GIVE THEM SOMETHING TO CONSERVE:

Defining an Ownership Society (David Boaz, Cato)

People have known for a long time that individuals take better care of things they own. Aristotle wrote, "What belongs in common to the most people is accorded the least care: they take thought for their own things above all, and less about things common, or only so much as falls to each individually." And we all observe that homeowners take better care of their houses than renters do. That’s not because renters are bad people; it’s just that you’re more attentive to details when you stand to profit from your house’s rising value or to suffer if it deteriorates.

Just as homeownership creates responsible homeowners, widespread ownership of other assets creates responsible citizens. People who are owners feel more dignity, more pride, and more confidence. They have a stronger stake, not just in their own property, but in their community and their society. Geoff Mulgan, a top aide to British prime minister Tony Blair, explains, “The left always tended to underestimate the importance of ownership, and how hard it is for a democracy that does not have widespread ownership of assets to be truly democratic. …To escape from poverty you need assets—assets which you can put to work. There is a good deal of historical evidence…as well as abundant contemporary evidence, that ownership tends to encourage self-esteem and healthy habits of behaviour, such as acting more for the long term, or taking education more seriously."

Former prime minister Margaret Thatcher had that goal in mind when she set out to privatize Great Britain’s public housing. Her administration sold 1.5 million housing units to their occupants, transforming 1.5 million British families from tenants in public housing to proud homeowners. She thought the housing would be better maintained, but more importantly she thought that homeowners would become more responsible citizens and see themselves as having a real stake in the future and in the quality of life in their communities. And yes, she thought that homeowners would be more likely to vote for lower taxes and less regulation—policies that would tend to improve the country’s economic performance—and thus for the Conservative Party, or for Labour Party candidates only when they renounced their traditional socialism.

Margaret Thatcher saw that private ownership allows people to profit from improving their property by building on it or otherwise making it more valuable. People can also profit by improving themselves, of course, through education and the development of good habits, as long as they are allowed to reap the profits that come from such improvement. There's not much point in improving your skills, for instance, if regulations will keep you from entering your chosen occupation or high taxes will take most of your higher income.

The United States today has the most widespread property ownership in history. This year an all-time high of 68.6 percent of American households own their own homes. Even more significantly, increasing numbers of Americans are becoming capitalists—people who own a share of productive businesses through stocks or mutual funds. About half of American households qualify as stockholding in some form. That's up from 32 percent in 1989 and only 19 percent in 1983, a remarkable change in just 20 years. That means almost half of Americans directly benefited from the enormous market appreciation between 1982 and 2000 and are prepared to see their wealth increase again when the current stock market slump ends.

But it also means that about half of Americans are not benefiting as owners from the growth of the American economy (though of course they still benefit as wage-earners and consumers). In general, those are the Americans below the average income. The best thing we could do to create an ownership society in America is to give more Americans an opportunity to invest in stocks, bonds, and mutual funds so that they too can become capitalists. And the way to do that is obvious.

Right now, every working American is required to send the government 12.4 percent of his or her income (up to about $88,000) via payroll taxes. That’s $4,960 on a salary of $40,000 a year. But that money is not invested in real assets, and it doesn’t belong to the wage-earner who paid it. It goes into the Social Security system, where it’s used to pay benefits to current retirees. If we want to make every working American an investor—an owner of real assets, with control of his own retirement funds and a stake in the growth of the American economy—then we should let workers put their Social Security taxes into private retirement accounts, like IRAs or 401(k)s. Then, instead of hoping someday to receive a meager retirement income from a Social Security system that is headed for bankruptcy, American workers would own their own assets in accounts that couldn’t be reduced by Congress. [...]

Other reforms that could enhance the ownership society include school choice—which would give parents the power to choose the schools their children attend—and wider use of Health Savings Accounts, which transfer control over health care decisions from employers, insurance companies, and HMO gatekeepers to individual patients.

Two down, one to go.

Posted by Orrin Judd at March 5, 2005 1:00 PM