Equality, automation and property-owning democracy : restructuring property-owning democracy in light of current and future automation

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Equality, Automation and

Property-Owning Democracy

Restructuring Property-Owning Democracy in Light of Current and Future

Automation

By Alexander C. Owers

12092851

Alternatives to Capitalism: Political Science

Supervisor: Paul Raekstad

Word Count: 12302

June 2019

Master Thesis Political Science

University of Amsterdam

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Acknowledgements

I would like to extend my sincere gratitude to my supervisor Paul Raekstad for his constructive support and unrelenting patience throughout this process.

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Abstract

In this thesis, I argue that property-owning democracy (POD) is a preferable economic model to familiar forms of capitalism from the perspective of liberal egalitarian distributive justice. I also nest this argument within a further contention; that the ongoing and expedient process of automation exacerbates inequalities of wealth and income, which further undermines distributive justice. Therefore, this paper is divided into three logically sequential parts. I begin by conceptualising and defending a liberal egalitarian conception of distributive justice, which I call the “equal substantive liberty” conception. I argue that this conception mediates the superficial antagonism between liberty and substantive equality and renders an unconventional normative basis from which POD can be defended. Chapter two shows that contemporary automation anxiety is justified on the basis of existing data and realistic predictions for the future. The third chapter will assess the deficiencies of familiar forms of welfare state capitalism (WSC) and present a defence for a modified POD, which is both sensitive to the claims of chapter two and fully imbibes the “equal substantive liberty” conception of distributive justice. I conclude that POD theorising in the future will be strengthened by further exploring the relationship between automation and inequality and that our normative bases for that theorising should of course remain liberal egalitarian in character but need not always take Rawls as its strict departure point.

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Introduction

Writing in 1964, James Meade offered a grim vision for humanities automated future, imagining a “super-world of an immiserated proletariat of butlers, footmen, kitchen maids, and other hangers-on” (33). This radical proposition followed from the assumption that as machines become more productive relative to labour, capital owners would utilise more of the former and less of the latter. Employment in a range of sectors would decrease, leaving only a residual of low paying, menial work, oriented toward servicing the whims of the capital owning class. And, no less important, such productivity increases would reduce the marginal cost of production and engender ever greater returns to capital. The image is somewhat quixotic, but this thesis will show that Meade’s fears have largely unravelled as he suspected them to, such that the national income (including in countries with traditionally strong notions of social and worker solidarity, such as Sweden), has become increasingly lopsided in favour of capital. Consequently, the economic security of many individuals living in advanced economies will become increasingly untenable as these phenomena continue to unfurl, inviting suggestions for radical rather than merely piecemeal change.

Thesis

In this thesis, I argue that while the full transition to an automated economy is not yet imminent, there is ample theoretical and empirical evidence to suggest that the rate of substitution will continue to increase as advanced technologies become ever more productive relative to labour and diminish the remaining comparative advantages humans possess.

This overarching trend provokes several specific distributive outlays: (1) as the rate of substitution races ahead the labour reserve will increase and force down wages, put additional stress on welfare state institutions and render an increasingly large number of able people unemployed for increasingly long or indefinite periods of time (2) skills-biased technological change (SBTC) will valorise the value of some skills and ossify others, thus extenuating income inequalities (3) as the productivity of machine

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6 capital increases, the returns on capital investments will likewise increase, compounding discrepancies in capital ownership.

From the perspective of substantive equality, which all liberal egalitarianisms must affirm, each of these processes corresponds to undesirable justice outcomes: (1) The abundant supply of workers will mitigate the bargaining strength of individuals and longer periods of unemployment will potentially undermine the equal status of individuals (2) From the perspective of my conception of liberal egalitarian distributive justice, differences in income from employment are the most tolerable kind, and I will affirm strong negative rights in that regard. However, the ability to refine the capabilities which can be used to capture the residual jobs of value (and separately, usher the individual towards realising their conception of the good) is dependent on the availability of human capital resources that are equal to all in provision and quality so mitigate arbitrary endowments (3) although equality cannot be reduced to capital1_{ownership alone, I take the following proposition of Meade to be normatively sound from}

both the perspective of negative and positive freedom, that: “a man with much property has great bargaining strength and a sense of security, independence, and freedom” (1964: 39).

