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2013 (35) Heft 1

Property-Owning Democracy


Guest-Editors: Francis Cheneval / Christoph Laszlo

Editorial | Inhalt | Abstracts

In recent years, ‘property-owning democracy’ (POD), defined by widespread ownership of productive assets, has become one of the key-factors in the assessment of the institutional design implied in John Rawls’s theory of justice. The wider implications of this inquiry also engage scholars who do not subscribe to Rawls’s conception of justice but are broadly interested in normative questions of political economy and the basic structure of a just polity. In the course of this debate, the interpretation of the main tenets of Rawls’s political philosophy has shifted. While initially seen as a justification of the liberal democratic status quo of basic rights, free market economy and welfare state, it was later on brought forward that Rawls’s theory has more radical implications. As pointed out by Simone Chambers, his theory demands fundamental constitutional reforms in the name of a conception of justice based on the idea of reciprocity at the deepest level. In the design of this envisaged reform, the institutional questions revolving around the economic condition of individuals deserve special attention. Many authors who have since entered the debate point out that welfare, understood as guarantee of a social minimum that allows for excessive inequality of assets and revenue, violates Rawls’s account of justice as fairness. It should thus come as no surprise that Rawls takes a stand against welfare state capitalism (WSC), and argues that individuals do not cooperate on equal footing because of the very restricted access to productive capital and the exclusion of the vast majority from ownership and control. Furthermore, in WSC the fair value of political freedom is undercut by the economic power, which is concentrated in the hands of a small minority that can unduly influence the democratic process and undermine equal opportunity. A more evenly levelled playing field needs to be provided to members of a society in order to meet the criteria of justice as fairness. The corner stone of such a design is the democratic choice between a guarantee of widespread individual property of productive assets (property-owning democracy) or a holding of productive assets by employee-collectives given a free market among the productive entities (liberal democratic socialism).

Rawls did not further develop the second option. He believed that, given the history of the USA, POD rather than market socialism will be the more obvious path to take. But Rawls was not very generous in giving detail on POD either. Early on, he specified several key institutional features of a just economy, reproduced by macroeconomic planning, regulation, establishing of market rules, making transfers via taxation and the provision of public goods. However, within the context of this political steering of the economy, the latter needs to perform well, i.e. provide full employment and raise the standard of living of the least well-off. A steep progressive inheritance tax is Rawls’s principal mechanism, by which large accumulations of capital are to be redistributed. Only many years later, and having left many formal and empirical economic discussions on his theory literally unaddressed, in Justice as Fairness Rawls has given a more extensive, yet still parsimonious, account of the institutional features of POD. It consists of a widest possible dispersal of productive human and non-human capital, it blocks the intergenerational transmission of advantage via steep estate, inheritance, as well as gift taxes, and it avoids the undermining of political liberty, by cutting the life-line between corporate wealth and government via campaign finance reform and public funding of political parties.

Although more extensive than earlier comments, this statement of Rawls continues to leave many institutional questions open, questions that were mostly met with silence for a long period of time. After a decade, research and debate finally took a big leap forward, thanks to a seminal paper and an edited volume by Martin O’Neill and Thad Williamson (Williamson, T./M. O’Neill (2009), Property-Owning Democracy and the Demands of Justice, in: Living Reviews in Democracy 1, 1–10; O’Neill, M./T. Williamson (2012) (eds.), Property-Owning Democracy: Rawls and Beyond, Chichester). Many questions have since been discussed in more detail and numerous answers are starting to appear on the horizon. The debate is not merely restricted to Rawlsian scholars but rather engages a wide spectrum of authors who are interested in the philosophical justification of the institutional design of political economy and the application thereof to economic and social reality.

