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Cash and Citizenship

The Stakeholder Society

By Bruce Ackerman and Anne Alstott
(Yale University Press, 296 pp., $26)

Of the new deal's many programs, Social Security may be the most impressive achievement. Its impact has been enormous, greatly reducing the problem of poverty among the elderly. At the same time, it has become a large-scale symbol, an institution, even a sacred cow. Three of President Roosevelt's masterstrokes guaranteed this result. First, Roosevelt linked Social Security taxes to work, making the program appear to be an employment-based insurance program rather than what it clearly is: a system of economic redistribution. Second, Roosevelt made the program universal in coverage, not limited to the poor or the needy; this guaranteed wide rather than narrow support. Third, Roosevelt ensured that the program would operate, not in theory but in practice, as a kind of intergenerational transfer, from those currently working to those who are too old or too sick to work, or who have retired voluntarily or through compulsion.

The consequence of all this has been that America provides quite well for old people, or at least for those old people who have had a long-term connection to the workforce, or whose spouses have had such a connection; but the nation does much less well for children, teenagers, and young adults. It should be no wonder that, according to recent data, 11 percent of people over sixty-five live in poverty, whereas 20 percent of children, and 18 percent of adults between the ages of eighteen and twenty-four, live in poverty.

Bruce Ackerman and Anne Alstott aim partly to follow, but mostly to renovate, and even to reverse, Roosevelt's course. They argue on behalf of a universalistic program, one that is open to all and every bit as ambitious as Social Security, but they emphatically reject the requirement of a workplace connection. Their program is tied to citizenship, not to work. Even more dramatically, Ackerman and Alstott seek to redistribute not from young to old, but in exactly the opposite direction. One of the distinctive features of their proposal involves the kind of liberalism that they mean to revive. This is an emphatically Rooseveltian liberalism--sharply opposed to identity politics and interest-group maneuvering, eager to use the national government to promote both liberty and equality, aspiring to universalism, and seeking to create social programs that are available to all rather than limited to the poor.

Their proposal is startlingly simple. Upon reaching the age of eighteen, every American who has graduated from high school, and avoided significant criminal activity, would receive a flat grant of $80,000. All the recipients of this grant would be "stakeholders." The $80,000 "stakes" would be financed through a 2 percent annual wealth tax. Now you may think, and it is reasonable to think, that the idea is quite preposterous. But Ackerman and Alstott have convinced me at least that it is heuristically interesting, and that those who reject it, or even find it daft, should take their argument as an occasion for thinking of other methods for giving all Americans, including young adults, a decent chance in life. Ackerman and Alstott's immodest proposal certainly raises fundamental issues of principle and policy.

The book is an unusual mixture of political theory and policy analysis. The authors' starting point is the ideal of "free and equal citizenship," an ideal that they mean to oppose to two alternatives: libertarianism, requiring government to keep its hands off, and the cult of the market, embodied in the (demonstrably false) notion that a rising economic tide lifts all boats. Free and equal citizens, they insist, require equality of opportunity. And equal opportunity is regularly violated in practice, as millions of young people find themselves with little hope owing to some combination of family background and policy failures.

This is a problem, as they rightly say, for both liberty and equality, not for equality alone. It is intolerable for the "economic starting points" of the next generation to "be entirely shaped by their parents' successes and failures." By drawing attention to free and equal citizenship, Ackerman and Alstott also aim to focus people on something other than the welfare state. "Our first concern is not with safety nets but with starting points; not with misfortune, but with opportunity; not with welfare, but with economic citizenship."

Against libertarians, Ackerman and Alstott insist that free and equal citizenship is not an effort to insert government where it did not exist before. Even the most apparently independent among us has benefited from an extensive (and expensive) government apparatus, which protects us against criminal violence and safeguards our rights of private property. This point casts the idea of "stakeholding" in a fresh light. Because of "the continuing dependence of the wealthy on the cooperation of their fellow citizens, stakeholding does not involve coercive `gifts' to strangers." And so it becomes necessary to reject the "banal" opposition between the individual and the community. A system of stakeholding promotes individual freedom at the same time that it fosters community, through a mechanism that is both universal and concrete.

