I have seen some conversation begin around the proposal for an American Sovereign Wealth Fund published by the People’s Policy Project, called “The big idea that could make democratic socialism a reality” by Vox and lauded by The Economist, and I want to provide some useful commentary on the plan in light of the dearth of critical analysis it has received. This attempts to be an exhaustive review of the proposal specifically, leaving out wider questions of the Universal Basic Income, delving too deeply into the pressing issue of the “shareholder economy,” or defining what socialism is.
I also recommend that everyone also read the great first substantive response to the piece by Frank Little and published by the Boston Political Education Editorial Committee, and the questioning of the financial dimension of the dividend by Habeas Quaestus.
Pitched as a form of 21st century socialism, the American Solidarity Fund, a sovereign wealth fund for the United States, is a long term project proposed by the People’s Policy Institute to redefine and reorient the socialist movement to, in their view, take control of capital. To them this project is “the definition of socialism,” as it focuses on ownership and deviates from more traditional social democratic methods. The PPP see the proposal as democratic socialism reaching a “wonky” perspective and made more practical than any alternative. That is an ambitious goal, but ultimately the PPP cut corners on their definition of socialism and try to find the same easy answers that many social democratic movements found when they compromised on class struggle and commitments to internationalism. Because of this, socialists cannot take this proposal seriously and if it gains steam, it is essential for us to critique it vocally.
We need to take a closer look at the underlying politics and reality of what the men who made this report are proposing. This is actually the second time Matt Bruenig, the author, has suggested this. He is more succinct, in fact, in his New York Times article (every detail of the plan quoted is accurate to the report as well).
“The federal government would create and run a new investment fund, and issue every adult citizen one share of ownership. The fund would gradually come to own a substantial and diverse portfolio of stocks, bonds and real estate. The investment return that the fund generates would be paid out to each citizen in the form of a universal basic dividend…”
The goal of the policy is that, “over time… the social wealth fund [comes] to own one-third of the country’s wealth…” Clarifying what is being suggested: the federal government would “simply” gain control of 30 trillion dollars (if Bruenig doesn’t include corporate wealth in his calculations and using the present, much lower, estimate) without interruption, resistance, or serious economic upheaval. If we are successful in taking control of as much wealth as the one percent has, we would be able to fund a basic income of about “$6,400 paid to all adults” with no reinvestment in the fund. Reading the report, it is clear that this is meant to take decades.
The most frequently offered up examples of such a fund are Norway and Alaska. The Norwegian wealth fund has contributed to a lot of misconceptions about the country of Norway, where even though the government only owns two thirds of their state oil company, the company makes up the majority of the country’s state ownership and the fund the majority of its state assets. That is how the PPP is able to claim that Norway has peacefully gained control of their “means of production,” and is supposedly the socialist model for the DSA. This glosses over a few key facts, such as how only ten percent of Norway’s workforce works for the government or state firms, and how most of the principal of the Norwegian Fund came directly from the Statoil company which actually operates in over 30 countries, to the frustration of many. The report also doesn’t look too closely at Norway Pension Fund-Global itself or its smaller domestic sister fund, which is quite clear in its company documents about its overarching philosophy: “The Highest Possible Returns Over Time.” And in one recent Nordic Nanovector shareholder vote they voted against an employee compensation plan that would include stock options, saying that “Folketrygdfondet therefore considers that the scheme has an excessive scope and may entail an excessive transfer of value from the shareholders to the company’s employees.” The Norwegian Fund is also so uncontroversial because it primarily invests its money outside the country, drawing off its ownership of over 1% of all stocks on earth. All in a country of 6 million people. Alaska’s program is so popular that the state actually cannot raise the votes necessary to access any part of the fund to fund the actual state government, public schools and other services to cover the state’s approaching shortfall as its treasury reserves dwindle to just enough to cover the next year. The Republican Party, which originally created the fund to prevent the state government from spending oil revenues on services, has actually come to the defense of the fund by proposing the state’s first income tax in a very small flat tax on wages, and only after years of spending cuts. The fund is the main point of contention in the states upcoming election. Alaska is called the most equal state, buoyed by the fact that the owners of large oil firms live outside the state, using a national poverty metric that isn’t adjusted for Alaska’s twice as high cost of living, and omitting both its highest unemployment rate in the nation and the problems facing native Alaskans. Notably the fund also limited its payouts in 2008 as the fund ballooned in size as the price of oil skyrocketed, and the payment amount was cut in half in 2016 to deal with the state deficit. Alaska is just over twice the population of the city of Stockton (739,795 vs 310,496), which is launching a basic income experiment through venture capital to drum up investment from Silicon Valley. Also not stated in the plan’s explanation of the viability of wealth funds is that while Norway has the world’s largest sovereign wealth fund, the next biggest SWFs are Abu Dhabi, China Investment Corporation, Kuwait, and Saudi Arabia (where the crown prince is working it into his economic plan for the country).
