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Boaz – The Ownership Society: Principles and Prospects

The
Ownership Society: Principles and Prospects
David Boaz

Regional
Meeting of The Philadelphia Society
October 8, 2005
Milwaukee, Wisconsin
The Pfister Hotel


At Jamestown “The
settlers did not have even a modified interest in the soil. . . . Everything
produced by them went into the store, in which they had no proprietorship.”

Within two years some
three quarters of them had died, and that became known as the “starving
time.” Then Sir Thomas Dale arrived from England, assessed the situation, and
created private property.

Another historian —
“As soon as the settlers were thrown upon their own resources, and each
freeman had acquired the right of owning property, the colonists quickly
developed what became the distinguishing characteristic of Americans ñ an
aptitude for all kinds of craftsmanship coupled with an innate genius for
experimentation and invention.”

The same thing happened
in Plymouth. According to William Bradford:

“The experience that
was had in this common course and condition, tried sundry years, and that
amongst godly and sober men, may well evince the vanity of that conceit of Plato
and other ancients, applauded by some of later times, that by taking away of
property, and bringing community into a common wealth, would make them happy and
flourishing–as if they were wiser than God. For this community (so far as it
was) was found to breed much confusion and discontent, and retard much
employment that would have been to their benefit and comfort. For young men that
were most able and fit for labor and service did repine that they should spend
their time and strength to work for other men’s wives and children without any
recompense… This was thought injustice.”

Then William Bradford
instituted private property. And as he tells the story, “Instead of famine,
now God gave them plenty.”

Virtually no one today
believes in communism and the abolition of private property. Yet lots of people
want to limit and regulate and impede private property ñ and our Supreme Court
has just given the green light to one form of assault on private property.

President Bush says he
wants America to be an “ownership society.”  
What does that mean?  An ownership society is a society of
responsibility, liberty, and prosperity.

Responsibility

We have known for a
long time that people 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.”

My colleague Tom Palmer
cites more of the historical roots of the ownership society. 

Thomas
Aquinas observed in the Summa Theologica that property “is necessary
to human life,” “First because every man is more careful to procure what is
for himself alone than that which is common to many or to all: since each would
shirk the labor and leave to another that which concerns the community, as
happens where there is a great number of servants. Secondly, because human
affairs are conducted in more orderly fashion if each man is charged with taking
care of some particular thing himself, whereas there would be confusion if
everyone had to look after any one thing indeterminately. Thirdly, because a
more peaceful state is ensured to man if each one is contented with his own.
Hence it is to be observed that quarrels arise more frequently where there is no
division of the things possessed.” In short, people take care of what is their
own.

 

Indeed,
the concept of ownership is at the very core of the idea of personal
responsibility; we insist that people “own up” to their acts, that is, that
they take responsibility for what they do. Owners have the right to benefit from
wise use of their property, and they bear the consequences of unwise management.
Not only are they more likely to care for what they own, but a system of
property requires people to treat others with respect, as well. Owners have the
right to exclude others from the use of what belongs to them, meaning that
others must seek their consent before taking action that affects their rights.
Each owner must respect the rights of others and concern himself with their
interests. Property makes people – including lawmakers – respectful of others.

 

Liberty

Liberty
and property are so intimately connected that John Locke saw society as founded
on “the mutual Preservation of their Lives, Liberties and Estates, which I
call by the general Name, Property.” In Cato’s Letters
(which greatly influenced the American Founders), John Trenchard explained,
“All Men are animated by the Passion of acquiring and defending Property,
because Property is the best Support of that Independency, so passionately
desired by all Men.” Property is a necessary condition for independence.

James
Madison directly connected property and rights, for “as a man is said to have
a right to his property, he may be equally said to have a property in his
rights.”   Indeed, the terms
“property” and “rights” are used virtually interchangeably during the
Founding period.

Without
ownership of printing presses, paper, and ink, there can be no free press.
Without ownership of land and buildings, there can be no freedom of association,
no freedom of common worship, no freedom of action generally. A free society is
of necessity an ownership society.