Given these distributive exigencies, I offer a defence of property-owning democracy (POD) as a preferable economic arrangement to existing (and even best available) welfare state capitalisms. However, I do this without explicit recapitulation of Rawls normative framework. Instead, I conjecture an alternative liberal egalitarian framework that offers a plural account of the liberty-equality dialectic, rather than a strict priority view. My essential argument is that the conception of distributive justice I induce, what I have called “equal substantive liberty”, offers a strong normative basis for POD especially in light of the phenomenon of automation.

Motivation and Knowledge Addition

This thesis has three primary dimensions of novelty, which also correspond to the authors motivations.

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7 Firstly, I argue that the orientation and structure of this paper fundamentally differs from most of the literature on POD. It does this by advancing a conception of distributive justice which, while being proximate to Rawls’ theory in some ways, does not merely restate his normative dialectic or restructure his own arguments in favour of POD (though I will describe why he promoted it in chapter 3). Understandably, many of the authors in this field are indeed Rawlsians, so linear defences of his arguments along such lines as: (1) restatement of Rawls’ principles of justice; (2) restatement of Rawls’ critique of welfare state capitalism; (3) restatement of Rawls’ arguments in favour of POD vis a vis the two principles (4) defence of his conclusions (or critiques of his judgements, which otherwise follow the same pattern); seem to be the prototype for discussions on POD. This is not to disparage those in the field, nor do I mean to argue that the POD community lacks heterogeneity; on the contrary, the POD literature is becoming ever more vibrant and diverse. I merely wish to say that our theoretical horizons are due an expansion, which I aim to (at least partially) provide.

Second, there is, at least to the best of my knowledge, no paper that has been published on POD since Meade provided the first account of a definable model in 1965, which deals, in any degree of depth or seriousness, with the problem of automation. In fact, in O’Neil and Williamson’s (2012) vital (and the only) anthology of POD essays, there is not one reference to this phenomenon. Thus, this thesis, in a modest sense, recapitulates Meade’s original agenda and seeks to assess his worries in light of modern technological advances.

Third, I have made some further adaptations to typical POD models, with particular focus on incorporating a land-value tax (LVT) as a central policy feature and by establishing a more radical emphasis on access to human capital and a right to work for adults (with the state acting as an employer of last resort).

Structure

Chapter one covers the broad conceptual parameters of liberal egalitarianism and establishes my position within these parameters. In this chapter, I begin by making some assumptions about the basic content of liberalism before inducing a conception of distributive justice I call “equal substantive

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8 liberty”, which I argue mediates the apparent antagonisms that arise between liberty and substantive equality.

In chapter two we turn to the problem of automation. Here, the objective is threefold: to explore the technical dynamics of automation; to consider the severity of the phenomenon; and to consider the its implications on income and wealth inequality. In the latter section, I will extrapolate some specific areas of concern from the perspective equal substantive liberty and use them as key reference points in our defence of POD in the following chapter.

Chapter three will then assess POD. This chapter will aim to show that this model of political economy is better equipped to deal with the exigencies that stem from automation than familiar forms of welfare state capitalism. After stipulating the general objectives of POD, I will also elaborate some policy prescriptions for the model to assimilate.