Bruenig’s plan is animated by one primary ideological concept, “capital income.” To him, capital income is like a UBI for the rich, a comparison he has made before. It is money they didn’t earn that they receive as it is generated from their large piles of saved cash. It is almost as though they can print their own money. This is reduced to just the bare numbers of economic inequality, something that has a lack of distinctly socialist analysis. His video introduction to capital income operates in this framework, it mentions the amount of capital income but omits where it actually comes from, the most important factor in socialist analyses of capital.
The reality is that capital income does not just appear, it is not an apolitical source of cash that springs from the ground. Capital income is value produced by workers, bolstered by the destruction of the earth, and includes the revenue extracted parasitically in rents, interest, and debts. Bruenig has said publicly that Jeff Bezos does not work for the money he has from his amazon stock, that it’s just “capital income” like a personal UBI. But he does “work” for it; with most of his wealth in Amazon shares and stock options, he actively makes workers create his wealth by pushing inhumane labor discipline, takes it by subverting laws and competition, and by squeezing every dollar he can out of workers, sellers, and communities. This money has to be considered in that context, there is no other way to consider it as a socialist. And essential to understand is that “capital income” is produced by all workers. The SWF plan promises to give “every citizen over the age of 17” one share in the fund. This rightly stands out to socialists reading the PPP plan as omitting non-citizens such as residents and undocumented immigrants, who would have second class status even as their exploitation is increasing as we speak. Even less of a concern to this plan are the workers the world over whose labor and suffering make it into the stock, bond, and equity returns on the assets that this fund would trade, just as with Norway. In addition to the fund’s ownership of internationally traded companies, large American companies alone own assets and run operations and production all over the world and through this, along with other core aspects of the world economic order that would be fundamental to the plan’s growth, those extracted profits would simply move into the balance sheet of the wealth fund. With the addition of the fund explicitly buying real estate, bonds, and public debts across the world, this cannot be construed as anything but imperialism. In fact, it is a core part of what imperialism is and has been for the last forty years. And now it would be intensified and partly nationalized while being labeled “democratic socialism.” If the plan reaches its intended “proportional” size to Norway’s fund, we would see 51% of all assets on earth owned by 5% of the world’s population.
We have to consider the prison of “shareholder logic.” The plan explicitly wants to achieve a high return to fund its UBI. This undermines its appeal to “activist investment.” Vox reports that “Bruenig envisions the fund as, like Norway’s pension fund or CalPERS in California,” as an activist fund that is actually independent of close democratic control. CalPERS in particular is a good example because the fund’s “activism” has included consistent support for corporate mergers because of the shareholder kickbacks and participation in what “activist investment” usually means in the finance world, shareholders disciplining companies to extract as much as possible for the highest possible return, as Doug Henwood’s (who has argued against SWFs in the past) Wall Street explains clearly. Norway has promised token divestments, at risk of being rescinded, and the PPP holds that up in defense. And these divestments are very narrow, excluding the production of nuclear weapons and cluster bombs, but happy to invest in any other form of arms trading and reinstating companies into the fund after their transactions are finished. It is fundamentally misguided to think that we can simply shun the worst clothing company, the worst oil company, the worst mining magnate, as though that that is the kind of change or power that socialists fight and die for.