 

Prosperity

Ownership
makes markets possible, and markets make prosperity possible. The incentives
created by property induce people to create value, precisely because ownership
allows them to “capture” a portion of the additional value that they create.
Furthermore, ownership makes markets possible and markets make prices possible,
and prices make possible a higher degree of coordination of efforts than would
be possible under any form of central direction. Without the prices made
possible by the exchange of property rights in free markets, there are no
signals to guide entrepreneurs to the best use of scarce resources or to
coordinate the efforts of large numbers of persons and resources.

 

The
role of prices was articulated by Mises and Hayek in the great debate over the
viability of socialism, but the implications are not merely negative (namely,
that socialism won’t work); the discipline of “law and economics” has
drawn on the results of that debate to show how legal and political
institutions, by providing well defined and legally secure protection of
property, make possible the benefits of prosperity and social harmony. As Hayek
noted, coordination among people who may not share common ends is only made
possible by exchange of property.

 

Ownership
channels the efforts of millions of persons who are unknown to each other into
cooperation to produce wealth, rather than into the squabbling and conflict
characteristic of political control. Ownership – based on well defined and
legally secure property rights – is the foundation of a society of widespread
and growing prosperity. 

Not everyone
understands this, of course.   John
Kenneth Galbraith wrote a bestselling book in 1958 called The Affluent Society,
in which he discussed the phenomenon of “private opulence and public
squalor”–that is, a society in which privately owned resources were generally
clean, efficient, well-maintained, and improving in quality while public spaces
were dirty, overcrowded, and unsafe–and concluded, oddly enough, that we ought
to move more resources into the public sector. Thousands of college students
were assigned to read The Affluent Society, and Galbraith’s ideas played a
major role in the vast expansion of government during the 1960s and 1970s.

But Galbraith
and American politicians missed the real point of his observation.  
The more logical answer is that if privately owned resources are better
maintained, then we should seek to expand private ownership.  

Private owners
tend to take better care of their property because they will reap the benefits
of any increase in its value, or suffer if its value declines.  
If you let the condition of your house deteriorate, you will not be able
to sell it for as much as if you had kept it in good condition–which serves as
a strong incentive to maintain it well.   Owners
generally take better care of property than renters do; that is, they maintain
the capital value rather than in effect using up its value.  
That’s why many rental agreements require the renter to put down a
deposit, to ensure that he too will have an incentive to maintain the property
value.   Privately owned rental
apartments are much better maintained than public housing.  
The problem is that no one really owns “public” property; no
individual will lose his investment if the value of public property declines.

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.

Shoddiness is inherent in government ownership because of a lack of incentives.  
Homeowners generally take good care of their property–they paint the
house regularly, fix the roof, plant grass and trees, and call a plumber
promptly when they discover a leak.   Why?  
Because they are the sole claimants to the property’s value.  
If they try to sell their property, they will reap the benefits of the
house’s good condition or pay a price for its disrepair.  
Tenants tend to take less care of their homes, though landlords generally
check on the condition of the property regularly.  
Tenants in government housing show the least concern for the condition of
their homes–and because there’s no owner who would pay a price for the
declining value of the property, no one else has much incentive to improve it.  
And public housing is always in disrepair, to say the least.          

Most privately owned stores are clean and well lit with friendly, helpful
clerks–at least compared with, say, the post office.  
The Postal Service doesn’t seek out rude and indifferent employees;
it’s just that neither its clerks nor their supervisors have anything to gain
by treating customers well.  

You
can see the same phenomena around the world.  
On a trip to China in 1988, I found shop clerks in Shanghai just as
indifferent to customers as U.S. postal workers.