The Institutional Description of POD and the Principles of Justice. Several contributions revisit Rawls’s ideal institutional description of POD, and indicate its relation to the two principles of justice and to public justification. On the basis of several articles, particularly that of Samuel Freeman, we think it is fair to say that Rawls’s deep concept of reciprocity in production and justification is at the centre of the relation between POD and justice as fairness. These contributions establish that it is not dependence on welfare but independence and empowerment due to ownership of productive resources that fulfils the condition that human individuals are to cooperate on an equal footing. In relation to the above said, Freeman points out that, according to Rawls, the primary goods that are to be distributed in accordance with the difference principle are powers, positions, and the social basis of self-respect. Exclusion from property-related gains of productive cooperation and dependence on welfare violates the Rawlsian principles of justice, even if the position of the worst-off is improved by monetary payments. In a POD, the least advantaged are enabled to support themselves by exercising their economic powers and responsibilities. So, Freeman argues, there must be an argument for economic agency alongside the argument for political liberty. Hence, he proposes to extend Rawls’s argument for political agency to the economic sphere. Therefore he relies on the fair equal opportunity principle.

Tilo Wesche latches onto the discussion and raises the question of the relationship between property-owning democracy and the fair value of political liberty. In contrast to Freeman and others, he maintains that the first principle of justice is in itself sufficient to establish a strong argument for POD. The widespread wealth of productive resources as foreseen in POD significantly improves the conditions of deliberative democracy. Participation in the deliberative process will increase if citizens are not only formally but also substantively equal. This is in accordance with Rawls’s emphasis on the educational role of a political conception of justice, and supports the incorporation of the principles of justice not only in law but also in public reason.

In relation to the same question, Gavin Kerr concedes that POD and social democratic WSC share many institutions, and are both egalitarian in character. Kerr argues that Rawls leans to a utilitarian-based ‘liberalism of happiness’ instead of the justice-based ‘liberalism of freedom’ if he neglects economic alongside political liberty. Therefore, he proposes a reformulation of the principles of justice, and argues that essential socio-economic rights, derivable from the first part of the second principle (Fair Equality of Opportunity Principle), must be added alongside the traditional civil and political liberties and rights. He justifies this inclusion by highlighting that economic rights are essential institutional conditions for the protection of our highest-order interests, as are the guaranteed social rights. In the final part of his contribution, Kerr compares his enhanced Rawlsian concept to John Tomasi’s Free Market Fairness, which aims at protecting the economic agency of citizens by protecting their private economic liberty.

In his comment, Ivo Wallimann-Helmer argues, that the modifications proposed by Kerr conflate the FEO principle and the First Principle. This position neglects the important distinction and prioritization of Rawls’s principles of justice. In contrast to the First Principle, the Second Principle, which FEO is part of, is not unconditional. The FEO principle only applies if the citizens’ pursuit of the good is impeded by social and economic circumstances given the same effort. Wallimann-Helmer warns that liberal ground is left if citizens are entitled to claim resources without their effort being taken into account.

Property-Owning Democracy versus Welfare State-Capitalism? At first view it seems unobvious why WSC, at least in its stronger form and according to its ideal institutional description, cannot fulfil many of the principles of justice as fairness, and hence of POD. Samuel Freeman gives a clear account as to why the latter is not possible with regard to the ideal institutional description and the principles of justice: Rawls has good reasons to uphold a strict separation of POD and WSC, and to prefer the former from his point of view. From a more empirical stance and with a different, i.e. rather positive outcome for WSC or social democracy, the same question is addressed by John E. Roemer, Albert Weale, Gavin Kerr, Michael Schefczyk, Michael G. Festl and Andrew Walton (with Valeria Camia). This debate not only implies questions of principles, ideal-types and institutional descriptions, but also questions of methodology. This aspect directly relates to the question of the extent to which POD and WSC are opposed and whether POD is really more in line with justice as fairness. John E. Roemer, Albert Weale, Andrew Walton, Emilio Marti and Michael Schefczyk further explore the questions of design of POD or related designs of a just society, based on empirical and formal inquiries into the workings of the economy and society at large.

