Distributing Our Technological Inheritance
by Gar Alperovitz
Fourteenth Annual E. F. Schumacher Lectures
October 1994, Yale University
Edited by Hildegarde Hannum
©Copyright 1999 by the E. F. Schumacher Society and Gar
Alperovitz
May be purchased in pamphlet form from the E. F. Schumacher Society,
140 Jug End Road, Great Barrington, MA 01230, (413) 528-1737,
www.smallisbeautiful.org/publications.html.
The following essay, which appeared in Technology Review
(October 1994), is published here, with minor changes, in place
of the lecture delivered at the Fourteenth Annual E. F. Schumacher
Lectures in October 1994. We acknowledge the kind permission of
Technology Review to reprint this essay.
A variety of experiments are now beginning to explore the notion
that all citizens should share in the benefits of a common and
prodigious technological legacy. A critical issue is how we understand
and build upon these benefits—both morally and practically.
"Many times a day," wrote Albert Einstein, "I realize how much
my outer and inner life is built upon the labors of my fellow-men,
both living and dead." This genius of an earlier era saw clearly
how contemporary knowledge and technological advance depend to
an extraordinary degree on the efforts of many contributors, not
to mention a continuing cultural investment in science and numerous
other areas of human endeavor. In fact, very little of what we
as a society produce today can be said to derive from the work,
risk, and imagination of citizens now living. Achievements from
earlier eras, including fundamental ideas such as literacy, movable
type, simple arithmetic, and algebra, have become so integrated
into our daily lives that we take them for granted. What we accomplish
stands atop a Gibraltar of technological inheritance. Seemingly
contemporary transformations inevitably build on knowledge accumulated
over generations.
Richard DuBoff, an economic historian at Bryn Mawr College, observes
that "synthesizing organic chemicals . . . could not have been
done without an understanding of chemical transformations and
the arrangement of atoms in a molecule. After 1880 this led to
the production of coal tar and its derivatives for pharmaceuticals,
dyestuffs, explosives, solvents, fuels, and fertilizers, and later
petrochemicals. . . . By the early 1900s the new chemicals were
already becoming an essential input for metallurgy, petroleum,
textiles, and paper."
Present-day entrepreneurs such as Bill Gates—one of
the world's richest individuals, with a personal fortune estimated
at $8 billion and hailed as a technological genius for inventing
software for the personal computer—should therefore be seen
as beneficiaries of this long and fruitful history as well as
of significant public investment.
The personal computer itself, without which Gates's software
would not be possible, owes its development to sustained federal
funding during World War II and the Cold War. "Most of [the] ‘great
ideas in computer design’ were first explored with considerable
government support," according to historian Kenneth Flamm in a
Brookings Institution study. Now a specialist in technology policy
in the Department of Defense, Flamm estimates that eighteen of
the twenty-five most significant advances in computer technology
between 1950 and 1962 were funded by the federal government and
that in most of these cases the government was the first buyer
of new technology. For example, in 1951 Remington Rand Corp. delivered
UNIVAC, the original full-fledged U.S. computer, under contract
to the U.S. Census Bureau.
The government's shouldering of huge development costs and risks
paved the way for the growth of Digital Equipment Corp., which
created its powerful PDP line of 1960s computers. In turn, Gates's
colleague (and now fellow billionaire) Paul Allen created a simulated
PDP-10 chip that allowed Gates to apply the programming abilities
of a mainframe to a small, homemade computer. Gates used this
power to make his most important technical contribution: rewriting
the BASIC language, itself funded by the National Science Foundation,
to run Altair, the first consumer-scaled computer. And indeed,
Micro Instrumentation and Telemetry Systems, Altair's developer,
could never have placed a microcomputer of any variety on the
market without the long preceding period of technological incubation.
Thousands of links in a chain of development—our shared
inheritance—were in fact required before Bill Gates could
add his contribution. But if this is so, why do we not reflect
more fully on why Gates, or any other wealthy entrepreneur, should
personally benefit to such a degree? If we admit that what any
one person, group, generation, or even nation contributes in one
moment of time is minuscule compared with all that the past bequeaths
like a gift from a rich uncle, we are forced to question the basic
principles by which we distribute our technological inheritance.
Plainly put, the way we allocate the benefits of present and
past economic activity that stem from this technological inheritance
is irrational and unjust. The top one-fifth of U.S. society
receives approximately 50 percent of all income, including interest,
rent, and dividends. The bottom one-fifth—roughly 52
million people—makes do on less than 4 percent of such income.