1. Conceptualising Distributive Justice

1.1. Prologue

This chapter offers a liberal egalitarian conception of distributive justice I call “equal substantive liberty”. I should be viewed as a formulative exercise through which we will render an operable conception of liberal egalitarian distributive justice. In order to achieve this objective, we must firstly describe the general features of liberal egalitarianism. This section will be short and merely highlight the core metatheoretical issues in the literature rather than indulge discursive debates between different authors. Thereafter, we will conceptualise the “individual” as a moral agent, as it is through him or her that “distributive outcomes are to be judged and assessed (Glaser 2014: 26). Once the contours of the individual have been established, we can begin to flesh out her normative content; that is, we can configure the status of her liberties in a negative sense and from there induce her corresponding positive liberties. This will allow us to develop a conception of “substantive liberty”, which I will argue simulates a unity with the liberal egalitarian aim of “substantive equality”. In doing so, we will be properly set up to state our conception of distributive justice outright which I have termed “equal

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9 substantive liberties”. In this section, I will reverse engineer this conception so to demonstrate its consistency with the prior theoretical discussion. Following some objections, we will also briefly meditate some implications with regards to the status of the market and property rights (and thereby locate the grounds for political interventions for distributive purposes). That being said, more specific issues pertaining to the institutional forms, practices, mechanisms and policy regimes that would help engender the distributive standard are left to chapter three, when we discuss the comparative virtues of property-owning democracy over familiar forms of welfare state capitalism and embed our conception within a model of the former.

1.2. The Language of Liberal Egalitarianism

Liberal egalitarianism aims to combine the values of liberty and substantive equality and provide a simultaneous defence of them (Glaser 2014: 26). For liberal egalitarians following Rawls, liberty is presumed to have moral or lexical priority over substantive equality such that when the two values seem to be in conflict, liberty must outweigh equality claims. Barry (1973) makes it clear, however, that Rawls himself believed this function should hold only when a society had achieved a certain level of development and individuals were able to exercise effective (that is, able to achieve their desired ends) rather than merely formal liberty (286). This distinction is informative for our purposes, as it pluralises the two concepts if not indefinitely, at least up until the point at which no individual would feasibly sacrifice their liberty in order to improve their material conditions (ibid). Before offering such an account of substantive liberty, we should make some initial assumptions about individuals, their moral content and their normative relations with one another.

As Glaser notes, the dual commitments of liberty and substantive equality are couched in a moral individualism, meaning that individuals are to be treated as “the ultimate moral object of concern” (Glaser 2014: 26). This also means that it is through the interests of the individual, as opposed to

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10 whatever groups we might be part of, that our evaluations of governments and institutions are to be judged (ibid)2_.

That the individual is the primary object of moral concern implies a certain commitment to individual autonomy and self-ownership. The work of Van Parijs is useful in generating workable and distinct definitions here: In the weaker sense, self-ownership means that only the individual has the moral authority to control the use of his or her body in various ways, provided that the agent in question has not made any previous commitments or wrongdoings (Vallentyne 1997: 324). In the stronger sense, self-ownership refers to one’s personal endowments or natural talents. Of course, a derivative function of these endowments is to inform the ability of the individual to learn, earn and develop the capabilities through which the individuals’ conception of the good life – our highest order principle – can be reified. Consequently, an affirmation of individual self-ownership surely implies two things; (1) from a methodological standpoint, individuals are assumed to be psychologically and physically capable of making choices and rationalising their sense of the good life (of which they should be free to pursue); (2) as rational agents, individuals are in large part responsible (or in other words, must be attributed ownership) for their choices so long as those choices are uncoerced3_{. These stipulations also subtly}

affirm the practical rights individuals should enjoy and instantiate an initial, or prepositional recognition of equality between individuals and therefore, due to their equal moral worth, a recognition of the equal value of each individuals’ conception of the good (this is a crucial point to which we will return shortly). Setting aside the lattermost remark for a moment, if the individual is considered to be psychologically capable of making choices and if he or she defined as the owner of her body and her natural endowments, it follows that whatever income the she can earn through the employment of those faculties is rightfully hers to keep. There can be, therefore, no social claim over her earnings. This is, in short, the libertarian view of desert. However, the strength of this argument begins to loosen when

2_{It should be noted, however, that this does not prohibit the liberal egalitarian from incorporating notions of}

social reciprocity into his or her models, nor is such an ontological position tantamount to a bleak defence of methodological self-interest.