On the basis of expectable consequences, John E. Roemer questions the stability of property-owning democracy. The preservation of a relatively egalitarian distribution of ownership of productive assets requires a regulation and legislation that many, although not Roemer himself, will consider an inacceptable reduction of liberty. If a property-owning democracy in the United States were to be realized, this would still come at the price of constant high taxation at the top of the income distribution. Freeman’s assessment of stability seems to clash with Roemer’s and is related to a larger methodological difference that is addressed in this volume by Albert Weale. He points to the fact that one can retain that Rawls is simply offering ideal-types and is therefore immune to criticism that refers to the social reality, be it of a capitalist culture of greed (Roemer), or welfare states that actually perform much better in terms of justice than Rawls’s ideal-type of WSC (Walton, Festl, O’Neill). According to Weale, this defence of Rawls triggers the question as to whether one is entitled to undertake a comparative institutional evaluation by means of ideal-types, constructed in such an ‘a priori and internalist way’. The risk Weale sees in such an endeavour is that the argument becomes a mere exercise in ‘persuasive definition’, whereas the analysis should enable us to understand different types of political economies and their workings. As an alternative method, Weale proposes an inductively derived specification of ideal-typical welfare states. This approach leads him to suggest that horizontal redistribution is more important than vertical redistribution. Social insurance can claim to instantiate Rawlsian ideals better than a social dividend. The bottom line of this analysis is that, despite Rawls’s own views, those who have interpreted Rawlsian theory as a justification of the welfare state have the better of the argument. As far as the real-types are concerned, the welfare state and the property-owning democracy are complementary and intertwined. Along similar lines, Michael Schefczyk thinks that Rawls is unfair in dismissing WSC too fast in Justice as Fairness. There is no principled reason why it should not be possible to make up for the enumerated shortcomings of WSC. Schefczyk addresses these shortcomings in his outline of a realistically utopian welfare state (RUWS).

Carrying the argument further, and taking up Weale’s methodological caveats, Andrew Walton explores the sociological context supporting or needed for a POD. At the latest for the legislative stage, the theory of POD needs to be underpinned with general economic and especially social facts. In order to pursue this task, Walton focuses on two features that distinguish POD from WSC. The first is the presumption of income equality as default position in POD from which deviation must be justified. The second are institutions, which lead to factual equal opportunities. Walton sees income equality operationalized by the Gini-coefficient, and equal opportunities by inter-generational earning elasticity. Using this method of operationalization, he examines institutions of ‘real’ social democratic welfare states (northern Europe) and concludes that their institutions are shared by WSC and POD. In her comment on Walton, Carina Fourie points out that he fails to critically assess what is meant by ‘institution’ in Rawls’s theory. Furthermore, Fourie argues that Walton does not convincingly show that Rawls’s basic structure objection does not apply to his own argument or that the objection is incorrect. She thus judges Walton’s argument as incomplete.

Property-Owning Democracy and Unconditional Basic Income. Several articles address the relation between the idea of an unconditional basic income (UBI) and POD. Some defend this idea, stating that it is conducive to, or part of a design that fulfils the broader conditions of a just Rawlsian society (Schefczyk). Festl takes a closer look at Rawls’s concept of work, in which work is considered to provide a sense of belonging to the community. He argues that looking at work from this angle strengthens Rawls’s rejection of UBI. Although there are other means to entrench a sense of community, none of them can provide the same measure of self-respect and strong sense of community as work. Samuel Freeman complements this position in our volume. He exposes the reasons why Rawls does not regard it as appropriate to provide people with payments if they are able but unwilling to work. By providing a social minimum for all, whether they are able and willing to work or not, the welfare state can encourage dependence and a feeling of being excluded from society among the worst off. Schefczyk focuses on UBI as one of the influential proposals for reform of WSC. He holds that the objections raised by Rawls against UBI can be met within his proposal of a RUWS.

