Let’s first establish agreement on the evolutionary science that makes a ‘natural’ argument for an Ownership Society. We know our genes own and survive us. The fundamental purpose of all life form is to propagate to the next generation, live well, and compete as necessary to do so! Every single gene is embedded for protection into a double helix DNA strand. DNA is the core of every cell. Every cell has constructed a nuclear membrane wall to protect cell function. All life form has developed some protective cover or skin to protect its property. All life constructs, owns, and defends some nest, den, or home to protect the family and improve Darwinian natural selection. Humans have created nations with various forms of government and military financed with taxation out of self-interest to protect and defend individual freedom and property rights against threats, foreign or domestic. Groups of self-interested nations who seek peace, freedom, and prosperity have organized international governing bodies empowered with rights and military resources when necessary to defend their interests against competitive threats. Darwinian natural selection shows that all life form will act strictly in its own self-interest to propagate forward which may involve cooperative behavior under the certain now mathematically proven conditions. For a deep dive on evolutionary science and behavior, a seminal book is (The Selfish Gene, Richard Dawkins), a premier English evolutionary biologist of our time.
We first learned of natural rights including individual freedom from European Enlightenment philosophers in England, Scotland, and France which animated revolutionary movements against absolutist monarchies in the 18th Century in the American colonies, France, England, and eventually Latin America in the 1800s. Charles Darwin then led the evolutionary science revolution with his On the Origin of Species (1859) which provided scientific evidence for the ‘survival of the fittest natural selection’ process of evolution based strictly on genetic self-interest. In the early to mid 20th century, evolutionary science evolved further to demonstrate genetic enlightened self-interest based on kin selection called inclusive fitness theory. In this next step, life form would only cooperate with others most closely related by blood relation. Competition would rule in all other conditions. In the late 20th and early 21st Century, evolutionary science has evolved into ‘evolutionary dynamics; which uses sophisticated mathematical models to simulate all observed biological actions based on different controllable stimuli. Professor Michael Nowak at Harvard University runs the leading Program for Evolutionary Dynamics which runs these models and have demonstrated 5 key rules (and mathematical formulae) for human cooperation.
His 2012 book, SuperCooperators: Altruism, Evolution, and Why We Need Each Other To Succeed (SuperCooperators by Dr. Martin Nowak) describes the evolution of evolutionary science leading to the following rules of cooperation:
1. Kin selection (we help those closest related): B(Benefit)/C(Cost) > 1/R. R is coefficient of relatedness (eg 1/2, 1/4 related?).
2. Direct reciprocity (I scratch your back, you scratch my back), B/C >1/W. W is probability of of another round of engagement.
3. Indirect reciprocity (you help others in a community which values reputation), B/C > 1/Q. Q is probability to know the reputation of another person.
4. Spatial selection (you help those in closest physical proximity to you because of shared interests), B/C > K. K is the average number of neighbors/person.
5. Group selection (small groups with interconnected relations will cooperate more than a small number of less connected large groups). B/C > 1+N+M. N is group size. M is number of groups.
Disclosure: I am not a math major and have not tried to test these formulae to prove validity, but I immediately recognize these forms of cooperation in daily life.
In short, humans, like every life form, are genetically programmed to own and defend our physical property as a key success factor to our evolutionary fitness. Our evolutionary fitness is our relative ability as a person or any social group to procreate successfully to the next generation. In short, ownership is our genetic destiny to optimal evolutionary fitness.
Moreover, if we as a people seek to be truly free, we must construct a society, an Ownership Society, that protects and defends two core natural rights: 1) the exercise of free choice in all life’s domains and 2) the ownership of the fruits of our labor free of third party interference. If the entire population in a given nation can fully enjoy these two natural rights, they will be most productive, broadly generate the most taxable wealth, reduce income inequality, strengthen individual freedom while reducing dependence on government power, and ensure limited, but well-financed government best able to protect these two core rights.
The principle of evolutionary fitness means all life forms will act strictly in enlightened self-interest to principally compete, but also cooperate when the social conditions are right, to strengthen their procreation prospects. Over the history of man, we have seen people and nations exploit each other often ruthlessly for personal gain. Starting around 3,500 BC, ancient civilizations in Egypt and Mesopotamia had Emperors or Monarchs who ruled in divinely-inspired absolutist regimes until the 1700s. These empires colonized foreign lands and spread their religion to consolidate their wealth and power. In the American experiment, the colonists left Britain for a slightly different reason: they sought religious freedom and ostensibly political freedom from the British monarchy. The monarchy was supported provided the colonists supported Britain’s exploitative mercantile policies including high taxation and trade restrictions. With the intellectual help of the European Enlightenment philosophy stipulating that every human had inalienable natural rights to freedom of choice and property ownership granted directly from God, enlightened citizens in America and Europe fomented revolution to secure these natural rights. The people created Representative Democracy in which the people elected citizen representatives for defined terms to serve the people’s interests and preserve those two core rights. Very reluctantly, they also agreed to pay a federal tax to finance the government to uphold the Constitution and fund a small military to defend their new territories. Through fits and starts in all corners of the globe, representative democracy has evolved since 1900 to become an evolutionarily stable political strategy. Why? If the majority of people in a nation don’t believe their common interests are best served, they can re-elect people who do represent the greatest number of their common interests.