3_{I define a choice to be uncoerced when the individual is not forced or threatened by some external agent or}

party, either physically or psychologically, to perform an act that is juxtaposed to the stated interests or desires of that individual.

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11 we consider that while choices might be morally nonarbitrary from the standpoint of methodological individualism, one’s personal endowments and we might call one’s situational endowments, can be defined as morally arbitrary. By situational endowments I mean the individuals materials conditions. This, then, is the source of the egalitarian counterweight to the strictly libertarian language used above. The reader will have noted that there is tremendous moral weight being placed on a specific noun, namely arbitrariness. Let us now unpack why this is important for forming a liberal egalitarian conception of equality and explore how this notion imposes constraints upon the libertarian view presented above.

The most distinctive quality of morally arbitrary phenomena such as talents or conditions is that they are unchosen, or in other words, the individual has little to no control over the advantages or disadvantages that derive from them. As Temkin’s canonical statement bodes, “It is bad -unjust and unfair- for some to be less well off than others through no fault (choice) of their own” (2003: 65). Our conception must be sensitive, therefore, both to the liberal language used above and the egalitarian counterweights to it.

1.3. The “Equal Substantive Liberty” Conception of Distributive Justice

We can deduce that a society has achieved the ideal demands of distributive justice when:

Inequalities between individuals in the distribution of advantages derive from clear choices and discernible efforts under conditions of broadly equal situational endowments and conditions of substantive equality of opportunity

The term “broadly” is necessarily vague as its absence would imply perfect equality, which is impossible so long as the market remains the primary allocative institution in society. Secondarily, its omission would render too great an emphasis on distributive outcomes as opposed to opportunities, and therefore fail to satisfy the first two provisos in that it would fail to discriminate between clear choices and discernible efforts.

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12 But what, then, does “broadly equalised” mean in a substantive and positive sense? Casting our mind back to the prior discussion, I argued that LEM, rather than starting with prepositional liberty and later imposing lexically inferior equality constraints upon it, actually requires certain egalitarian conditions to be met in order for liberty itself to qualify as substantive. To remind the reader, substantive liberty is to be contrasted with what I called minimal liberty, which stipulates the boundaries of non-interference and the basic rights to self-ownership this implies, but does not properly ingratiate the importance of money or other money-redeemable assets in enabling negative freedom (Cohen 2011), whereas a substantive conception of liberty does. Nor does it include the provision of such assets on the moral basis that in almost all cases ones conception of “the good life” is impossible without a strong capitalisation guarantee. Thus, the substantive clause in my conception of liberty renders an ethical duty on political administrations to redress significant inequalities (and possibly impose constitutional protections against them) which;

• Could obscure procedural justice by undermining the fair value of equal liberties

• Prohibit individuals from having a fair chance at acquiring positions of office or high income • Mitigate the value of choice and efforts in attaining such positions

As the reader will note, the substantive conception of liberty offers protection for both equality conditions and political or procedural liberty but still places priority on the latter. That is to say that leveraging any marginal improvements in existing material equality must not compromise the notion of basic equal dignities nor their manifestation in procedural and representational terms. However, this constitutes a reallocation of liberties from those who have them in excess to those who do not have them to a degree which we could call substantive.

1.4. Some Implications Considered

Natural Endowments and Unchosen Disadvantages

The following chapter will provide us with a further sense of how advanced economies are changing and, most importantly for our current purposes, how these changes valorise certain skills and talents over others. For instance, abstract reasoning is one of the most valued general skills in the modern

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13 economy. Thus, the luck egalitarian might say that those who are born with a natural ability for developing such talents have a disproportionate, and of course arbitrary, advantage on two accounts: (1) the individual is born with a certain talent that renders an absolute advantage over others who do not possess this talent (2) the individual is born with a certain talent that is comparatively more valuable to his or her economy than another who might be endowed with certain talents, but not the talents the economy values4_{. To be sure, this is a difficult problem to overcome. For if we can determine the kinds}

of talents that the economy preassigns unequal value to and, through some measure of child intelligence such as IQ testing, we can determine who possesses those natural advantages and who does not, should mutuality not dictate some kind of rectification?

