Re: Ownership and Growth

[IPGmail@aol.com]

It is this question of the effect of broader ownership on growth that is one 
of the principal reasons I am engaging in this discussion.  I recognize that 
in serious discussions of broadening ownership this question has to come up, 
and I want to better understand the views of professional economists on it.

But potentially higher growth is not my reason for supporting broadened 
ownership; I would support it even if there were to be a modestly negative 
effect on growth, at least in our industrial or post-industrial societies.  
In a much poorer nation where the bulk of the citizenry is starving or near 
starving, growth is a top priority.  But here, given our general affluence, 
other considerations seem more pressing to me: economic inequality, 
individuals' control over their lives, the corruption of democracy, etc., 
each of which I believe would be positively impacted by broadened ownership.  
But if the effect on growth were to be negative, that would be a formidable 
political obstacle, so I want to understand the arguments that are likely to 
be presented.

To the best of my knowledge, the arguments of economists would most likely 
fall into the two categories I mentioned earlier.

(1) No effect because it is allocation that is important.  The details of 
specific proposals make a difference, but in general I wouldn't think that 
investments would be allocated any differently if capital were more broadly 
owned.  If the effect is neutral, growth is not an issue and arguments for 
broader ownership can rest on my other concerns.

(2) Negative effect because capital income will be consumed rather than 
reinvested.  Kelso (and Shann) argue that credit rather than savings could be 
used for investment, and I am interested in the professional economists' 
assessment of this claim.  Elsewhere I have heard worries that there are 
definite limits to this strategy, which if exceeded would cause inflation.  
Unfortunately, I'm not sure I can reconstruct this argument accurately.  
Another argument against the "negative effect" judgment would be that since 
most people in our societies have their basic needs met, their choice of 
consumption over investment would not be a necessary response to higher 
income, but would depend on the marginal utility of more consumption vs. 
investment at particular rates of return.  In other words, businesses might 
have to pay a higher rate for capital to get citizens to forego further 
consumption, but free markets would work it all out.  That seems plausible to 
me and I'd be interested in reactions from others.

Okay, but could the argument be made that broader ownership would have a 
*positive* effect on growth?  Here we want to compare giving higher incomes 
to citizens via them becoming capital owners vs. giving higher incomes via 
redistributive policies, to see if there is an effect other than a Keynesian 
boosting of aggregate demand.  From a conventional economic perspective, as 
far as I can make out, the only possible ways there would be a positive 
effect of broader ownership on growth would be (a) if the costs of carrying 
out the gov't policies were less than the alternative, or (b) or if 
worker-owners work more efficiently.  I wouldn't expect such effects to be 
significant.

This leaves Kelso's theory of binary growth.  (Unless there are other 
arguments I didn't catch or am not aware of.)  Frankly, I do not understand 
this argument at all.  Nowhere does Kelso lay the argument out, altho there 
are hints of his expectation of higher growth here and there.  Robert Ashford 
is the only one, to my knowledge, that has attempted to make the argument 
explicit.  (He worked with Kelso and I believe he is a very faithful 
transmitter of Kelso's ideas.)  But I have read and re-read Ashford's 
writings, including his recent co-authored book, and the argument for binary 
growth is simply opaque to me.  This may be due to my inadequacies in 
following the argument, but I don't think so.  I really don't think it is 
spelled out clearly enough to follow.

I am sure this assessment will be a disappointment to Keith!  My quarrel with 
binary economics is not about the issue of growth specifically, but the 
assumption that in a free market income shares will reflect relative 
"productiveness."  Many of Kelso's claims rest on this assumption: that if we 
got rid of redistributive policies income shares would be more like 10% labor 
and 90% capital (this claim has been a lightening rod for criticisms of 
binary economics), that citizens are morally entitled to become capital 
owners because they could not possibly support themselves on labor income 
alone absent redistribution, and so forth.  But I can see no reason why 
income shares would reflect productiveness.  (As I said earlier, 
productiveness is not productivity, but something like the physical work 
contributed to production.)  The productiveness of capital would affect 
demand for capital, but lots of other factors could also affect the supply 
and demand for capital or labor.  As I mentioned earlier, if I am right about 
this, a lot of Kelso's claims (but not all of them) fall apart.  Insofar as 
the claim that a binary economy would have greater growth is based on this 
assumption, it too would fall apart.  But it is hard for me to tell what 
exactly the claim of binary growth is based on, so someone else will have to 
explain this if they can.

Alan Zundel
Institute for the Public Good
http://www.publicgood.org