Central Thesis: The Evolution of an Ownership Society

I share relevant evolutionary science to explain world history leading to today’s state and to support my thesis: an Ownership Society represents an evolutionarily stable socio-economic strategy (“ESS”) and is the next mutation of democratic capitalism to complement representative democracy as a proven political ESS.  The achievable goals: reduce income inequality, strengthen freedom, and solve the fiscal crisis all at once.  An Evolutionarily Stable Strategy is a documented strategy type, which if adopted by a population of players in a given environment, cannot be invaded by an alternative strategy that is initially rare to the environment (WikiPedia).

We know our genes own and survive us.  The fundamental purpose of any life form is to propagate to the next generation, live well, and compete as necessary to do so.  Every gene is embedded into a double helix DNA strand for protection.  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 personal property.  Further, life forms construct, own, and defend some physical living structure (nest, den, pride rock, or home) to protect the family and owned property.  The living actions of ownership (eg constructing a home, acquiring assets) is the lifeblood of natural selection.

Humans, like cells, will cooperate in enlightened self-interest perhaps for different objectives to strengthen their fitness.  To note, humans have formed nations with various forms of government and military financed with collective taxation out of self-interest to protect and defend individual freedom and property rights against threats, foreign or domestic.  Self-interested nations who seek peace, freedom, and prosperity have organized international governing bodies (eg NATO, United Nations) empowered with rights and military resources when necessary to defend their interests against competitive threats.  In short, all life form is genetically programmed to own and defend our personal property and other assets we acquire through work as a key success factor to our evolutionary fitness.

We first learned of natural rights including individual freedom from European Enlightenment philosophers like John Locke, Edmund Burke, Jean-Jacques Rousseau, Immanuel Kant, and Adam Smith among others  in England, Scotland, and France.  Their writings 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 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.  A seminal book on evolutionary science is (The Selfish Gene, Richard Dawkins), a leading English biologist of our time.

In the late 20th and early 21st Century, evolutionary science has evolved into ‘evolutionary dynamics; which uses sophisticated mathematical models to simulate behavioral actions based on different controllable stimuli.  Professor Martin Nowak at Harvard University runs the leading Program for Evolutionary Dynamics which runs these models.  The Harvard team has demonstrated 5 key rules(and mathematical formulae) for human cooperation that I believe apply directly to win-win public policy making in an Ownership Society.

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.

We all recognize these forms of cooperation in daily life.

If we as a people seek to be truly free, we must cooperate to 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 all people can fully exercise these two natural rights, they will be most productive, broadly generate the most taxable wealth, reduce income inequality, strengthen freedom while reducing dependence on government, and ensure limited, yet reliably financed government best able to protect these rights.

The principle of evolutionary fitness means all life forms will act strictly in enlightened self-interest to strengthen their ability to procreate and propagate to next generation.  This means exploiting peers and available resources as necessary to achieve this goal.  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 colonists supported the monarchy provided they 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.  Remember: ‘No taxation without representation!’.  After the War of Independence, the new Americans created a 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 these 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.  Since 1800, 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 with limited natural resources.  Capital forms and organizes 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, 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 unions to guarantee ongoing capital-labor balance. Government created massive bureaucracies to fund these centralized benefits which required significant new taxation on work and investment.  These ‘remedy’ politics of labor exacting economic remedy from capitalist exploitation 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.  As we all know, 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, the financial resources disappear and the program eventually fails its core promise to provide a secure retirement.  The increased taxation required to fully fund the benefit would destroy job and wealth creation as capital would invest and move jobs elsewhere.

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 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 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 free, highly productive, 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 will generate the highest taxable wealth/capita available to fund a democratic government to protect everyone’s rights and common law.

World history 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 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 the labor opportunity it controls, 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, while government tax revenue/GDP and tax revenue/total paid by the top 20% are at all time high too.  What is wrong?  Two things: 1) the vast majority of productive workers do not own enough of their labor and 2) rising health care costs have enriched insurance companies rather than worker 401(k) retirement programs or pay checks.  The result?  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 of the late 1960s.  The top 20% has become relatively wealthier because they save, invest, and own more of their labor (eg own stock or have generous profit-sharing packages at work).

Solving Rising Income Inequality through Ownership in bottom 80%

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.   My core thesis is an Ownership Society is man’s next evolutionary mutation of free market capitalism and represents an evolutionarily stable socio-economic strategy to complement Representative Democracy as a political ESS.  The Ownership Society is built on preserving man’s right to exercise free choice in all aspects of life and own the fruits of our labor, both with limited government intervention required to protect and defend the people and our common laws.

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 focused historically on near-term remedy politics to right capital wrongs.  I believe the solution requires that fiscal policy 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.

The good news is we already have several highly successful micro Ownership Societies around America today including Silicon Valley, Seattle, Austin, Nashville, Dallas, Boston, and San Diego among others.  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 regard to 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 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 generate sufficient wealth to retire free from government dependence.  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) at age 62.

Now if the same 22-year old worker also saves and invests $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 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 for an enduring evolutionarily stable socio-economic strategy.

We must demand our government create a set of win-win policy solutions that rewards cooperation and returns to the people our rights to free choice and ownership.  I will propose solutions for work, home, health care, education, retirement, immigration, rejuvenation for incarcerated people, personal 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 any free nation’s manifest destiny.

Thanks so much for coming on board!

Proposed Solutions hot links:

Work; Home; Education; Retirement; Health Care; Immigration; Rejuvenation & Relationships