As members of the rising generation come forward to stake their claims, they will be doing more than affirming their individual right to shape their own particular destinies. They will also be affirming their identity as citizens of a great country devoted to freedom and equality.... Except for the most hardened cynics, this will lead to a deep and sustaining loyalty to the country that made stakeholding a concrete reality.

This would also help to eliminate what is now emerging, a "brittle three-class structure: a lower class condemned to dead-end jobs and frequent unemployment, an upper class of professionals enjoying fabulous prosperity, and a vast middle class increasingly embittered by continuing economic stagnation."

Ackerman and alstott believe that a "stake" would produce many desirable effects. Most important, the stake would give young adults more freedom and also produce a degree of equality among them. "Our present arrangements impose an unnecessary moral dilemma: just at the moment we expect young adults to make responsible life-shaping decisions, we do not afford them the resources that they need to take a responsible long-term perspective." By promising a large grant with conditions attached, the program would also give young people strong incentives to finish high school and to avoid crime.

Since the well-being of children depends largely on the well-being of their parents, who are usually young adults, stakeholding should benefit children, too. Any young couple would have combined stakes of at least $160,000, a sum that, if invested, could be used to buy good education and good health for children. Special benefits would flow to minority group members and women. At present, two-thirds of all households have net financial wealth; but only 39 percent of African American households have net financial wealth. In this way the stake would operate, in practice, as a substantial benefit to African Americans. Women would be helped too, for they would automatically be given a degree of financial independence from their spouses, thus enabling them to make choices far more freely.

Ackerman and Alstott explore how their program would affect people at various places in the economic hierarchy. Perhaps the biggest effect would be on the poor, and especially on people who are poor and young. "For those growing up in the ghettos of America, stakeholding will provide a beacon of hope: stay in school and graduate, and you will not be forgotten." A teenager in a poor family might be able to go to a decent out-of-state college and ultimately end up with job offers and without college debt. Or imagine a young working-class couple, both with a high school education: if they invest their money for seven years, they will, in their mid-twenties, have well over $170,000 in the bank, which they might use to buy a small house, or to finance college training for one of the spouses, or to ensure against disaster in the event of a lost job or a medical emergency.

For those without college education in a difficult job market, they continue, "stakeholding will provide a priceless buffer against the predictable shocks of the marketplace. A temporary economic setback will no longer quickly spiral into a devastating loss of self-confidence or a grim period of deprivation." A couple higher in the economic scale, but also in their mid-twenties, might have spent $30,000 on college tuition and living expenses, and perhaps another $15,000 on a honeymoon trip to Asia. If the stakes were invested, they could have $125,000 left, and that amount could be used to start their own business. If they are having marital difficulties, they can make choices, singly or together, with a decent economic cushion.


Any program of this kind would require attention to a lot of details, to put it mildly. In the authors' design, serious criminal activity should result in a diminished and perhaps forfeited stake. Only high school graduates would be eligible, a restriction designed to increase the incentive to stay in school. Under current census figures, this would eliminate only about 15 percent of young Americans from the program, a figure that would likely diminish as a result of the "carrot" provided by the stake. All other Americans at the age of eighteen would be permitted to claim their stakes as a matter of right, simply by submitting a diploma and other necessary documents to the stakeholding office. Actual payments would not begin until the age of twenty-one, with one exception: it would be possible to take out annual sums for the single purpose of financing higher education.

Ackerman and Alstott recognize that all this would be quite expensive. The total cost in 1997 would have been about $255 billion. Initially, the necessary funds would come from an annual wealth tax of 2 percent, a tax from which 59 percent of households are exempted by virtue of a proposed $80,000 exemption for every American. The result would be that more than 90 percent of the funding would come from the wealth tax on the top 20 percent.

In the long run, however, stakeholders would be asked, before death, to pay back the $80,000, with interest, into the stakeholder fund. The enforcement mechanism would be the estate tax: subject to a $50,000 exemption, people would not be permitted to give money to their children or other heirs unless and until they have paid back their stake. In an interesting variation on the Social Security program, this is an idea of "liberal trusteeship," in which each person acts, in his individual capacity, as a trustee for the future.