The Realization of a Property-Owning Democracy—and its Discontents. Three articles and a comment directly address the question of how a POD can be gradually realized by reform. John E. Roemer, who’s idea of a coupon economy once read like a concrete proposal of how a POD could be realized, voices self-critical concerns regarding the stability of a POD in terms of highly progressive taxation given the present circumstances in the United States of America. In view of the absence of a corresponding ethos, the aims and principles of such a socio-economic system can and will be perceived as repressive, and will be jeopardized. A legal framework able to keep a relatively egalitarian dispersal of wealth would be perceived as a serious threat to liberty. This conclusion makes the social democratic welfare model more attractive to Roemer. He remarks, however, that for both a more utopian POD and a better social democratic welfare state, a solidaristic ethos is and was central. Roemer attributes the strong welfare state institutions (e.g. social insurance) but also the reluctance to introduce very high, purely market-driven salaries in Europe to a solidaristic ethos that has arisen from World War II, uniting nations (if not peoples) and wiping out substantial middle-class wealth. In his comment on Roemer, Martin Beckstein points out that the constraints on top-management salaries in Germany and Switzerland emerge from a culture of envy rather than from an egalitarian ethos of managers. The culture of envy is morally much less demanding than an egalitarian ethos and more likely to emerge. To Roemer’s claim that the main incentive for economic elites is not exorbitant incomes, but rather to be recognized as important individuals, Beckstein answers that if indeed CEOs and managers are more interested in increasing their professional status than in accumulating wealth, higher taxation of their incomes will not lead them to undertake less risky actions.

In his comment on Schefczyk Fabian Schuppert raises a further fundamental point against POD. Rawls rejects WSC because it allows sweeping social inequalities through capital accumulation in the hands of few. Given the ideal of wide dispersal of ownership, POD should not come along with such a concentration of power. But ownership does not mean effective control. Schuppert calls attention to today’s global corporations, which are technically owned by many shareholders. However, most of these shareholders have effectively no control over the company. If the missing control over productive assets is not necessarily enhanced by the wide dispersal of ownership as envisaged in POD, one of it’s alleged advantages over WSC is in question.

Breaking new ground, Emilio Marti leaves aside the economically and politically controversial question of taxation, and looks at the relation of POD and investment. He proposes that making socially responsible investment (SRI) the default investment practice is an important and effective measure to bring a society closer to POD. According to Marti, SRI pursues profit for shareholders but also for a wider spectrum of stakeholders, and potentially leads to a wider dispersal of wealth and social well-being. By tracing the development of the investment regulation from the 1970s to the present, he explores why and how shareholder interests became so dominant. He identifies a certain concept of private property as the main driving force behind this change. The predominant concept going back to Locke and Hobbes protects only the interests of shareholders, and thus dismisses regulation as paternalistic. However, Marti argues that empirical research indicates an increasing willingness to adopt SRI in present times. In order for the investments of pension funds to be consistent with the ideas of the capital owners (broad public), he recommends regulatory nudges towards SRI. He defends the position that the Hegelian concept of property as a general right justifies this measure. If SRI was the default investment strategy for pension funds, a substantial share of non-human capital would serve all stakeholders and thereby, to some extent, also the least advantaged members of society.

From a much wider institutional angle yet focused on the concrete example of the United States of America, Thad Williamson looks at the constitutional reforms that would be necessary to realize POD in his country. His article substantively explores five specific constitutional amendments: establishing an equal right to education, establishing a guaranteed social minimum, clarifying the legitimacy of regulating corporate political speech for the sake of political equality; establishing an individual right to a share of society’s productive wealth, and assuring communities of significant size the right to remain economically viable over time. Williamson’s article is extremely helpful for defenders and skeptics of POD because it clarifies how a property-owning democracy might or might not be realized in practice, and establishes concrete objectives for social movements.

In his brief commentary on Tilo Wesche’s article, Jan Narveson draws attention to an important problem in the realization of POD. The productivity of assets is not agent-independent and hence it is not possible to distribute productive assets at the ‘beginning of each period’, whatever ‘beginning’ might mean. The assets become productive (or non-productive) in the hands of their owners, the productivity depends on the economic agency of the asset holders. While it is true that productivity does not exclusively depend on the agency of the asset holders but also on the functioning of the economy at large and on market luck, one can gather from this criticism that the consequences of distributing capital (human and not-human) are potentially far less egalitarian than one might intend. POD would not necessarily achieve greater equality of revenue, but a fairer access to potential productive reciprocity; hence, the importance of Freeman’s amendment to Rawls, focusing on the opportunities and rights to economic agency of individuals.