One notable exception from the SWF report is a fairly substantial state asset that consistently generates a high return to the state, student loans. Its omission suggests that the PPP understood that some forms of “capital investment” are parasitic and suck blood and sweat out of working people or that painting the fund as a creditor too explicitly could undermine its appeal. But the report precludes almost no investments, recommending investment in “domestic and international equities and bonds,” “real estate,” “stocks,” and renting or “selling [state assets and lands] and using the revenues to purchase more promising investments like stocks and bonds.” The fund is actually to be given all existing assets of the US government, stated explicitly on page 37. Bruenig’s plan is to have the fund initially invest in “easy to manage listed securities like domestic and international equities and bonds.” Anyone who follows public debt will see the problem here. Greek debt is currently held by the French and German states and that has not prevented their countries from extorting and crucifying Greece. Countless communities and countries across the world may be “safe investments” but those investments are fundamentally a parasitic relationship with financial instruments. The report suggests returns of 5% or even 11% on SWF investments, and if a locality goes bankrupt the fund will be the first creditor to be protected, ahead of public pensions and small bond holders, as happened with Detroit or Puerto Rico. The Norwegian Fund has performed poorly this year because of geopolitical uncertainty and stock market volatility; if the US was pushed towards war in the Middle East twice over the price of oil, what would it be willing to do to protect the Sovereign Wealth Fund? “Capital income” must be created for the plan to work, and it will be have the full force of the United States behind its procurement.
Existing shareholders will in fact love this plan, starting with how it obtains stock by taxing companies and buying it on the the market with printed money. But while Elizabeth Warren’s accountability bill is rightly criticized as just a social democratic or progressive band aid modeled on the German corporatist model, it also receives so much ire because it has no way of enforcing its promise to make the economy about stakeholders (communities, workers, the environment, etc) rather than just shareholders who are extracting every ounce they can from companies, workers, etc. Brunieg’s plan amounts to going even further in the other direction, creating one enormous powerful shareholder and centering the new welfare state on its ability to extract that value from workers and stakeholders. It could likely in its purchases begin to inflate the stock market even more and trap us in a situation where we have to protect that bubble. Investors and companies could even take advantage of that fact to manipulate the state because now the stock market would matter. Similar events have happened before.
In terms of control over capitalist firms, the plan is light on details. The first stage is that the fund would be operated like the Fed, with the treasury department appointing its board at various points over the years but the institution itself having a large degree of autonomy beyond general changes to its mandate by the Treasury department. The second stage is its participation in “shareholder democracy,” which is not the same as normal democracy, let alone workers control, and their efforts are often thwarted by byzantine bylaws and other barriers to interference. Early on the fund would, according to the plan, outsource its management “until it matures,” which seems like a large vulnerability would clearly hinder any progressive intent he wants it have in the initial phases. And when it comes to actually exercising control at all, it is unclear exactly what the strategy of the fund should be. Does the fund want to invest in bad actors or companies that we want to liquidate like fossil fuel firms in order to have some control over them? Or does it want to divest and forgo that control and let another entity invest? Divestments from this fund would quickly lose their symbolic value and as is currently happening in Norway over oil divestment, the allure of high returns would begin to chip away at even superficial activist investing.
