Unjust Deserts is an important, timely book, and its publication should ignite a far-ranging discussion about just what it means to earn wealth.
By Ryan McGreal
Published January 08, 2009
Libertarian opponents of redistributive taxation often equate it to theft from people who create wealth and earn income to people who do not, while most of its proponents have tried to justify redistribution by saying that fairness or compassion trumps property.
In a controversial new book called Unjust Deserts: How the Rich are Taking Our Common Inheritance and Why We Should Take it Back, authors Gar Alperovitz and Lew Daly attack the libertarian position, challenging the assumption that the people receiving most of our society's wealth actually earned it and hence deserve it.
They argue by contrast that most of the wealth being created today is unearned, a "free lunch" that should, by rights, accrue to society as a whole. "A fundamental implication of modern research on economic growth is that past advances contribute far more to today's economy than current activities."
Consider, as a single example, the curious conceit of a small handful of people (myself included) who nominally believe that we created Raise the Hammer, the website you are now reading.
I call it a conceit because the site's creation (let alone its continued existence) would not have been possible without the efforts of untold and probably uncountable numbers of contributors; and curious because once made explicit, this fact is as obvious as it is unremarked.
We did not have to invent any of these technologies, developer languages or protocols but were free to use them. They have all benefited from countless thousands of person-hours of development - most of it free and voluntary - including language architecture design and abundant testing and bug-fixing.
In addition, tremendous and freely accessible resources exist to study, learn, and develop with each and all of these technologies, including active user communities in which people help each other to solve their problems.
Further, the site layout and design was informed by abundant existing research into user interface design, readability, and even 'findability' - the ability of search engines (another free service) to discover, index and rank our content.
I haven't even discussed the underlying historical reasons (including trillions of dollars in public research and development) allowing us to assume that most of the people we want to reach own or have access to personal computers that are connected to the internet.
I also haven't discussed the fact that all the contributors (and probably all the readers) have had the luxury of comprehensive public education and, in some cases, post-secondary school, plus access to libraries, books, magazines, TV programs, and, indeed, the massive and rapidly-growing internet itself - a sheer abundance of information that, by historical standards, is utterly without precedent.
If not for the pre-existence of this vast and irreplaceable infrastructure - physical, technological, intellectual and social - Raise the Hammer absolutely would not exist in its current form, and may well not exist in any form at all.
It's probably not possible to overstate the contributions made by this immense public foundation of knowledge and infrastructure. Economic historians calculate that as much as 80 percent of all the wealth being generated today is actually based on pre-existing knowledge, an "unearned gift of the past."
This is just as true of for-profit corporations as it is for a citizen-based volunteer group like RTH: most of the wealth of knowledge and resources they employ are actually pre-existing and freely available - a "free lunch".
Yet most of the profits generated by these businesses are concentrated among their owners - investors and shareholders who 'created' their value only nominally. As a result, wealth is incredibly concentrated: in the USA, the top 1 percent of households own more than half of all the country's total assets and enjoy more income than the bottom 40 percent combined.
The authors sketch the process through which growth in knowledge drives economic growth, observing the phenomenal growth in labour productivity and real per-capita GDP over the past two centuries (since just 1870, productivity has grown by a factor of 15) and exploring the so-called "Solow residual".
They argue, "technological progress appears in many ways to be exogenous to the economy - often arising broadly from society rather than narrowly from conventional economic behaviour." Noting that some economists have tried to endogenize technological progress by explaining it in terms of capital investment, they nevertheless point out that "private investment on its own cannot begin to account for the vast scientific advances of the modern era that contribute to economic growth".
They argue further, "even those who stress market actors and investments" as the principal agents of innovation and productivity growth "agree that increases in knowledge (whether endogenous or not) are of central importance."
They also point out that knowledge is ecological, with a value far greater than the sum of its parts. Before scientific research began to systematize our understanding of how the world works, trial-and-error discoveries in one domain simply could not be applied to other domains.
