I AM THE STATE

For Every Child, a Stake in America: Why not some version of stakeholding here in the United States, as Prime Minister Tony Blair has done in Britain? This country could certainly use it. (RAY BOSHARA and MICHAEL SHERRADEN, 7/23/03, NY Times)

Each British baby born after last Sept. 1 will receive a trust fund worth at least $400, and up to $800 for the poorest one-third of children. The government will make smaller supplementary payments when the child turns 5, 11 and 16 years old--and relatives or friends can contribute limited amounts tax-free over the years. Add to this the magic of compound interest, and the account could be worth $7,000 when it matures on the child's 18th birthday. In large part, the idea is to help the 16 million Britons--out of 60 million--who have no savings or equity at all to join the middle class.

Mr. Blair's initiative is the latest example of a concept that political scientists call "stakeholding." In postwar Japan, land was redistributed to millions of farmers, laying the foundation for the country's economic renaissance. Singapore has achieved one of the highest rates of savings and home ownership in the world largely because of laws requiring workers to put a portion of their earnings (and making employers contribute a matching amount) into a trust called the Central Provident Fund. And in the United States, a quarter of adults today can trace their family legacy of asset ownership to the Homestead Act that, beginning under Abraham Lincoln, awarded land in the American West to those pioneers with the courage to settle it.

Why not, then, some version of stakeholding here in the United States, a Homestead Act for the 21st century? [...]

Here's how such a system might work in the United States. Each of the four million babies born every year would receive a deposit in an American stakeholder account. Initial deposits could range from, say, $1,000 to $6,000. Yes, it would be difficult to free up this money in a time of deficits, but as a long-term investment it would be money well spent.

This is an excellent idea, but should be expanded upon in the ways we talked about earlier this week and should be more explicitly a stake in one's own share of the nation. Start the account out with a far larger contribution from the federal government--say $10k--and then require that it be increased by $2k a year--with contributions coming from parents, parents' employers, other family, or, where necessary, the government--with the account to be used as essentially a Medical Savings Account only, until age 18. [$8k for a family of four, plus whatever catastrophic insurance coverage would cost, is less than the average we spend now.] The great advantages of such a plan are that the individual would be empowered, would become a consumer in the medical field again--with a vested interest in both staying healthy and seeking the most cost effective treatments--and that health care costs would be far easier for employers to anticipate.

At 18 you could allow people to borrow from or against the account for college, and when they went to buy a house you'd do likewise, provided they maintain some significant base amount in the account. Once they join the workforce, require further contributions to a separate account to pay for unemployment when it occurs, and another account for retirement (to which the remaining money in the unemployment account would be added on retirement). At death, any money remaining in any accounts could be transferred to the accounts of anyone stipulated by the individual.

A range of very conservative investment options would be available for the MSA and unemployment accounts, at least until significant bases built up. Retirement accounts would allow more aggressive investments declining to minimial risk over the course of a lifetime. All contributions up to the required level would be pre-tax, but with no limits on after tax contributions.

Through this system people would effectively become responsible for their own social welfare net. Posted by Orrin Judd at July 23, 2003 10:16 AM