We’re in a season of big ambitious lefty policy proposals. Earlier this year everyone was arguing about the merits and feasibility of a jobs guarantee. Now we’ve moved on to the social wealth fund.
A social (or sovereign) wealth fund is the “next big idea” for tackling inequality, reports Rachel Cohen at the Intercept, who outlines proposals and sketches the terms of the debate. Interest in such funds is on the rise. They currently operate in Alaska, Norway and 70 other locales around the world. Hillary Clinton suggested an Alaska for America program, which nearly became a campaign plank. More recently we have a big report from Matt Bruenig of the People’s Policy Project. Writes Bruenig:
I propose that the US government tackle the problem of wealth inequality by creating a social wealth fund (swf) and issuing one share of ownership in the fund to every American. After the fund is created, the government will gradually accumulate assets for the fund to manage, such as stocks, bonds, and real estate. As the assets under management increase, the value of the shares held by the citizen-owners will increase, causing wealth inequality to fall. Although the citizen-owners will not be permitted to sell their shares, they will be paid a universal basic dividend (ubd) each year from the investment income earned by the fund.
It’s worth reading the report, as well as this critique from the Roosevelt Institute’s Mike Konczal, who doubts that the left needs a SWF to achieve its broader political objectives. Konczal worries that a SWF “is not necessary” for achieving goals of higher spending on social programs and inequality reduction; worse, it “could easily backfire and make it harder to make progress on any of these goals.”
The most direct way a SWF could backfire, argues Konczal, is that instead of providing a check on the shareholder class, a SWF could empower it. A multitrillion-dollar citizens’ fund might end up joining hedge funds and asset managers as yet another gargantuan shareholding institution pressuring corporations to shortchange workers and disgorge the cash. Konczal illustrates:
Imagine someone looking at their phone and seeing that they will get a $3,000 citizen’s dividend. Then they look at the news and see that a major strike is about to break out at a large public company. A labor representative says that workers think that owners are taking too much of the profits and workers deserve a raise. Do you think that person is more or less likely to support the strike, given we’ve worked so hard to identify their interests with owners?
The conflict above is worth highlighting, but I’m not sure about the danger of this particular situation. I can’t see many SWF recipients really caring, given the diffuse nature of diversified shareholding and the number of administrative layers that would sit between the share of company X and the dividend-receiving public. The case of public employee pensions is a good parallel. I suppose it’s possible that pension holders at CalPERS grumbled a couple years ago when workers of Verizon went on strike, sending the stock down several percentage points. It’s possible, but highly improbable.
The case of pension funds highlights another potential utility for SWFs: upholding securities law. One of the paradoxical roles played by pension funds is that of shareholder rights enforcers. According to legal scholar David Webber, public pension funds bring around 40 percent of all securities law class-action suits. These suits might concern anything from insider trading among management to failures to disclose risks to even allegations of industry-wide collusion. In his book, Webber calls pension funds the “new sheriffs on Wall Street” thanks to their recent surge in legal action.
This disproportionate interest among pensions in upholding shareholder rights is due in part to pension funds’ relative lack of conflicts of interest with the companies they hold shares in.* While a mutual fund or an investment bank may want to keep cordial with a Verizon or an Apple—perhaps they want to manage the company’s 401(k)s or advice a takeover—public pensions have no such motivation.
Would a social wealth fund be similarly motivated to police the public equity markets? Would it harbor the same intrinsic antagonism to sleazy corporate managers as pension funds do?
Even if we answer “yes” to both, these questions don’t necessarily conflict with the thrust of Konczal’s critique. Even if these kinds of activities weren’t proscribed in a U.S. SWF—the business community would assuredly push to constrain the SWF’s voting and legal options—the fact that pension funds play a key role in policing corporate misbehavior doesn’t resolve the more fundamental conflict between workers’ interests and corporate profits.
But a SWF might open up avenues to pressure companies over matters that existing regulatory structures either can’t or won’t. As Bloomberg’s Matt Levine regularly notes, “all law is securities law.” Whether it’s ExxonMobil’s decades-long climate-change misinformation campaign or News Corps’ epidemic of sexual harassment and multimillion dollar legal settlements, recourse from public authorities has taken the unusual form of securities law in a broad range of corporate misdeeds. This is because it’s illegal to mislead shareholder or keep them in the dark about material matters.
Of course, the U.S. government doesn’t need a SWF for securities regulators to enforce the law. But having a democratically operated institution as a major corporate shareholder might provide another crucial check against corporate misbehavior. Moreover, the voting power of the state in corporate board elections and shareholder resolutions provides an opportunity to steer companies toward better policies around inclusion, environmental prerogatives, and governance—as pensions have indeed done.
Again, these issues don’t resolve the labor-capital conflict Konczal highlights. But they’re worth considering.
* A certain number of pension-led shareholder suits might also reflect ambulance-chasing among securities lawyers who work with the funds.