The plan also has a number of eyebrow raising tenets, such as eliminating the mortgage interest tax deduction, removing tax exempt status from pension and IRA contributions (the plan explicitly states that seniors should not get dividend but that it will be difficult politically to exclude them), taxes on corporate mergers (suggesting that the plan will not try to prevent them), omitting a wealth tax, and not including children in the beneficiaries of the program. It’s unclear how in many respects this plan is fundamentally different than many plans to privatize social security. President Bush’s plan was to allow individuals to divert money, equal amounts for each person, from their social security payments into protected private accounts that would be invested in stocks, bonds, and mutual funds. This was because Wall Street was enraged at the fact that the Social Security Fund cannot invest in the stock market, only US treasury bonds. Also Bruenig argues that the plan will take advantage of the Fed’s system of buying bonds and assets to lower interest rates, making it unclear what the fund’s relationship to the Fed will be, and he doesn’t explain what will replace the Fed’s policies to raise interest rates that usually involve selling assets back.
The SWF plan has this kind of Silicon Valley attitude, titled almost like a Ted Talk, with headlines like “The big idea that could make democratic socialism a reality,” and “A Simple Fix for Our Massive Inequality Problem.” There’s even a mockup of what the SWF app will look like that “looks like the sites run by Vanguard or Fidelity where citizen-owners can log on and see their single share of ownership.” Norway’s fund is invested with Elon Musk and will likely remain invested even if Tesla goes private. Its use of a UBI is likewise a favorite of the tech industry.
Another similarity to tech companies has been the author’s hostility to criticism, in particular from Mike Konczal. Bruenig ridicules his critic for saying that his fund prevents welfare and public spending by insisting that everything be “pre funded” into the SWF and paid for out of the capital gains. However, the reality is that his proposals specifically claims many of the main new taxes or spending methods that the left would want to use to pay for social programs. It is clearly crowding out revenue for current spending (as well as accepting financial assets instead of money) and every dollar spent on anything else isn’t being reinvested to obtain year on year capital gains. And on top of that the plan is very clear that the SWF will not be used to fund any public spending, not even a child benefit, only the basic income dividend. Matt has elsewhere told a commentator that they were one of the only people who realized his dividend formula would put a large amount of money into compounding investment, which increases the prefunding (and austerity) incentive tremendously. His second response is seriously worrisome. He accuses Konczal of “sleight of hand” because he says that the fund will empower shareholders and the shareholder centered economy. Bruenig suggests that because the plan slowly moves share ownership from the “millionaire class” to the fund that his critics are lying. But in reality the SWF would be a minority share owner in the economy for decades and decades and so during that time it would absolutely be empowering shareholders. And even if that could be put aside, Bruenig seems to refuse to engage with the basic premise that the shareholder in a firm (as well as financial assets and real estate) does not have the same incentives or objectives as every other stakeholder, especially the workers whose labor value has to be taken from them. Socialism is about workers, full stop. Konczal suggests that the fund will tie workers to their own exploitation and be disruptive in class struggle, as with the German economic model where unions hold down wages and maintain stability. For Bruenig this is the point, as he says that there will be no capital labor conflict and, like a cooperative, “it does not make sense for workers to strike or fight for wages.” But this is a dangerous assumption because, from Marxists to anarchists, socialists understand that worker control is not the same as public ownership. Workers can and have always fought their struggle against state owned firms from the Miner’s Strike to workers in the eastern bloc, not to mention against firms owned by foreign states. Rather than ultimately ending the class struggle, the SWF’s thirst for a consistent high return creates a universal capitalist. For a moderate progressive plan, it brings back criticisms of the Soviet and Chinese system and their grinding of workers, destruction of the environment, insistence that current pain would pay off big returns in the future, and the need to maintain strategically good relations for resources. Far from “the definition of socialism,” that has more to do with the kind of massive financial capitalism and state capitalism that figures like Lenin warned against.
The PPP has not responded to much of the criticism of the plan so far. Emma Caterine has written a piece focusing on the UBI aspect of the plan and the potential for existing power relationships, especially in finance, to merely take advantage of the dividend system (I won’t comment on that here but I am currently working on a journal piece on the UBI’s incompatibility with socialism and its severely flawed underlying ideology). Bruenig dropped in, one guesses having not read the piece and seen her mention his rebuttals multiple times, and said something very interesting.
Under SWF, the state owns all the creditors, and so the returns of the creditors flow back into the dividends.
