Ownership, President Bush told the Republican national convention last August, brings security, and dignity, and independence. It is an assertion few Americans would dispute -- and one that we should welcome. For it turns out that Bush's proposed policies would frustrate his stated goal.
Bush's version of an ownership society is both ideological and tactical. His political strategists believe that a society of self-consciously individual owners can wean Americans from their political support for social outlays. If people see their financial well-being as reflecting mainly their own nest eggs, they will think like investors. Political support will evaporate for Social Security, redistributive taxation, public education, and other collective enterprises that require us to think like citizens. If people own their own health plans, as the president also proposed, there will be less need for inclusive social mechanisms such as Medicare.
Bush's pollsters are convinced that as shareholders, people are more likely to vote Republican. His former chief economist, Gregory Mankiw, recently wrote, After workers develop an equity stake in corporate America, they will start watching CNBC and the Nightly Business Report. Their view of how they relate to the economy will fundamentally change. Bush understands this, and it is one reason he talks about an ownership society.'
But in reality, America's long tradition as a society of owners has been substantially the result of activist government -- making social investments, taking regulatory initiatives, and shielding individuals from economic risks beyond their personal control. Today's conservative program for an ownership society, by contrast, transfers hazards back to individuals at a time when people are already bearing increased risks. Bush has done us a favor by putting this idea in play. It invites us to devise a program for a true ownership society, built on broadened social investment. Reclaiming a proud tradition, we could broaden America's middle class by once again expanding education and homeownership, resuming the march toward secure retirement income and health care, and raising the real incomes on which a middle class depends.
In the early American republic, ownership was mainly agrarian. Government activism on behalf of broad ownership began with Thomas Jefferson, who crafted land-tenure laws to favor freeholders rather than absentee speculators. The United States, unlike Europe, could have a radically egalitarian land-distribution policy without overthrowing a feudal class because the land, conveniently appropriated from the natives, was free.
Nineteenth-century ownership initiatives included the Homestead acts and land-grant college legislation, both under President Lincoln, and the abortive efforts of the Freedmen's Bureau to give emancipated slaves their 40 acres and a mule. As an agrarian society gave way to an industrial one, government stepped forward with a diverse variety of measures to broaden what today's economists would call human capital: agricultural extension, public kindergartens and high schools, Americanization programs for (mostly poor) immigrants, and taxpayer subsidies of state colleges and universities. All these contributed to wealth broadening; all were redistributive, because in their absence most of their beneficiaries would have gone without.
The paradox is that every one of these investments used public outlays to foster what felt like self-reliance. Far from reflecting a nanny state, they promoted a sense that people were making it on their own. Yet without these early social investments, America would be far less of an ownership society today.
With the New Deal, government dramatically expanded interventions to broaden ownership and pool risks. Homeownership is the most explicit badge of membership in the middle class. The U.S. government invented the long-term, self-amortizing mortgage by agreeing to insure and purchase such mortgages; it created a secondary mortgage-market, subsidized mortgages for new homeowners, and protected Depression-ravaged farm owners from foreclosure. With the postwar GI Bill and low-interest Federal Housing Authority loans, homeownership rates exploded.
After broadly democratic landholding and promotion of homeownership, the third phase of broadened ownership involved retirement and pensions. Again, it was government that made possible the modern custom of retirement for wage and salary earners, first with Social Security, then with tax-favored and government-guaranteed private pension plans. Once more, this was all experienced as self-reliance, but it reflected substantial social design and public outlay.
Regulation helped assure ordinary people that their assets would not be looted by corrupt or incompetent financial institutions. Government was further implicated in the rising real wages that make it possible for ordinary people to aspire to ownership. The mechanisms included minimum-wage laws, unemployment compensation, the Wagner Act, and government's macroeconomic commitment to keep the economy close to full employment. Postwar college-aid grants and loans helped more Americans expand their human capital.
