views, so it seems fair to hold them to a nonideal theory standard where the state can get quite nasty.

Another natural reply is that we have no real evidence to think that a POD would violate first principle liberties. But I submit that the traditional liberal concern with the use of coercion, shared by Rawls, puts the onus of justification on POD-people. We need good reason to think that assigning the state more power, the power to disperse capital in particular, will still be able to safeguard liberty despite the fact that states with similar power have rarely done so well.

(2) PODs will arguably also fail to effectively protect political liberties. The incentive to capture a POD’s (by stipulation) incredibly powerful regulatory bodies will lead to domination by special interest groups and lobbyists. As I said in my last post, if a small capital owner has to worry about massive federal bureaucracies breaking up his business and forking his capital over to his workers, he has a strong incentive to alter policy.

What’s more, powerful state administrators will need the capacity to massively redirect human behavior, which will create severe political inequalities – bureaucrats will have awesome power to dominate and control non-bureaucrats. Again, just imagine the amount of power a bureaucrat would have to have to monitor and control the capital stock in a property-owning democracy. As soon as capital owners hit a threshold of accumulated capital, the state can swoop in and coerce them in various ways.

(3) PODs will probably not effectively provide fair and equal opportunities in the long-run. A POD state simply has little incentive to directly guarantee that everyone has access to adequate opportunities and too little information to do so even were it willing. The fact is that the POD-state will be so busy managing the economy based on impoverished information and often-incompetent administrators that we have little reason to believe it can effectively meet system-wide goals like ensuring that all people have “fair” opportunities. Of course, PODs may provide fair and equal opportunities from the functions that it shares with the welfare state, but we have reason to think that PODs will be worse than welfare-state capitalist regimes due to PODs’ constant intervention into the economy with all the confusion, regularly capture and error associated with it.

(4) Finally, PODs will arguably fail to satisfy the difference principle due to the information and incentive problems they face, as I outlined in my last post. Incentive and information problems will significantly hamper economic efficiency and economic growth and so inequalities will fail to maximize the benefit of the least-advantaged.

So it turns out there are lots of reasons to think that even on Rawlsian grounds, PODs will be unjust. So it seems fair to conclude (based on what Rawls, O’Neill and Williamson have given us) that POD is not an eligible regime type. The best interpretation of Rawls’s two principles shows that welfare state capitalist regimes are the only eligible regime types, or so it seems to me.

III: POD is Unjust On (Unmodified) Rawlsian Grounds

In this post, I argued that property-owning democracies are unjust (i) because the arguments that property-owning democracy follows from Rawls’s two principles are weak and (ii) because there is good reason to think that property-owning democracies will frustrate the realization of Rawls’s two principles.

But we can make plausible modifications to Rawls’s two principles, as John Tomasi has. If these modifications are justified, then POD is flatly unjust. I’ll discuss those modifications and O’Neill and Williamson’s criticisms of Tomasi in their review in the next post (going up in the next few days).

  • Bill Woolsey

    I think your criticisms of property owning democracy amount to an assumption that such a scheme requires 100% marginal taxation on saving after some point. Perhaps those who advocate such regimes do advocate that–I don’t know.
    I also think that the critique confuses capital as net worth (assets minus liabilities) and capital as produced means of production (machines, buildings and equipment.) This may be following this literature. I don’t know. But it would be helpful to keep those two definitions straight.
    In my opinion, a regulation requiring all firms over a certain size to share ownership with workers — provide some of their pay in shares of stock–would not have extreme consequences. There are many reasons why this isn’t in the interest of workers (largely diversification of wealth,) but to me, it seems like it would be a modest inefficiency.
    Even if all shares of stock belong to workers, they can (and almost certainly would) use debt finance. While those who save (and make bequests/inherit) “capital” in the sense of net worth, would not have a dominant role in the management of any firm, they could still have lots of wealth. And, of course, as creditors, to firms, they could have substantial influence anyway.
    This is where we end up with restricting saving. If someone earns a high income and consumes it all now, they don’t accumulate wealth of any sort (whether direct ownership of capital goods or debt instruments representing loans to those who own capital goods.) It seems to be that most of the political concerns reflect wealth and would require extra taxation of saving.
    That is, of course, inefficient. Saving and investment increases total output, and so restricting this means that there is less income to distribute, including to the least well off.
    Standard economic theory is that taxing income is inefficient because it taxes saving. The efficient approach is to tax consumption rather than saving. So, the idea of a 100% marginal tax rate on saving after some point seems a bit wrongheaded.
    Maybe someday I can explore this literature more. It seems interesting.

    • TracyW

      Requiring all firms over a certain size to share ownership with workers as in the sense of providing some of their pay in shares of stock may not have extreme consequences, but it’s not property owning democracy either, which as I understand it calls for all individuals to have access to a share of society’s productive ownership and/or wealth, not just those who happen to work in large firms.

  • TracyW

    There is also the concern that too much dispersal of capital leaves us with no one rich enough to take on the government through the courts, or to sponsor independent think tanks.

  • Murali

    I haven’t fully followed all the posts in this series, but why are we supposing that a property owning democracy will be very statist and not more like a left libertarian regime. So, freed markets with drastically fewer interventions will lead to less bossism and less inequality. I’d have expected Long et al to have chimed in by now to note that dispersion of capital need not occur through the operation of the state.

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