Even more striking, a mere 1 percent of U.S. families at the top
reap as much income as the entire bottom 40 percent. The top 1
percent also holds more of the nation's wealth in the form of
stocks, bonds, and real estate than the bottom 90 percent—some
232 million people.
Some of this disparity stems from the fact that anyone who happens
to be lucky enough to work in an industry experiencing technological
advance may be highly rewarded simply by virtue of being in the
right place at the right time—as were many ordinary workers
during Silicon Valley's boom years. Yet employees in industries
suffering from severe international competition, such as auto
manufacturing, lost their jobs during the same period despite
their hard work, risk taking, and personal merit. Such disparities
are even more striking when comparing residents of rich countries
with those of poor ones: machine operators may be paid $17.85
an hour in the United States but just $2.70 to run the same equipment
in Mexico, for example.
Our technological legacy is distributed unequally also because
it is largely bestowed on the heirs of the privileged few. Though
economists differ on precisely how much current income derives
from inherited wealth, Harvard economist Lawrence Summers, now
Undersecretary of the Treasury, has estimated, along with Laurence
Kotlikoff of Boston University, that at least 46 percent of today's
accumulated wealth is directly inherited—that is, goes to
recipients because they were lucky enough to have been born into
the right family rather than because of their own hard work or
risk.
This system is largely self-perpetuating: people with access
to money and the power that comes with it are in a position to
obtain more. The fortunes amassed by the industrialists of one
era beget generations of family wealth. Besides inheriting this
wealth, children of the rich are able to go to the best schools
and turn connections into high-paying jobs and further lucrative
investments. A recent estimate by economist Edward N. Wolff of
New York University suggests that over 70 percent of the growth
in personal wealth since 1962 has resulted from initial holdings
that have simply appreciated in value.
Democracy and Economic Power
Given that all current monetary gains depend so significantly
on a free gift from the past, how might we allocate those gains
more fairly? For one thing, inheritance taxes could be substantially
increased. Andrew Carnegie, founder of Carnegie Steel and one
of the nineteenth century's greatest "captains of industry," believed
that accumulated resources should go to the community as a whole
rather than largely to the progeny of rich individuals. "Men who
continue hoarding great sums all their lives, the proper use of
which for public ends would work good to the community, should
be made to feel that the community . . . cannot . . . be deprived
of its proper share," Carnegie wrote in 1889. "By taxing estates
heavily at death the state marks its condemnation of, or at least
its imposition of time limits on, such selfishness." The contradiction
between democracy and inheritance so bothered James B. Conant,
former president of Harvard University, that he proposed we confiscate
all property "once a generation" to "prevent the growth of a caste
system."
James Meade, a Nobel-Prize-winning economist now retired
from Cambridge University, has suggested a system in which "every
gift or legacy received by any one individual would be recorded
in a register against his name for tax purposes. He would then
be taxed . . . according to the size of the total amount which
he had received over the whole of his life by way of gift or inheritance."
Yet we clearly confront a far deeper problem than inheritance
of individual wealth and property. If we agree that today's technological
progress is akin to a pebble resting on a mountain of previous
achievements, then a substantial portion of society's current
income should go as a matter of equal right to each individual—apart
from the amount he or she earns from current work or risk—or
to the entire community.
Public ownership of patents and copyrights after an individual's
or company's control has expired might be one mechanism for accomplishing
this. Rather than simply allowing whoever is best situated to
take advantage of such knowledge for free, the national treasury
would accrue licensing revenues on the principle that the invention
resulted largely from general knowledge created over time by the
whole society. The government could distribute such revenues equally
among all citizens or use the funds to support public institutions
such as schools. Education would be an especially appropriate
outlet, given that businesses rely on schools to produce skilled
citizens who have absorbed society's accumulated prowess.
Louis Kelso, a prominent corporate lawyer based in San Francisco
who died fairly recently, proposed another tack. Aware from experience
that the rich commonly gain title to new wealth by borrowing against
what they already have, he sought some mechanism for the nonrich
to do the same. He reasoned that a government trust fund could
function as a guarantee, as do the portfolios of old wealth that
some individuals use as collateral, to allow those without capital
to obtain loans for purchasing and holding stocks. The stock would
be held in escrow until the government-guaranteed loans were
paid off. Because he also proposed that corporations pay out all
profits to stockholders, Kelso estimated that seven years of dividends
would be needed to pay back the loans plus interest, at which
time those previously without capital would become full stockholders
and receive, as a second income, all further dividends.