What if some or many stakeholders dissipate their stakes? And what if the very obligation to pay back the stake leads people to spend all their money before they die? Ackerman and Alstott are alert to these anxieties. If the payback requirement turns out not to work, it may be necessary to impose a "trusteeship tax," through which stakeholders are required to pay a supplementary amount during their lifetimes so as to guarantee the solvency of the fund.

One of the authors' most general goals is to shift the focus of redistributive policies away from both welfare ("secularized charity") and the workplace. In addition to the stakeholding system, they propose a quite substantial change in the Social Security system, now funded by the steeply regressive payroll tax. Echoing a widespread (and correct) view, they contend that the "insurance" rubric is quite misleading, a form of fraud really, concealing an intergenerational transfer in which wealthy people pay disproportionately little. Ackerman and Alstott would replace Social Security with a system of old-age pensions not tied to work at all. They would fund these pensions with a new progressive tax, by which all Americans would pay a certain sum into the treasury (from a minimum of $380 to a maximum of $3,800).

An obvious question is how the stakeholder proposal compares to alternative proposals, many of which are getting a serious hearing in the current burst of more creative liberal thinking about social policy. Ackerman and Alstott reject substantial increases in the minimum wage on the ground that this would have harmful consequences for employment. They have more sympathy for the economist Edmund Phelps's recent suggestion of a substantial government wage subsidy for low-wage employees. Phelps seeks a dramatic expansion in the earned income tax credit; he would have the government ensure a decent minimum for all low-income workers by adding dollars to market wages. Ackerman and Alstott urge that stakeholding would be a lot better insofar as it is less outcome-oriented and tied to citizenship rather than the workplace. They also object that Phelps's plan continues in the unfortunate, non-universalist path of offering secularized charity to those at the bottom.

As compared with Phelps's proposal, Ackerman and Alstott much like the idea of a basic income guarantee for all (seriously discussed as a "negative income tax" or a "family allowance" in the 1970s by Milton Friedman, James Tobin, Daniel Patrick Moynihan, and others)--as in a system in which every adult would get a specified annual cash payment (say, $4,000) regardless of income and wealth. In their view, this idea should be given serious consideration since it "puts the emphasis on freedom." But stakeholding has the large comparative advantage of allowing owners to decide whether to take an annuity or instead to use the money in other ways. In their view, an annual cash grant is a primitive and paternalistic version of stakeholding, one that constricts freedom by comparison.

An immodest proposal, indeed. How should we evaluate a program of this magnitude? As Ackerman and Alstott emphasize, their approach is not altogether original. Thomas Paine suggested a much smaller program of just this kind. Paine said that every citizen, male or female, should have a right to fifteen pounds sterling "when arrived at the age of twenty-one years ... and also the sum of ten pounds per annum, during life, to every person now living of the age of fifty years, and to all others as they shall arrive at that age." The G.I. Bill of Rights gave something like a "stake" to returning veterans. Alaska has created a "permanent fund," based on the revenues from North Slope oil, which distributes about $1,000 annually to every citizen of Alaska. When Margaret Thatcher privatized publicly owned housing in England, she allowed citizens to buy their own homes at bargain rates, thus creating a far larger property-holding citizenry. In an extremely successful experiment, Prime Minister Vaclav Klaus of the Czech Republic did something similar in privatizing companies in the aftermath of Communism.

But this proposal is far more ambitious. It confronts, for a start, obvious political obstacles. There seems little chance that Congress would, in the foreseeable future, impose a 2 percent wealth tax or give $80,000 to every eighteen-year-old. And any large-scale redistributive scheme faces another obvious problem. Since a new bureaucracy would be necessary, the government would have to tax more money than it would give out, with a substantial remainder going to those who implement the program. And Ackerman and Alstott give insufficient attention to the likelihood that millions of stakeholders would not pay back their shares. If the government has an $80,000 lien on your money at time of death, why not spend it instead? In all probability, government would have to rely on a "stakeholder tax" that people would have to pay during their lifetimes.