Knowledge is growing exponentially, fueling and being fueled by a large and growing infrastructure of scientists and other researchers, which is in turn fueled by widespread public education. "Across the twentieth century ... a significant fraction of the total national wealth was created not by firms and individuals (the basic units of entitlement or reward in our society), but by school systems - the collective institutional achievement of millions of taxpayers, teachers, students, school boards, parent associations, etc."
That does not even include the additional value generated by preparing those students for college and university or of public funding for colleges, universities, and scientific research, both basic and applied. Without a huge pool of aspirants and applicants, the social and institutional system of science research and education simply would not exist in anything like its current form and scale.
Later, the authors trace the history of unearned income and economic "deservingness" from its roots in John Locke's defence of liberty through Adam Smith and David Rickardo, J.S. Mill, Tom Paine, Henry George, J.A. Hobson, Leonard Hobhous, Sidney Webb, Patrick Edward Dove, Hippolyte de Colins, Thorstein Veblen, John Mokyr, Brian Barry, and several other economists and moral philosophers.
The book steadily and incrementally builds the inescapable conclusion that most of the wealth an individual creates is unearned by any reasonable definition of the term, and that this realization implies the need for a new way of reckoning how wealth is allocated.
They close the book with an exploration of how this might take place, what it might look like, and how its implementation may address the reasonable objection that people are less likely to innovate if they know they will receive less compensation for it. In particular, they note, "When the annual rate of productivity growth was at its peak in the United States ... so too were the top marginal tax rates at their peak" while "the last thirty years of tax cutting and deregulation ... have generated mixed productivity growth".
Unjust Deserts is an important, timely book, and its publication should ignite a far-ranging discussion about just what it means to earn wealth and how we can ensure that the overwhelming contribution of our society's broad public infrastructure receives just compensation for its indispensable role in generating wealth.
By LL (registered) - website | Posted January 19, 2009 at 13:03:08
"[I]n the USA, the top 1 percent of households own more than half of all the country's total assets and enjoy more income than the bottom 40 percent combined."
How could anyone try to say those parasites earned all that loot?
The concept of collective, non-proprietarian knowledge certainly adds a dimension this age-old social problem of inequality and want. But the authors cite a big list philosophers without mentioning Proudhon, Marx, or Kropotkin. This is a big intellectual gap for any inquiry of economic inequality. It makes me skeptical to read it.
By A Smith (anonymous) | Posted January 19, 2009 at 14:32:56
LL, if anyone should be labeled a parasite, it's government. Government forces people to give them money and if they do not, they can be sent to jail or worse. On the other hand, the evil people at Walmart, Coke and McDonald's offer products in exchange for money. In the first case, there is zero choice, give us money or go to jail. However, in the second case, there is nothing but choice. If the consumer doesn't want what Walmart is selling, they can go elsewhere. Not so with government. In government, whether you like what the government is giving you or not, you still need to pay.
Therefore, if you truly are morally outraged over exploitation, look first to the people who run Revenue Canada.
By A Smith (anonymous) | Posted January 20, 2009 at 00:32:10
Ryan, I believe in private property rights. I don't, however, believe this includes information. Whereas real property is subject to scarcity, ideas are infinitely reproducible and therefore cannot be stolen. Therefore, if you believe that Microsoft, Merck, or any other business which benefits from government monopolies on information, is undeserving of this wealth, I agree with you.
However, assuming that government gets out of the business of protecting ideas as it would real property, any wealth businesses can generate from selling their goods to the public should be protected from theft, from either individuals or excessive government demands (for sake of argument I will accept a 5-10% tax to the government to carry out its functions).
Therefore, if a person starts up a company, employs good management techniques, hires good people and generates excellent customer satisfaction, this person is entitled to any and all rewards that come from this. To suggest otherwise, simply because some of the information he utilized was discovered by someone else, means that nobody is entitled to anything.