We must make a distinction here between a genuine disability and the absence of an ability. In the former instance, somebody born blind is at an absolute disadvantage compared to others. In the latter case, somebody born with the ability to see but whom lacks 20-20 vision is at a relative disadvantage to another who does (if, say, they both equally desire to play professional baseball). There is an obvious case to be made for the provision of additional state support in the first instance. Indeed, this argument could appeal to a principle of reciprocity, but it would just as valid without such an appeal. According to my conception of equal substantive liberty, we could argue that this individuals pursuit of their conception of the good is absolutely hindered. Throwing additional assets at the problem (as my conception arguably implies) might seem like a callous form of social remediation. However, we can feasibly imagine that a well-functioning state that has imbibed the principles so far defined, would assess each case of absolute disadvantage individually, and configure the specific course of action it requires.

4_{To be sure, I am referring specifically to the ability of individuals to capture economic value rather than social}

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2. Automation and Inequality

2.1. Prologue

This chapter aims to do two things: (1) provide a balanced assessment of various hypothesise relating to automation; (2) consider the implications of those hypotheses for inequality and thereby distributive justice. By way of introduction, I will firstly provide a brief historical overview of what I call “automation anxiety”. Thereafter, we will explore the various (micro and macroeconomic) dimensions of automation from the perspective of the production function, and explore how despite some equilibrating factors, advanced technologies (such as AI, deep learning and robotics) render these factors unsatisfactory from the perspective of fair distribution. My objective is not to portray these advances as something that should be objected to or impeded, nor do I wish to dramatize the possible contradictions between labour and capital from an ontological or production perspective. Rather, my aim is to show that the socioeconomic impacts will become increasingly multifaceted and thus require direct and systemic responses. Finally, we will turn to issues of inequality where I divide the effects of automation on it into two categories: (1) its impact on employment and incomes (2) its relationship to the concentration of capital. Before turning to chapter three, I will also briefly consider the normative implications of those findings with regard to the ESL standard of distributive justice and to policy. I schematise those implications into three issue areas – capabilities development and education, employment and the social basis of self-respect, and the distribution of capital. These three variables will directly inform the normative and practical bases of POD.

2.2. On Automation Anxiety

“Consider thou what the invention could do to my poor subjects. It would assuredly bring them ruin by depriving them of employment, thus making them beggars”

Such were the words of Queen Elizabeth I as she condemned the labour-saving qualities of William Lee’s stocking frame knitting machine, brought before the monarch in 1589. The verdict

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15 clearly renders a tension, or anxiety, that has sat at the heart of social progress for centuries. This anxiety manifested itself most vociferously during the first industrial revolution when a group of English textile artisans called the Luddites staged a machine-trashing rebellion in protest of the rapid automation of textile production, fearing the obsolescence of their skills and the diminution of their livelihoods. (Autor, 2013: 131). Such paradigm shifts led some classical political economists, such as David Ricardo, to revise their conceptions of the relationship between technology and labour. In his famous chapter on the subject, Ricardo mused that investment into machine capital could have corrosive effects on the residual capital available for paying workers, which, coupled with his Malthusian perspective of population growth, convinced him that these developments would have a deflationary impact on labour demand and the wage rate (Sameulson, 1989).