Justice and Efficiency. Two articles (Jahel Queralt, Michael G. Festl) address several problems dealing with the relation between maximization of efficiency and justice. Rawls seems to need both to defend the market as key institutional feature of POD and market socialism. Michael Festl focuses on the question of work and the problem of possible trade-offs between meaningful and socially efficient work. Festl situates Rawls’s understanding between the instrumentalist and the sentimentalist view of work. For the former, the only function of work lies in providing the necessary means for living and, if possible, could be abolished. The ‘sentimentalist’ cherishes work as the main element of a meaningful and successful life. As argued by Festl, Rawls’s position rests between these two. Rawls acknowledges, albeit tacitly, that work serves to produce the required goods for society, and that even a fair society requires certain people to do the jobs necessary to this end. However, Rawls also acknowledges that work is an important source of self-respect. Examining Rawls’s critique of WSC, Festl demonstrates that Rawls sees an important third component in work: work enables individuals to perceive themselves as members of society. Festl tries to link this concept of work to POD by identifying all three components of work (efficiency, self-respect, and the sense of community) as essential for POD.

Jahel Queralt maintains that, while there might be good reasons to have a market, Rawls’s principles of justice alone are not sufficient to defend it, and that a market might not be necessary to achieve Rawlsian justice. She examines Rawls’s main arguments for a market economy and shows that the link between basic liberties and the market that Rawls draws is not so strong. She maintains first that there is no necessary link between planned economies and non-democratic government, admitting there was never a planned economy that deserved to be called democratic. Secondly, she sustains that a free choice of career and occupation is not enabled by labour markets alone; and labour markets even curtail one’s choice if they serve the maximisation of a society’s productivity. Furthermore, Queralt argues that Rawls’s Difference Principle must not necessarily be read as a maximising principle. If the questions of quantity and distribution of resources are addressed separately, a society can be fair if it decides to desist from certain possible gains, even if these would be of great benefit to their least-advantaged members. Her suggested reading exploits the lexical inferiority of the Difference Principle to the Fair and Equal Opportunity Principle, also stressed in the context of POD by Freeman and Kerr. So there are—at least in theory—alternatives to market-based economies from the point of view of Rawlsian justice. This contradicts Festl, who believes that the theory of justice obliges Rawls to give priority to the efficiency component. But Festl later makes a rejoinder, taking on a position closer to Queralt, because he thinks that Rawls needs to acknowledge that not all jobs necessary for the reproduction of society will fulfil the Aristotelian Principle (preference for activities in line with developed capacities) without undermining the job’s efficiency to an extent that might reduce the life chances of the least-advantaged.

Property-Owning Democracy and Democracy. Francis Cheneval looks at the notion of democracy and tries to show that POD is not a theory of democracy but rather one that implies a solid institutional framework allowing for political competition of thoughtful positions to the left and to the right of POD. This position finds a rejoinder in the volume in Williamson’s article, who believes that no amendment to the U.S. Constitution that realizes a POD, or parts of it, ought to be imposed over objections of a majority or strong minority. Democracy may not be foreclosed in the name of a conception of justice on which there is strong disagreement (even among reflective scholars). Hence, a society that has free and fair elections and realizes other liberal democratic rules yet does not realize POD is not democratically illegitimate. POD should not be considered a necessary standard of democratic legitimacy. POD emerges as one of the well-argued conceptions of justice, but it must compete with other politically reasonable conceptions within a framework of open discussion and suitable majoritarian procedures. If POD is not located within a broader theory of democracy, the realization of a property-owning democracy leads to an undemocratic form of guardianship, independently of the question of a solidaristic or egalitarian ethos. It goes without saying that this is the case for all the rival conceptions of justice that are being discussed as alternatives to POD.

While offering important new insights, this volume’s contributions do not conclude the debate on POD and are far from being absolutely resistant to criticism. Some of these criticisms are voiced in the commentaries. Others, we hope, will be addressed by further publications on POD. Nevertheless, we think that on the basis of the articles presented in this volume, the topics that were touched upon will be discussed in more depth. Such an endeavour would be in the spirit of Rawls’s idea of political philosophy. The contributions to this special issue aim at carrying on this conversation and taking the debate one step further.

Francis Cheneval and Christoph Laszlo


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