However, we all know that this isn't the case. Successful businesses require much more than just knowledge, they require tenacity, vision, risk taking, physical labour, demands on time, interpersonal stress and many other things that most people find difficult to put up with. However, for those people who can suffer through the difficulties that come with dealing with suppliers, customers and all the other stresses it takes to make customers happy, their reward is above average wealth.
That being said, some people are also blessed with enormous quantities of motivation and drive that allow them to keep going where others would not. Is this simply a matter of willpower, or is it something else? I wonder about this sometimes. Therefore, I have no problem with the idea of "asking" those with great resources to share with others, who because of physical impairment, or simply because of circumstances, need a helping hand.
However, I don't like the idea that government, or any other third party, can make a claim on my hard work, simply because they can tie my efforts back to the original human thought. To me this sounds like a recipe for sloth, since most of the reason people work hard building their business, is because they want to be rewarded in proportion to how much they suffer.
Therefore, abolish intellectual property rights, allow anyone to use whatever information they can get their hands on, but otherwise let people keep what they earn.
By Mr. Meister (anonymous) | Posted January 21, 2009 at 11:00:05
The big problem with your argument is that a kit of intellectual property is very expensive to create. A new drug is expensive not because it is expensive to produce once you know how but it is expensive to learn how to make that drug. Microsoft has spent much money on developing its software if you or I can just use it then how can they ever recoup their development costs? Without that ability businesses will be unable to spend money to create new ideas and by extension new products. That's why there is time limit on these rights eventually they do become public domain.
Sometimes it is in our best interests not to enforce the right on our intellectual property. Just ask Sony about how that worked out with their Beta VCR system as compared to releasing the CD technology.
By leeeenus (anonymous) | Posted January 21, 2009 at 13:53:06
"a kit of intellectual property is very expensive to create"
'intellectual property' is free to create and share if it isn't in the hands of big corporations that lock it down with ip laws
"A new drug is expensive not because it is expensive to produce once you know how but it is expensive to learn how to make that drug."
drug companies spend more on marketing then research
"Microsoft has spent much money on developing its software if you or I can just use it then how can they ever recoup their development costs?"
open source makes better software for free, most of the internet runs on linux servers and most websites run on lamp (linux, apache, mysql, perl/php) all free open source systems
microsoft still controls the desktop because it's cheap dos licencing in the early days locked most consumers in and they're still enjoying that network effect today, just like how most people still use qwerty keyboards even though dvorak is easier to use and faster
By A Smith (anonymous) | Posted January 21, 2009 at 17:15:30
Mr.Meister, I would also abolish the FDA and Health Canada, thereby decreasing the costs that currently force drug companies to invest in only sure things, such as Vytorin, which was nothing more than two established drugs packaged into one formulation. However, this new freedom would make trust between individuals and the drug companies all the more important, thereby helping those companies with long track records of product safety and effectiveness become the consumers first choice. In effect, trust would replace patents and this would allow good companies to charge a premium for the products they offer.
Companies that deal in pure information, such as software firms would need to switch their models more towards service and consulting. However, since leaders in software innovation usually become famous in the community they serve, developing new types of software would only serve to increase one's reputation and therefore the fees they could charge their clients.
However, just because information is not protected by government, does not necessarily mean it is accessible to the public. Secrets can and will still be kept and this will only increase as companies strive to protect their intellectual assets from competitors. Ideas such as quantum encryption and alike are on the horizon, so the death of secrecy is not in the cards quite yet.
Overall, increasing the speed at which ideas spread throughout the world is a good thing. It means that there is less waste of capital worldwide, more innovation and cheaper products for consumers. Instead of limited, highly profitable markets, the world will become a massively more diverse, lower margin market, but one in which profits increase at a much faster pace than currently is the case. Success will be based on constant innovation and not the current model that Microsoft has been living off the past fifteen years or so.