On
that same trip, I visited the South African township of Soweto.  
In many ways apartheid, and particularly South Africa’s black
townships, were the purest form of communism the world had ever seen.
  The government built the townships, where urban blacks were
forced to live.   It built thousands
of small, identical brick houses and assigned people to them with no regard to
tribal origin, family relationships, income, or personal preferences.  
Unlike the residents of a normal town, they could not choose to live near
their friends or relatives or people of similar educational or occupational
background, nor, of course, did they have property rights.  
Not only could a tenant not sell his house, the government could and did
take it away from him at will.   Naturally,
the unfortunate residents of Soweto did not see much point in taking good care
of the houses. Shortly before my trip,
however, the government had quietly begun to allow Sowetans to purchase their
homes.   The results were just what
one should expect: people began cleaning, painting, and fixing up their houses.  
Homeowners would buy a wooden door to replace the standard metal one.  
They would buy decorative windows, put a fence around the yard, and even
add a room or an upper floor.   Buyers
generally had to continue living in the houses they already occupied, which led
to the strange phenomenon of a well-kept, newly enlarged house sitting between
two ill-kept government hovels.   In
a freer market, an affluent homeowner would probably move to a better
neighborhood–or someone would buy the houses next door and fix them up–but in
Soweto he could only take advantage of the few options he had and improved his
own lot.  

There was a section of expensive
new homes in Soweto.
  (Yes, there were rich people in Soweto; in the latter days of
apartheid South African blacks had at least some opportunity to become rich, but
their money wouldn’t free them from the requirement to live in the townships.)  
A visitor could stand in the middle of this impressive new development
and look across the road at the government-provided barracks where single men
lived under truly appalling conditions.   It
was a striking example of private vs. public property.

At
the other end of the scale from the impressive new houses were the shanties,
built by blacks who migrated to the Johannesburg area because there was work
there and were denied access to government housing.  
At first the government bulldozed the shanties, saying that the occupants
were illegal squatters. More moderate voices finally persuaded the government
that because it was not providing those blacks with housing (or allowing them to
live outside the townships), it should at least leave the shanties alone.  
So the shanties were tolerated, but they had no legal right to exist.
  The residents of the shanties thus didn’t bother to improve
them–the government retained the right to expel the occupants or bulldoze the
buildings at any timeóbut inside there were appliances and televisions for
which electricity was supplied by enterprising neighbors.  
In other words, Galbraith could have found private opulence and public
squalor within one small shack; people spent their money on the things they
could own.

This
point is especially important for environmental quality.  
People take care of things they own, and they’re more likely to waste
or damage things that are owned by no one in particular.  
That’s why timber companies don’t cut all the trees on their
land and instead continually plant more trees to replace the ones cut down.  
They may be moved by a concern for the environment, but the future income
from the property is probably a more powerful incentive.  
In the socialist countries of Eastern Europe, where the government
controlled all property, there was no real owner to worry about the future value
of property; and pollution and environmental destruction were far worse than in
the West.   Vaclav Klaus, prime
minister of the Czech Republic, said in 1995, “The worst environmental damage
occurs in countries without private property, markets, or prices.”

Another benefit
of private property ownership, not so clearly economic, is that it diffuses
power.   When one entity like the
government owns all property, individuals have little protection from the will
of the government.   The institution
of private property–or several property, as it is sometimes called–gives many
individuals a place to call their own, a place where they are safe from
depredation by others and by the state.   This
aspect of private property is captured in the axiom, “A man’s home is his
castle.”   Private property is
essential for privacy and for freedom of the press.  
Try to imagine “freedom of the press” in a country where the
government owns all the presses and all the paper.

Widespread
ownership also creates responsible citizens. People who are owners feel more
responsibility and more confidence.   They
feel 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. ÖTo 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.”

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, that they
would 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 ñ policies that would tend
to improve the country’s economic performance ñ and thus for the
Conservative Party, or for Labour Party candidates only when they renounced
their traditional socialism.

To explain the
President’s “ownership society” to Liam Fox, co-chairman of the
Conservative party, Karl Rove quoted from the book, The Anatomy of
Thatcherism
: “The Thatcherite argues that being one’s own master in the
sense of owning one’s own home or disposing of one’s own property provides
an incentive to think differently about the world,” he read. “The
Thatcherite, whilst not believing that patterns of ownership absolutely
determine people’s moral attitudes, nevertheless stresses that the two are
connected, and sees in wider individual ownership a means of promoting moral
attitudes Thatcherism seeks to cultivate.”