Bix (2000) notes how this anxiety reared its head once again during the great depression as models of secular stagnation predicated the end of technological development and progress. With hindsight, it seems that those fears largely conflated technological with cyclical unemployment, as new periods of prosperity induced by productivity growth raised wages, living standards, and increased the range of goods available for consumption, inevitably creating new jobs along the way (Mokyr et al, 2015). Indeed, Keynes quipped that the gradual transition to automated production was proof that humanity was moving in the right direction and that our keenest concern should not be about distribution (as he anticipated endless productivity gains to eventually solve the scarcity problem and continue to push up wages) but what we should do with our leisure time (Andreas 2017: 216). Mokyr et al (2015) make an explicit and systematic connection between the phenomenon of automation anxiety and periods of relative stagnation so that the boon of literature and public concern the on subject since 2008, they claim, can largely be attributed to other macroeconomic reverberations associated with the great crisis. Despite these narratives, Nathan and Ahmed note a clear “absence of coincidence between losers and gainers” in the grand scheme of automation and technological development (2018: 283). Indeed, that “the invention of the automobile mostly eliminated the jobs of saddlers and stable boys, but… created new jobs for autoworkers, mechanics and gas station attendants” does little to remediate the distributional outcomes of the displaced (Friedman, 2017: 232). Identifying exactly who are the “losers”

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16 for want of a better term is the primary purpose of this chapter. But first, we should set aside distributional outlays and flesh out the economic dynamics at play more explicitly.

2.3. The Technical Dynamics of Automation

Looking at the problem through a basic production function Abi Adams remarks, “technology alters the form of this function with consequences for employment and wages as organisations alter the mix of workers and capital they employ in order to maximise profits or minimize costs” (2018: 350)5_{. Thus, if}

the aim of the firm is to optimise relative factor productivities, technological innovation influences the labour market by raising or lowering the elasticity of substitution between capital (including machine capital) and labour6_{. For the present context, elasticity of substitution refers to the susceptibility of}

labour to automation; so that if any given employment sector is highly elastic, the degree of automatability increases, whereas an inelastic sector implies a smaller degree of automatability. To be sure, elasticity is not the only indicator of automation susceptibility as the cost of the technology might be too high (and) or the labour supply might be particularly abundant thus keeping the wage rate low7_.

Additionally, focussing on the microeconomic dimensions of substitutability at such a high level of aggregation (such as sectors or occupations), might render misleading conclusions. To that end, let us consider these dynamics through a more disaggregated lens.

5_{The production function refers to the level of output that can be achieved through a given amount of labour and}

capital.

6_{Factors are inputs used in the production process to generate surplus, such as land, capital and labour.}

Additionally, relative productivities refer to the output a single unit of each factor can generate. As the discussion indicates, substitution largely hinges on relative productivities.

7_{There are of course several other issues affecting the composition and quality of jobs in advanced labour markets,}

such as globalization and offshoring (though there are indications in the literature that the latter process may in places be reversed as labour-saving technologies become cheaper). These processes are extremely important and partially obscure any direct causal connections we might make between automation and inequality. However, this thesis I no way promote the idea that automation is the primary causal variable in relation to inequality dynamics, nor that this phenomenon is anything other than a multifaceted issue. It is merely brevity that dictates their omission.

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17 A number of authors in labour economics literature (notably 2014; 2015; Autor & Dorn 2013; Arntz et al 2016) argue that analysts tend to render conclusions about automation from incorrect vantage points. For instance, in a famous study by Frey and Osborne the authors found that by 2033 47% of all professions in the US could be lost, while the creation of new jobs (the scale effect) due to productivity gains would only partially offset those losses (2017). This result, according to the abovementioned authors, reveals a “systemic upward bias” of the data due, primarily, to Frey and Osborne’s occupation level rather than job (or task) level approach. The former method involves aggregating various jobs into broad employment categories, such as professional, clerical, manual and so on. In contrast, the task-level approach seeks to reveal crossovers and differences in the content of workplace activities. The problem, then, is one of abstraction. At the higher level, analysts have an easier time coding occupations, thus allowing them to render assumptions about automatability based on expert or other collected data. However, by obscuring commonalities and heterogeneity within those categories, the threat to certain occupations is overstated. For example, by making such an adjustment, Arntz et al., (2016) find that only 9% of jobs are at risk of automation in the US as opposed to the 47% distilled by Frey and Osborne (though to be sure, the authors argue this figure would still demand thoroughgoing public policy responses). This also implies a further problem, which moves us onto another point of contention, namely that of complementarity.