By Mr. Meister (anonymous) | Posted January 22, 2009 at 02:28:58
What you're talking about is abolishing patents and trademarks. Anybody can download and use linux for free, one of the computers in our house runs it. There are many good things about it but it also has drawbacks not everything is compatible and some of the things can take a while to figure out(new MP3 player or video card). Many such things being beyond the average consumers abilities. With Windows much less is incompatible and then there is always customer support. Windows was a real breakthrough from the old DOS type everything way of doing things. There is no real customer support with linux just online chat rooms and friends. The other alternative is to pay for support with something like Redhat(which made Young very rich). This is a terrific choice for people who really know what they're doing like server operators but really isn't viable for most consumers but is available to all. Again nothing stops you or anybody else form using an alternative it just stops you from copying and selling Windows. Why don't more people go the alternate route? Do you use windows? Protecting intellectual property doesn't stop somebody else from coming up with a better idea or product. QWERTY keyboards were never patented the typewriter was, many times in many forms. Nothing stops you or anybody else from using a DVORAK keyboard they are certainly available.
Many things are easy to do once somebody else has figured it out and shown you how to do it. Not protecting somebody's intellectual property will result in less time and money being spent on new ideas and that translates into fewer new ideas and products not more and we will all be worse off.
Drug companies spend huge amounts of money on marketing because after you make it you have to sell it. That doesn't make it bad. There are more then enough problems with drugs already and you want to abolish the FDA and Health Canada? Really? You must be joking.
Like I stated earlier sometimes companies are better off not imposing their patents. Sony invented the Beta which was a better system than VHS but they wanted to charge a royalty to any company using their system. JVC invented the VHS system and made it available to all. The result was many different companies made VHS machines and the price of them came down very quickly. Consumers bought the cheaper machines even though they were not as good as the BETA ones. The result was that consumer BETA use pretty much died out though industry like TV stations used it for years.
By leeeenus (anonymous) | Posted January 22, 2009 at 10:43:03
mr meister i realize your also replying to a smith but heres my two cents
"what you're talking about is abolishing patents and trademarks."
no, open source software is free and open specifically because of the licencing it's released under - the gnu gpl, mit licence, bsd licence etc which legally enforce the software's openness.
remember free software doesn't mean free as in free beer, it means free as in free speech. anyone can read the source, anyone can change the source, anyone can incorporate the source in their own projects -- but some licence (eg gpl) insists that software made using free software must also be free.
companies can still make lots of money off of free software (eg red hat, ibm) but they must do it by selling service not code (eg micro$oft).
"there are many good things about it but it also has drawbacks not everything is compatible and some of the things can take a while to figure out"
true and the os community is aware that it needs to get better at ui -- linux is getting steadily better (latest ubuntu is at least as user friendly as the awful vista). also you can buy commercially supported linux distros that eliminate most of these problems for average consumer.
theres a reason most servers run linux: most server admins are computer experts and for them the benefits of linux far outweigh the small inconveniences. they're not locked into network externalities because they have the expertise to make the jump.
thats the only real reason windows still dominates the desktop and linux development hasn't been faster - average user will just go with what most people are going with, what happens to be windows due to history of msdos licencing on clone pcs.
"windows was a real breakthrough from the old dos type everything way of doing things."
and it came years after apple mac, commodore amiga, etc. windows was copycat software -- and for years it was inferior copycat software -- but people used it because it ran on msdos and they knew msdos. straightforward network externality, m$ was first out of the gate to get its os on most pcs.
funnily enough m$ did this by licencing really cheap (compared to other os's kicking around at the time) - an early lesson in the benefits of making software more accessible. dos was mediocre but accessible, and my dos program or file was more likely to work on your pc.
"why don't more people go the alternate route? "
they're starting to. linux and mac os-x (built on bsd/unix and posix compliant, with a shiny mac gui sitting on top) are both gaining market share against windows. vista has had lousy consumer uptake, and i know several people who have switched to os-x or ubuntu (a great transition is install the ubuntu dual boot on an existing win xp installation).
"nothing stops you or anybody else from using a dvorak keyboard they are certainly available."
nothing except network externalities, same as windows. each extra person who uses a given network (wither an os or a keyboard design or a communications tool like telephone, fax, email) makes that network more valuable for everyone else so people get locked in. nothing to do with windows being superior.