But ackerman and alstott's proposal provokes two more significant, and more damaging, objections. The first involves the question of whether young adults can be considered sufficiently responsible to be given $80,000 by American taxpayers. The second has to do with identifying the problem to which stakeholding is intended to be the solution.

First, responsibility. People in their early twenties are certainly not children, but many of them would have no idea what to do with an $80,000 windfall. It is likely--actually, it is certain--that many of them would use the money unwisely, some dissipating it on get-rich-quick investment schemes, others increasing their expenditures on alcohol, parties, and drugs, still others using it on exorbitant purchases of various sorts (clothes, vacations, cars). For many young people, the stake would be a predictable occasion for a wasteful form of competition on designated luxury-type goods. Does it make sense for society to create a massive redistributive scheme to subsidize consumption of that sort? Why should wealthy Americans be asked to transfer their resources not to those who are needy or poor, but to millions of eighteen-year-olds, some or many of whom will use the money unwisely or even frivolously?

Ackerman and Alstott have two retorts to this objection. First, they emphasize freedom of choice. If people want to dissipate their stake, shouldn't they be entitled to do so? But this is inadequate. The question is whether the American public should support so large a social program if the consequence, in many cases, is to fund expenditures that really do not improve the beneficiaries' lives. Second, and far more interestingly, Ackerman and Alstott contend that the very existence of a stake would have significant and desirable cultural consequences, in which young people would be taught to treat their stake with a degree of gravity. "The advent of stakeholding will have a revolutionary impact on education in this country. For the first time, high school students will have an intense and practical interest in fundamentals of economic planning. Classes named `How to Manage Your Stake' will be as eagerly attended as those in driver's education--a universal rite of passage into the real world."

This is certainly possible. But we cannot know to what extent it would be true. Young people like driver's education because they will be able to drive very soon. Would teenagers, who tend to have a notoriously short time horizon, have a similar attitude toward courses specializing in long-term investment? How many students would grab the money and run, or be diverted by a fraudulent or doomed scheme?

Perhaps more troublingly, the automatic grant of $80,000 to young people is likely to make many young adults less inclined to work. People in their late teens and early twenties often work hard, in school or the job market, in order to develop the kinds of skills that will eventually lead to financial reward. Might not an automatic grant of $80,000 remove desirable incentives?

And there are related concerns. If all young adults find themselves with $80,000, it is possible that the beneficiaries would be less the relevant young adults than those who could attract their money. Colleges and universities might well respond by raising tuition. (This is why government programs designed to assist college students by subsidizing tuition payments should be taken with many grains of salt; they might just lead to increased tuition, and thus enrich colleges without much helping students.) An important effect of "stakeholding" might be to transfer resources from wealthy individuals to (mostly wealthy) educational institutions--not the best reason for a large-scale redistributive program.

More generally, the existence of $80,000 in the hands of all young adults would likely increase the demand for certain social goods, whose nature cannot easily be predicted in advance. (Restaurants? Vacations? Compact discs? Clothing stores?) The consequence might be to increase the price of those goods, with less favorable results for "stakeholders" than Ackerman and Alstott envisage.

Yet the largest and most interesting questions have to do with identifying the problem to which Ackerman and Alstott think "stakes" are the solution. Social problems should usually be approached in a well-tailored rather than in blunderbuss fashion, and the idea of stakeholding is a coarsely tailored idea. Is this an anti-poverty program? Most of the beneficiaries would not be poor, and thus it must be asked whether the nation should adopt a program of this kind when most of the beneficiaries would be middle-class or wealthy. In the short term, "stakeholding" would involve a redistribution not from rich to poor, but from those with accumulated wealth to each and every young high school graduate--or, in a striking reversal of Roosevelt's plan, from old to young.

In the long run, Ackerman and Alstott hope that the program will be self-sustaining, as old people pay back their stakes. In this form, the program is less an antipoverty program than an intergenerational transfer. It is also an automatic government loan without easily enforceable reimbursement obligations--a loan in which young people are given a lot of money and told that they must eventually repay it, but are not really forced to do so, and are thus given strong incentives to use the money on consumption. How much good would this do?