Free market capitalism was the economic offspring of revolutionary times in which, according to Scottish Economist Adam Smith, the invisible hand of enlightened self-interest would create the greatest multitude of the best outcomes among free actors in a private economy. Capitalism has clearly proven to be the best economic system to generate the highest level of human productivity and taxable income/capita among a diverse population to fund a democratic government (political ESS) to protect a nation and individual natural rights. Capital is allowed to freely organize labor to generate the highest return on investment for shareholders. The excesses of the Industrial Revolution in the late 1800s pushed labor worldwide to react and seek social and economic remedies through the democratic process. In Russia and Eastern Europe, Karl Marx devised the communist system to guarantee economic and political equality at the cost of robbing people of their most basic natural rights to free choice and private property. Unfortunately, it took three generations of an idle, unmotivated people living in increasingly depressed conditions to overthrow the ruling elite and regain their rights.
In the United States and Europe, labor sought and won long overdue political and workplace rights such as voting rights, access to public services, anti-discrimination laws in all areas of society, minimum humane workplace conditions, and equal opportunity programs. In addition to achieving these critical equal rights, labor also supported creation of collectivist social entitlement programs and workplace unionization to guarantee ongoing capital-labor balance. Government created massive bureaucracies needing significant resources to fund new centralized benefits. These remedy politics continued during the Great Depression of the 1930s when many people lost their life savings. FDR created Social Security as part of the New Deal, a pay as you go entitlement financed by one generation to pay for the elder generation. No government around the world actually saved and invested the peoples’ Social Security tax money. They have just used the money to fund current government expenses including current social security benefit. As populations age and more workers retire depending on the work and taxes of a smaller working population to pay for their government benefit, the financial resources disappear and the program eventually fails its core promise to provide a secure retirement.
After World War II, many democratic nations also embraced socialism to centrally humanize the inequities of capitalism by taxing productive workers and investors and redistributing to less productive people. America created new government entitlements such as Medicare and Medicaid. Everyone agrees a moral, legitimate society should take care of the weak, aged, and disabled people. The question is what is the most natural way to achieve the common goal that generates the highest probability of a financially secure retirement for generations to come? Is the solution command-control taxation, spending, and borrowing that is certain to fail simply based on demographic changes alone as we see in the failure of communism and socialism around the world? Or does the solution involve incentivizing individuals through the tax code to work, save, and invest over a 30+ year productive career in personally-owned and controlled health care and retirement accounts at federally-qualified financial institutions? More detail in the Retirement: Proposed Solution section.
Unfortunately, there is no evidence in the natural world of a highly productive, free and prosperous social group whose actors pay a high current tax on their productive work or investment for a promised benefit many years ahead or a near-term benefit to people living outside of their community. There is ample evidence from all corners of the globe whether the Masai tribes of East Africa (some of man’s oldest ancestors living generally outside of today’s material world), Latin American or Asian farmers, or entrepreneurs in Silicon Valley, that an Ownership Society built on 1) the exercise of free choice and 2) the ownership of the fruits of labor free of government takings will generate the highest production and taxable wealth/capita available to fund a democratic government to protect everyone’s rights and common law.
World history clearly proves that capital is always more mobile than labor and will always beat labor in this win-lose competitive cycle of mutual exploitation for near-term gain, a natural and unfortunate example of ‘survival of the fittest’ behavior. As capital beats labor over time, we have seen very dynamic industrial communities with top health care systems in the Western world decimated as capital, jobs, and income moves away probably forever. Pure capitalism therefore is not an evolutionarily stable economic strategy because rising income inequality will polarize society between haves and have-nots and those less well-off will use the democratic political process to exact remedies, which only pushes capital and therefore labor opportunity to move away.