"not protecting somebody's intellectual property will result in less time and money being spent on new ideas and that translates into fewer new ideas and products not more and we will all be worse off."
no, oss proves people will contribute __more__ to new ideas if they have guarantee that there work won't unfairly profit someone else. look at wikipedia, better than any commercial encyclopedia and 100% written, error checked, cited and corrected by volunteers doing as much or as little as each wants. what would never fly in a company where people are supposed to do similar amount of work to get paid for it.
"drug companies spend huge amounts of money on marketing because after you make it you have to sell it."
ri-i-i-i-i-ight. like serafem, a wonderful new patented drug to deal with "pre menstrual dysphoric disorder" (what used to be known as "pms"). except that wonderful new drug is just fluoxetine hydrochloride, already patented as "pro-zac" (had to stick in dash to beat spam filter).
"sometimes companies are better off not imposing their patents"
true. most patents these days are "defensive patents" -- companies only take them out to fend off other companies trying to sue them. it's a pwot race to the bottom.
By Mr. Meister (anonymous) | Posted January 23, 2009 at 12:22:36
I heartily agree with most of what you say. I never said or implied that all ideas or inventions should be patented just that the option to do so should exist. I even gave a couple of examples of companies being better off not doing so. There certainly are abuses of the system like Serafem but again we have a choice. We have the benefit of many drugs that are available today that are only available because of these patents. I'm not always in agreement with the terms or length but I shudder to think of the consequences of abolishing all patents. A great example is the new anti bacterial drugs in the pipeline. Whatever company comes out with a new effective one will make a killing but many companies have poured $billions into those projects and that would not have happened without the possibility of a big payday.
Some of the free software is truly dynamite (I wish I could get Amarok for Windows) and by your own admission is now at a par with windows. On the other hand I have yet to find anything that is as good as Norton or McAfee that I can get for free(AVG is ok but lacking). Where is the incentive for the average consumer to change? He knows and is comfortable with Windows and it does not require a new learning curve and it adds little if anything to the price of a new computer. I like free and wish more things in life were free but taking away the possibility to have a patent is counter productive.
By A Smith (anonymous) | Posted January 26, 2009 at 13:38:55
Mr.Meister, if the market was allowed to function without government interference, drug costs would fall dramatically. Therefore, the notion that government needs to correct one wrong (imposing high costs for drug development and testing) with another (monopoly on product sales) is ridiculous. If the individual "adult" consumer was allowed to use his own brain, rather than be protected by the all-knowing government employee, we would have many more safe drugs , much cheaper than we do today.
All one has to do is look at the illegal drug market to see evidence of this. In this market, the goal is to sell as much product as possible, however, this means not killing your client base in the process. Furthermore, any organization that gets a reputation for selling dangerous drugs, soon finds itself without any customers. This is just common sense. In business, it pays to treat your customers with care.
That is the great thing about the free market, it automatically filters out the people who produce shoddy goods, in favour of those who go the extra mile to help their customer. It uses reputation in place of regulation and if it had been working in the banking industry in recent years, there would have been far less problems than we see today.
For example, most people believe that banks are inherently safe companies. However, as we are finding out today, they are anything but. In fact, most people don't even realize that their deposits are in fact investments in the economy. They assume (because the government promotes this idea) that their deposits are sitting in a vault, safe from theft or destruction, when this is not the case at all. Banks are actually massively leveraged investment companies, not much different from a hedge fund.
If government dislodged itself from this industry (abolish deposit insurance), there would still be leveraged financial institutions, however, there would also be more banks akin to a vault. These banks would charge people higher fees to safe keep their assets, but the end result would be an industry far less risk tolerant and much more conservative when it comes to allocating capital. The economy would still make loans to good businesses, but these would based on higher standards and not simply the band wagon effect we have seen in recent years (housing bubble).