Of course it would help reduce poverty. No young high school graduate will be poor, which would be an important gain. Taken purely as an attack on poverty, however, it would be quite crude. Indeed, the exclusion of people who have not graduated from high school, and who have engaged in significant criminal activity, would impose a disproportionate burden on poor people (and also on African Americans). A really effective anti-poverty program (especially one that had $255 billion to spend) would be concerned with improving early education and job training, and stakeholding would help only indirectly on these counts. Despite Ackerman and Alstott's rhetoric, moreover, this is only ambiguously an equal opportunity program, for it starts too late in life to provide genuinely equal opportunity. Head Start, an intervention directed at educating poor children, seems much better on this count.

Perhaps stakeholding should be seen as an effort to create an incentive to stay in school and to avoid criminal behavior. On these counts it would undoubtedly have some good effects. But if our goal is to keep people in school and to get them to avoid crime, there are probably better and cheaper ways than giving $80,000 to every eighteen-year-old. Why shouldn't states experiment with reasonable, selective cash incentives to sixteen-year-olds in high-crime, high-dropout areas? Why not, say, $1,000 a year for every year of high school after tenth grade? A program of this kind is likely to work at least as well as stakeholding, and it is also much cheaper.

In the end, though, Ackerman and Alstott's fundamental concern is not poverty or education or crime, but the old idea of universal citizenship. They are dismayed not only by unequal opportunity and social desperation, but also by identity politics and social fragmentation. One of their chief goals is to design a program in which each and every American can feel included, in the same way and on the same terms--not because they receive charity, not because of need, and not even because they work, but as a matter of right, and owing only to membership in the nation.

As Roosevelt knew, a system whose beneficiaries include middle-class and wealthy people as well as the poor is likely to have broad political support; any program limited to the poor is likely to stigmatize and to be stigmatized. For Ackerman and Alstott, however, these strictures are less important than the creation of a kind of shared national enterprise, one that is both symbolic and material, and one that would break the dependence of young adults on the fortunes of their parents. "Some will succeed and others will fail, but all will have had a real chance at the pursuit of happiness. And even those who fail will know that they have not deprived their children of a fair opportunity to start again." It is for this reason that they see the new intergenerational transfer--from old to young--as both a symbolic and a material good.

But what sort of symbol of citizenship is cash? It seems peculiarly materialistic to suggest that people have a "stake," and count as citizens, because and to the extent that they can expect a large pile of money when they turn eighteen. For one thing, the idea would likely have a destructive effect on those who forfeit their stakes because they do not finish high school or commit disqualifying crimes. Indeed, the existence of this sort of stake could have the unfortunate consequence of making the most disadvantaged members of the society feel even more excluded, as quasi-citizens, simply because they have little money.

Ackerman and Alstott are right to insist that citizens deserve to receive benefits of one kind or another from their country. Even the most seemingly independent among us owe their status to a range of emphatically collective institutions. But any purely financial notion of belonging is hard to support. Surely citizenship is best seen as a complex network of benefits and burdens. A vast social effort to constitute citizenship through dollar awards does not send exactly the right signal. (Consider a more modest proposal, one that would cost a lot less, send a better message, and probably do a great deal of good: free health care for everyone under the age of eighteen.)

The risk of unintended bad consequences is far too high to justify an initiative of this magnitude. To the extent that the approach has appeal in principle, it is possible to imagine less massive experiments. Compare, for example, the related but still ambitious step proposed by Senator Robert Kerrey, who would include in Social Security reform a "Kid Save" plan that would put $1,000 into a savings account created at birth, and add $500 annually--an amount that would, with compound interest, give every child $20,000 by the age of twenty-one. Senator Kerrey notwithstanding, this is a period in which liberal reformers tend to think in ways that are both defensive and very small--to preserve some program from right-wing attack, to secure funding for well-entrenched initiatives, to mend or to end affirmative action, to protect interest groups of various kinds, to make incremental changes. Those who reject the idea of stakeholding would do well to use their doubts as the basis for thinking more ambitiously about how to secure the conditions for both equal opportunity and universal citizenship.

Cass R. Sunstein is a contributing editor at The New Republic.

By Cass R. Sunstein