The United States represents one of the most free market capitalist systems in the world so let’s look at wealth outcomes over the last 50 years. Income inequality continues to widen even though GDP/capita is at all time high, and government revenue/GDP and tax revenue/total paid by the rich are at all time high too. What is wrong? The vast majority of productive workers do not own enough of their labor and rising health care costs have enriched insurance companies rather than worker 401(k) retirement programs or pay checks. Inflation-adjusted US median income for the bottom 80% of American households has grown at only 33% of the rate of the top 20% since the stagnation era of the late 1960s. The top 20% has become increasingly wealthier because they save, invest, and own more of their labor (eg own stock or have generous profit-sharing packages at work).
The following Kaiser Family Foundation 2013 study shows how family insurance premium contributions have risen 7.9% for large and 8.2% on compound annual basis for small employers since 1999 and therefore eroded family savings potential. Moreover, 7.8% large employer and 7.5% small employer compound annual premium increases since 1999 have eliminated wage growth potential.
How do we break this capitalist cycle of win-lose competition and spawn a new era of capitalist cooperation? Build an Ownership Society that broadens wealth creation to all productive workers and empowers people with free choice in all areas of their lives. Let me explain the Ownership Society model as man’s evolutionarily stable socio-economic strategy below this slide.
In classic game theory like a Prisonner’s Dilemma, you have two parties who can compete or cooperate. If the payoff is greater to compete/defect first, both parties will defect. In typical Prisonner’s Dilemma, two people have committed a crime and are being interrogated separately. If they both agree to the crime, they can negotiate a plea agreement for a short prison sentence. If they both lie and are found guilty, they will serve a long prison term. If one lies on the other, the defector may go free while the other may serve some jail time. Therefore, both parties are motivated to defect/lie about the other in the hope to be free, their best potential outcome.
The same logic applies to the socio-economic history of man. Capital is indifferent to cooperate or compete with labor. Labor has long-term incentive to cooperate versus compete with capital, but has naturally focused historically on near-term remedy politics to right capital wrongs. The solution requires that government fiscal policy significantly reward capital to cooperate versus compete with labor so the capital and labor payout from cooperation is materially higher than the payout for capita-labor competition. The Work: Proposed Solution section provides more policy detail. Policy examples include tax-advantaged employee stock ownership programs (ESOP), tax-free stock sales to ESOPs, taxing employee stock options at sale date vs exercise date, tax free capital gains free in companies owned 20%+ by non-officer employees, etc. The predominant capitalist system today is the lower right quadrant on mutual exploitation, which capital will always win.
If the argument makes sense so far, you can see there are already several highly successful micro ‘Ownership Societies’ around America today including Silicon Valley, Seattle, Austin, Nashville, Boston, and San Diego. How so? Founders and capital investors, out of their enlightened economic self-interest, realized they needed to reward/cooperate with labor by providing equity ownership to attract, retain, and secure superior labor for a sufficient period of time to outcompete larger, well-capitalized incumbents and compensate for the risk of joining a start-up organization. As a result, there are many stories of cooks, secretaries, and painters who have become multi-millionaires helping build great companies changing the world! In short, that is the Ownership Society. Rewarding all productive workers without rank or station with an ownership stake in the fruits of their labor so they can enjoy compound capital appreciation over a productive working career. The solution is not to penalize productive work and risk investment, the two key elements of job and wealth creation. The solution is to reward more workers with ownership of their labor so more people become rich and free of government.
The key to wealth creation and independence from government is compound capital appreciation over a productive career. Giving workers the ability to own more stock where they work and/or save more in their 401(k) program allows workers to have their capital from work grow over their careers. In the slide below, a 22-year worker who invests $10,000 today and earns a 5.3% compound annual real return for 30 years will have 10x or $100,000 in today’s dollar terms (or $278,000 in 30 years) in 30 years at age 62.
Now if the same 22-year old worker saves $10,000/year adjusted up for inflation in the 401(k) or employee stock ownership program over 30 years, the present value is 197x or $1.975 million ($5.3 million in 30 years)! We can quickly see the power of compound capital appreciation in an Ownership Society!
My core blog thesis is an Ownership Society based on the exercise of free choice in all life’s domains and the ownership of the fruits of labor is man’s next evolutionary ‘mutation’ of democratic capitalism to establish an enduring evolutionarily stable socio-economic strategy that will reduce income inequality, strengthen personal freedom, and solve the world’s fiscal crisis from large collectivist entitlement programs that demographic changes ruin alone.
We must demand our government create a set of win-win policy solutions that rewards cooperation and returns to us our natural rights of free choice and ownership. I will propose solutions for work, home, health care, education, retirement, earned citizenship, rejuvenation for incarcerated people, physical property choice, and single sex civil unions. Ownership is the natural social organizing principle of a free society and the litmus test of real freedom. Building an Ownership Society will reduce income inequality, strengthen personal freedom, harmonize society, and secure the nation’s manifest destiny.
Thanks so much for coming on board!