Government assistance is nothing more a false promise. It never actually helps the people it is intended to, because all it does is displace our natural tendency to protect ourselves. We have all been given a brain and the trick is to use it. By allowing others to do our thinking for us, it is like asking drivers to watch out for us when we cross the road, easier, but really stupid.
By A Smith (anonymous) | Posted January 27, 2009 at 00:47:44
Ryan, there is nothing wrong with a bank run. It's simply the way the market filters out those banks that place bad bets. By doing this, it incentives banks (and their officials) to make good loans, or face serious social repercussions. The alternative is to socialize all bank risk, essentially forcing those who make good investments to subsidize those who do not. By guaranteeing deposits, the government allows banks to take on risks they would not otherwise, simply because they know their co-investors (depositors) will be bailed out by other people's money.
If the government forced individuals to stand on their own, people would not be as likely to give their money to just any bank, they would be much more conservative. This would decrease the number, not abolish, the number of banks that have acted like hedge funds in recent years, including CIBC and others.
I am not arguing that there wouldn't be winners and losers after abolishing government insurance, just that the economy as a whole would be less prone to bad ideas such as "buying a home is a great investment". This would also ensure that capital was doled out with greater care in the future, thereby decreasing the chance of throwing good money after bad.
By Mr. Meister (anonymous) | Posted January 27, 2009 at 01:15:23
How many people are you willing to sacrifice to poor drugs? The problem with your fanaticism with deregulation is many people would get hurt and even die. Most of us do not want that to happen you obviously do not care and you are entitled to your opinion no matter how misguided you are. The free market would in the end get rid of the bad companies but how many people would get hurt in the meantime? Again like our earlier debate you just do not care about anybodies welfare but your own.
How many banks have collapsed in Canada? Ever? None. compare that to the USA were they have much fewer regulations. That is a compromise most reasonable people are more than willing to deal with. Why aren't you. Does your fanaticism get in the way? Bet it does.
If there was no government controls about copying drugs pioneered by other companies the price of all existing would drugs would fall dramatically. On the other hand new drugs would become very rare. If you take away government controls on testing new drugs then the market would be flooded with a plethora of new dangerous drugs. Sure we would figure out in the end which ones worked well which ones killed people but at what price? How many souls are you willing to sacrifice on this altar? Yours? Your Mom's? Your Wife's? Your Kid's? Or just everyhody else's?
The difference between you and every body else posting is we are not fanatics and we don't want to live in a Somalia like country. You must, because it is exactly what you are always spouting off about the total lack of government controls and the ultimate free market economy.
By A Smith (anonymous) | Posted January 27, 2009 at 12:37:10
Mr.Meister, how many people die today because of drugs that aren't brought to market? I know from personal experience, there are medical treatments that are low cost, have long track records of safety and yet are banned by health Canada. Therefore, it is not clear that government is a net good when it comes to people's health. The government likes to talk about how they act as a safety net, but at what cost?
Furthermore, why is it that government feels the need to tell other adults what they can or can't use in their own bodies? Just because you sit in parliament, does not mean you have a veto over my life, or what I choose to use as my medical treatment? If you want to offer advice, fine, but otherwise mind your own business. Government is supposed to protect my freedom, not act as my parent.
What is the safety record of approved pharmaceuticals? I know there are many people that die from drug complications today, so limiting the flow of newer, better drugs only guarantees this to be the case in the future.
If you take the time to think thorough all the pros and cons, you will stop believing the government line that they are the only ones who can protect you. They want you to believe this so you ensure their budget never shrinks and their power never diminishes. They are not selfless actors, only looking out for your best interests anymore than corporations are. Both groups want your money, it's just that one group (government), will send you to jail if you don't pay up.
Lastly, do you actually believe that politicians care about you? They don't even know you? They only know you as a number, a vote and as long as they can get enough of you to check their name at the ballot box, that's where their caring ends. At least your doctor gets to know you personally, so if anyone other than yourself should get a veto over your treatment, it is them and not some official in Ottawa.
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