In this conservative lawyer's view, both economic well-being
and democracy were at stake: "Any society seriously caring about
freedom must structure its economic institutions so as to widely
diffuse economic power while keeping it in the hands of individual
citizens," Kelso held. "Nor can freedom in an industrial democracy
be long maintained unless the economic well-being of the majority
is reasonably secure. Never in history has universal suffrage
been built on a sound economic foundation; it is this defect,
not the ordinary man's inability to cope with freedom, that accounts
for the notorious fragility of democratic institutions."
Harvard law professor Roberto Mangabeira Unger proposes still
another possibility: that the government establish a "rotating
capital fund" to democratize the use of society's wealth. "Capital
takers"—entrepreneurs and other business investors—would
pay a substantial interest charge and thus establish a large flow
of income back to the public, to be distributed to individuals
or invested in public needs. No one would have a permanent right
to the use of capital: it would be on loan from the community.
Each capital fund would distribute its resources through auctions,
at which capital takers could buy one another's resources, or
through a rotation system, in which the fund would take a more
direct role in planning the allocation of capital. Clear limits
would be set on the amount any individual or group could accumulate
before returning the funds to the community or transferring them
to other uses.
Until recently, socialism—the notion that the state should
own all property on behalf of the people—was the most common
mechanism for protecting and distributing society's technological
inheritance. Aside from the practical difficulties of creating
a well-functioning economy based on such ownership, a central
problem with this idea is that power attaches itself to wealth.
As with private corporate property under capitalism, but far more
intensely, concentration of wealth usually leads to excessive
state power. Still, more limited forms of public control of capital
may enable citizens to reap the benefits of technological advance.
Ensuring a "Social Wage"
Though the efforts are clearly very limited, some countries
and communities are beginning to experiment with mechanisms for
ensuring a more sound foundation for democracy by awarding citizens
a "social wage" simply because they are part of the community.
In 1976, for instance, voters established the Alaska Permanent
Fund Corp., which calls itself "a public trust for investing in
Alaska's future." Created from leasing fees paid by oil companies
and other mining companies drilling on state-owned lands,
the fund is designed to enable all Alaskans to reap "permanent
benefits from its great oil bonanza." The trust, which collected
18 percent of the state’s oil revenues between 1977 and 1993,
operates independently of the normal state budget and invests
in real estate, stocks, and similar vehicles that add further
value to the pool.
The Alaska Permanent Fund has awarded some 41 percent of its
earnings—over $4.1 billion—directly to Alaskan citizens
since 1977. In 1992 half a million residents received $916 each
from a principal of over $12.3 billion, and the fund is expected
to pay out more than $16 billion in dividends by 2010. A family
of four that invests these dividends until the year 2005 at an
8 percent rate of return will accumulate an asset worth $67,752
in today's dollars.
Other states are finding additional ways to ensure public control
of capital. North Dakota's seventy-five-year old state
bank and Wisconsin’s state-owned insurance company earn
money for the public treasury, for example. And many states are
experimenting with entrepreneurial programs. Connecticut has established
a program that provides start-up capital and grants to promising
small businesses developing new products; the state receives royalty
income in return. Minnesota and Wisconsin also supply venture
capital to private investors. Public-employee pension funds
have similarly become powerful economic actors while gaining income
for state workers: Retirement Systems of Alabama, for example,
earns an average of over 9 percent on its investments, which include
local lumber, chemical, steel, and aircraft industries. This growing
trend toward "entrepreneurial government" is demonstrating practical
mechanisms for new ways of distributing the benefits of accumulated
capital and our technological inheritance.
Even more interesting, and perhaps more important, are activities
at the local level: cities that have in some way communitized
capital ownership. David Osborne and Ted Gaebler, in Reinventing
Government, have cataloged community-owned cable systems,
hotels, fertilizer-manufacturing companies, towing services,
real-estate development efforts, and professional sports teams
from the Green Bay Packers in the National Football League to
the Toledo Mud Hens in minor-league baseball. Supplementing
this list are thousands of efficiently run city-owned electric
utilities.