This illustrates two things. The first is how defenses of the plan seem to move around quite a bit in time, from the initial phases when the fund owns a small percentage of companies along with international bonds to decades later when the fund owns all of the banks in the United States, or even all creditors period. But the second is the actual substance of what Brunieg’s comments would entail. If you are defending the fund in the very long term, when it would own all the banks (assuming it refrains from divesting over their distateful, exploitative, and criminal behavior as Norway’s fund does), you would expect the argument to be that banks would not be intent on garnishing the wages of workers, or being parasitic at all. Micheal Roberts is one of many voices calling for public control of the banks and his argument includes that they would become a public service institution for allocating capital and serving the public with basic financial services (and that this would be very much a smaller transitional measure). But Bruenig doesn’t argue that, he doesn’t argue that the banks will be fundamentally different even if his plan worked. Workers will evidently contribute to the fund’s drive for high returns first through their labor, then again though rents, a third time through debt and fees, then potentially a fourth time as the fund takes the role of banks in extracting value through public debts. Receiving a few thousand dollars a year from the fund’s app thirty years later does not make up for this. Anyone considering the SWF seriously should consider what it means if ownership and function seem to have so little of a relationship to each other. Bruneig’s “socialism” appears to be primarily a financial phenomenon, where the bare numbers of economic inequality are the measure, and collection of the flow of abstracted “capital income” is the only goal. Nothing more.
And all of this has avoided the glaring question of how to deal with the political resistance to this plan that is sold as a “tool to chip away at private ownership without provoking an immediate, unwinnable confrontation.” The biggest hurdle is that any right wing administration could sell off the program’s assets, which would be made easier by any recession and the argument that selling the assets will obtain money for other programs. They could also simply exchange domestic assets for foreign ones and open new frontiers in imperialism and neocolonialism. The fund is a decades long project, and if it is democratic that it would be vulnerable for that entire time. Government bailouts of major firms did not lead to anything greater even when the state obtained a majority stake, and the political backlash was harsh. A program whose public face is not workers control or state investment of jobs into communities but rather just a check and an app is not immune from political attack as it seemingly gives more and more assets to the US Government. In fact to many it would be a hostile employer, a shareholder or bond holder draining their community dry, a landlord, the target of countless strikes. The fund could also open itself up to scandals through accusations that it profits off of the monetary powers and other powers it is given in the plan, engages in insider trading off of government or fed policy, if it sells stocks predicting a recession and appears to be causing one, if it refuses to/allows firms to fail unpopularly, or if it is manipulated by market actors for their own benefit. Companies and banks themselves could attempt to move overseas or relist their headquarters to avoid forced sales of stock, the state would be unable to begin taking stock of existing foreign firms operating in the United States through script taxes (if that is even desirable), and they could manipulate its system to sell bad assets to the state.
Socialism as a movement sits at a crossroads right now, coming to terms with its identity and what socialism means in the 21st century. The debates and conversations that defined the old left and new left have been set aside, but the questions they raised are as relevant as ever and cannot simply be decided by self-described socialist pundits. That is the context in which the Sovereign Wealth Fund plan has such a reductive allure, seeming to fit bare distributional definitions of socialism and slowly shift the labels of ownership in the economy. But the reality is that the plan is simply incompatible with socialism’s core message of building a society in the image of and under the control of the working class and thus breaking the straitjacket of capital. That is why debating and refuting this plan is so important, as it not only redirects resources and focus from Socialism, it fundamentally redefines what it is and passively indicts broad sections of the left who dare to aim for building a new system, instead compromising Socialism’s basic vision and integrity as has happened countless times in the past. It also points out a burning need to incorporate more voices among the socialist movement — beyond contributors like Jacobin, left policy wonks, and big names in the DSA. From the “Revolutionary Socialists” who have kept socialism alive in its darkest days to workers organizations themselves, we must be able to openly discuss the future of socialism without a fear of being too bold or drifting from the label of “Democratic” Socialism.