Since the 1980s, many of these government mechanisms, and the associated social compact, have been reversed. Government has all but ceased subsidizing housing, except for the deductibility of home mortgages. For most Americans buying their first home, rising real-estate prices are outstripping incomes. Pensions have become less secure, as 401(k) and similar plans that leave the individual carrying financial risk have replaced employer-provided and government-guaranteed pensions with defined benefits. The employment relationship itself is far less secure, as is reliable employer-provided health insurance. As regulations have weakened, the individual investor, home buyer, and pensioner need to be more on guard against financial predators. Social transfers are under assault.
It is in this context that President Bush proposed to expand ownership by, oddly, shifting even more risks to individuals and reducing social investments and regulations. As this magazine and others have documented, Social Security privatization would leave people with lower assured pensions and greater risk of impoverishment in old age. Under his plan to have people own their health insurance, Bush proposes to combine tax-favored savings accounts with high-deductible individual insurance policies. These plans, once known as catastrophic policies, would begin providing coverage only after, say, $3,000 or $4,000 in annual out-of-pocket costs. Supposedly, people would become more astute medical shoppers as they draw on the savings accounts to pay premiums and out-of-pocket expenses.
But this kind of system would be both less efficient and less equitable. Individual policies are much more costly to administer than large group policies; more of every dollar spent goes to bureaucracy, less to health care. Under a high-deductible plan, people with chronic illnesses and families with small children would quickly exhaust their savings accounts and face far greater expenses than under conventional insurance, while the healthy would be able to roll over their savings to the next year. In effect, this system would redistribute money from the sick to the well. Less affluent Americans would also lack the financial means to use the tax-favored savings accounts, and those who did use them would find that the tax benefits were worth less to them than to the rich.
Health insurance is the last place to want ownership. Mainly, Bush's approach would make people owners of more risk. Health insurance, by definition, involves cross-subsidy. The premiums of the (temporarily) well subsidize the sick. The young subsidize the old. And, to some extent, the rich subsidize the poor, who would otherwise have to forgo medical care. The Bush approach undercuts all of this, favoring the rich, the young, and the well. Far from expanding ownership, it would increase medical bankruptcies. The older term, catastrophic, is an apt name for the whole scheme.
Bush's proposed ownership society is an opportunity for liberals. First, the president offers a benchmark of his own design against which we may measure proposals, such as health savings accounts and Social Security privatization, that don't broaden ownership but merely transfer risk.
Second, Bush's emphasis on ownership ought to prompt us to remind Americans how government has actually promoted ownership of farms, homes, businesses, and pensions that helped people achieve economic security throughout American history. If we want a secure society of broader ownership, it will take the kind of initiatives that have helped build the American middle class for more than two centuries.
The big, bold programs that achieved real progress -- from the Homestead Act to Social Security to the GI Bill -- spent serious money. The right, far from proposing substantial public resources on behalf of ownership, today wants to constrict social investment, transfer risk to individuals, and hold asset development outlays to token levels. The goal of secure ownership also offers a chance to reclaim the important role of regulation. The right has consented to regulation, whether the 1933 Glass-Steagall Act or the 2002 Sarbanes-Oxley Act, only when episodes like the JP Morgan scandals of the 1920s and the Enron affair put its back to the political wall.
What of Bush's premise that a society of investors is a political community of rugged conservatives? As John B. Judis and Ruy Teixeira have demonstrated in these pages, the professional class, with its 401(k)s and its TIAA-Cref investments, is becoming both larger and more liberal. Most of America's middle class appreciates that secure retirement is built on both private savings and social insurance, as demonstrated by Bush's notable failure to move privatization. Investors also value the financial regulation that keeps them safe from future Enrons. So let's create more financial stakeholding, whether through add-on private accounts, universal portable pensions, or baby bonds. Let's challenge the right to promote ownership neither on the cheap nor at the expense of social insurance. And let's remember how government helped America become a middle-class society.
Robert Kuttner is co-editor of The American Prospect.