America already
is an ownership society. The United States today has the most widespread
property ownership in history.   A
historic high of 69 percent of American households own their own homes.  
Even more significantly, increasing numbers of Americans are becoming
capitalists ñ 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 stock
market resumes its growth.

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.

Every working
American is required to set aside 12.4 percent of his or her income (up to
$90,000).   That’s $4,960 on a
salary of $40,000 a year.   But that
money goes into the Social Security system, where it’s used to pay benefits to
current retirees.   It’s not
invested in real assets, and it doesn’t belong to the wage-earner who paid it.  
If we want to make every working American an investor ñ an owner of
real assets, with control of his own retirement funds and a stake in the growth
of the American economy ñ 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.

Since Chile
began a program like this in 1980 ñ on the same day that Ronald Reagan was
elected president ñ about 25 countries have created private retirement
accounts. And about 100 million workers around the world have opted to put some
or all of their social security tax into personal accounts ñ making 100
million new owners of capital assets around the world. 

President Bush
has talked about such a reform since his first campaign, and his President’s
Commission to Strengthen Social Security proposed three ways to achieve this
goal.  He also campaigned for
reelection on personal accounts.

Sen. John F.
Kerry pledged never to allow working-class Americans to invest their savings in
stocks and bonds, as his family has done so successfully. 

Bush launched
the effort after reelection but emphasized the problem, not the opportunity ñ
made it sound like medicine. He failed to emphasize ownership, inheritability,
and choice. 

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

Let me come back
to the issue of responsibility: Hurricane Katrina.  A journalist called me
and said “Doesn’t the desperate condition of the poor in New Orleans expose
the fallacy of Bush’s ëownership society’?”  How wrong is that? I
thought.

In fact, the
suffering visible in the poorest parts of the city was a perfect example of the
failure of the “non-ownership society.” People had become trapped in
dependency, with neither financial nor moral assets to rely on.

Who were the
people who suffered most from Hurricane Katrina? The poorest residents of New
Orleans, many of them on welfare–the very people the government has lured into
decades of dependency. The welfare state has taught generations of poor people
to look to government for everything–housing, food, money. Their sense of
responsibility and self-reliance had atrophied. When government failed, they had
few resources to fall back on. 

And there are
other failures of non-ownership there as well.  Why do people build houses
below sea level, or in hurricane territory, or on fragile barrier islands? One
reason ñ subsidized insurance. It’s not their responsibility; someone
else will pay the consequences. 

And what about
those levees? Property can be owned in many ways. We mostly talk about
“private” property and think of individuals and businesses. But property can
be held by families, churches, partnerships, and other arrangements. Even
cities. Why didn’t the city of New Orleans take responsibility for its levees?
Partly because it was able to slough off its responsibility onto the federal
government ñ which had little incentive to do the job right. 

Widespread
property ownership has many benefits for society:  
It means that property is better maintained and long-term values are
higher, including environmental quality.   It
means that people have a greater stake in their community and thus become better
citizens.   It protects people from
the arbitrary power of government and gives them more freedom and more
confidence as citizens.   And it
produces prosperity, because markets can’t work without private property.  
Private retirement accounts and reduced taxes on investment would
encourage more ownership among all Americans.

Some people talk
about a “paper aristocracy.” Property in land makes sense, they say.
“Land, Katie Scarlett. Land is the only thing in the world worth workin’
for, worth fightin’ for, worth dyin’ for, because it’s the only thing that
lasts.”  This hostility to paper has its roots in a pre-capitalist time,
when “investors” were mostly just people who trafficked in government debt.

But in a modern
economy we need capital and complex financial arrangements. Indeed, it’s those
paper assets that make possible the publishing houses that publish books
deploring paper capitalism. The world we live in demands efficient allocation of
capital.

 

 

 

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