Another strategy for broadly distributing technological gains
taps into increases in the value of land. Ebenezer Howard, Britain's
turn-of-the-century father of modern city planning,
proposed that planned communities along the lines of his famous
"garden city" vision buy up cheap agricultural land, which would
be "vested in trustees, who hold it in trust for the whole community,
so that the entire increment of value gradually created becomes
the property of the municipality." Like the private developer
who builds a shopping center, the community would obtain its returns
by renting property at rates appropriate to the value of the site
and its supporting infrastructure. This mechanism would allow
social control over local enterprises, since citizens would decide
whom to lease land to and on what terms. According to Peter Hall,
Professor of City and Regional Planning at the University of California
at Berkeley, Howard believed "he had found a third socio-economic
system superior both to pure capitalism and to socialism. Local
communal ownership of land would supply abundant resources for
generous public services, creating a local welfare state, directly
responsible to the citizenry."
Dozens of communities—urban, small-town, and rural alike—have
established land trusts based on this general principle, often
using revenues to help build affordable housing. According to
a recent study by the Urban Land Institute, eighty-four projects
between 1982 and 1985 combined public ownership of land with economic
development. In 1984, for example, the city of Santa Clara paid
$88.5 million for two hundred acres owned by the Marriott Corp.,
which had operated a "Great America" theme park on the land. Santa
Clara sold the amusement park—but not the land—to Kings’
Entertainment Corp., which agreed to pay $5.3 Êmillion a year
for the next fifty years for the lease, enough to cover the initial
costs of the acreage within fifteen years. Santa Clara thus took
part of its future out of the hands of developers and put it into
the hands of the community while making money for public use.
Similarly, to maximize revenue the Washington (D.C.) Metropolitan
Area Transit Authority has promoted development of office and
other commercial buildings on Metro-owned real estate at seven
rail stations since the mid-1970s. And the Port of San Diego,
a public agency, manages the area's harbor and airport as well
as other commercial development on publicly owned land.
If owning capital permits greater access to the flow of technology's
benefits, then another obvious possibility is to democratize the
ownership of capital directly—the goal of worker-owned
enterprises. As Yale political scientist Robert Dahl puts it,
"By dispersing income from ownership more broadly and by bringing
executive salaries and bonuses into line [typical of the better
worker-owned firms], a system of self-governing enterprises
would produce a more equitable distribution of wealth and income."
Experimentation in this direction is also far more widespread
than commonly recognized. The number of U.S. firms with some form
of company-wide stock ownership approaches 10,000 and encompasses
over ten million people—more than the membership in private-sector
labor unions. United Airlines is the latest example. Some of these
companies engage all employees in decision-making while others
retain a traditional management structure. They range from tiny
shops to large manufacturing enterprises, among them plywood firms
in the Pacific Northwest, Avis Rent-a-Car and Weirton
Steel.
In a similar vein 4,000 consumer-goods co-ops, 13,000
credit unions, nearly 100 cooperative banks, more than 100 cooperative
insurance companies, 1,200 rural cooperative utilities, nearly
5,000 housing co-ops and 115 telecommunication and cable co-ops
enable members to share in income.
Toward a New Economic System
At the federal level both Republicans and Democrats support
an expensive measure that acknowledges the inequity of the U.S.
economy's traditional mechanisms for allocating income. The system
of earned-income tax credits (E.I.C.) provides direct cash
payments to working families who do not earn a livable wage. Under
legislation passed in 1993 families with two or more children
making less than $27,000 would ultimately receive up to $3,370,
with smaller families earning lesser amounts also receiving payments.
Although as of this writing the E.I.C., like all social programs,
is being scaled back, it had been projected to distribute $24.7
billion to 15 million families and 4.5 million childless workers
by 1997. Along with the other proposals and experiments now on
the table or underway, this tax credit does not squarely confront
the irrationality of our present economic system or try to determine
exactly what portion of current production stems from the free
legacy our society receives from the work and ideas of previous
generations versus the small amount individuals add today. Yet
each initiative begins to challenge the once hallowed idea that
ownership of property or current labor should confer primary title
to our technological inheritance. Eventually such experiments
could also challenge the principles at the heart of both traditional
capitalism and traditional socialism, perhaps one day spawning
a new economic system based on the notion of common inheritance.
The question before us is how those who seek a new society learn
from—and build upon—steadily unfolding new experience.
Gar Alperovitz, president of the National Center for Economic
Alternatives, is the author of Rebuilding America (Pantheon, 1984)
and The Decision to Use the Atomic Bomb (Knopf, 1995). He is working
on a book exploring economic and political systems that might
succeed socialism and capitalism. Parts of this article draw on
the work of research associates Thad Williamson, Dawn Nakano,
and Ted Howard.