Once the level of analysis has been adjusted, we notice that the growth of information technology and computerisation has enabled “workers performing abstract tasks to further specialize in their area of comparative advantage, with less time spent on acquiring and crunching information, and more time spent on interpreting and applying it” (Autor, 2015: 15). This dynamic constitutes not only qualitative improvements in the utilisation of labour hours, but also has important scale effects (in the form of job creation) by leveraging the relative productivity of labour. Consider the following much cited example of this dynamic at play:

As ATMs were introduced to the US commercial banking sector in the 1970s, analysts feared the near total obliteration of the bank clerk profession. Instead, between 1970 and 2010, the number of bank clerks rose from 500,000 to 550,000. While this marginal incline actually indicates a net decline in the

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18 number of clerks relative to the scale of the sector and its total output, the trend still wholesomely contradicted the downcast predictions (Autor 201: 6). According to Autor, this is a prime example of the occupation-level of analysis’ inability to account for heterogeneity and complementarity. For while ATMs automated a part of the old function of the clerk, these professionals adapted and focussed their time more on customer relations and specialised personal banking. There is no iron law of economics that dictates the ability of any industry to demonstrate such flexibility but the point still stands that it is through the gradual erasure of tasks within occupations where automation will be most intensely obvious, and perhaps this will free the worker to pursue the more creative and engaging aspects of her job. In essence, by “focussing only on what is lost misses a central economic mechanism by which automation affects the demand for labour: raising the value of the tasks that workers uniquely supply” (Autor 2015: 5).

A further question thus follows: what tasks or skills do workers uniquely supply and is it feasible for us to make any tentative propositions about whether the demand for, and availability of, that supply, will remain constant, improve or deracinate, as automation continues to deepen?

Polanyi made an important contribution to this end by dividing what he called “knowledge sets” into two types – explicit and tacit knowledge (Autor 2014). The former constitutes the kinds of knowledge that can be formalized into routines and easily codifiable tasks i.e., if using input L for function Y always achieves output X, we can expect the elasticity of substitution for corresponding job types, such as warehouse pickers, accountants and bookkeepers, to increase. On the other hand, tacit knowledge is the type about which “we know more than we can tell”, such as abstract cognition and social or interpersonal dexterity. this typology is comprised of management and STEM jobs at the high end of the skills distribution and domestic and service jobs are the lower end. This distinction billows another important development in automation trends, namely routine-based technological change (RBTC). RBTC states that it is the “middling” tasks and jobs of the income distribution, that is, job types that can be easily routinised such as those in the manufacturing sector, which tend to be lost. Hence, labour markets across OECD countries are becoming increasingly polarised (Acemoglu & Restrepo 2018; 2018b) (see table below).

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19 The discussion so far reveals a number of channels for equilibrium (that is, where the demand/supply dynamics of labour and technical capital are at unity). Firstly, although technical capital can indeed have a deflationary effect on the demand for particular skills it can also have the opposite effect, thus increasing the price of inelastic skills. Secondly, where the rate of substitution is elastic, the productivity gains induced by automation tend to offset the decrease in the labour side of the production function, due to an increase in the aggregate number of jobs (what is often dubbed the scale effect). Third, productivity gains due to technological deepening8_{and its cumulative effect for the gains of capital}

owners encourages demand for income elastic goods and services, such as luxury goods and personalised services, thus effectively acting as a buffer for “technologically lagging” sectors (Adams 2018: 354).

However, there are a number of reasons to suspect that the equilibrating tendencies of productivity growth and the scale effect will not entirely offset net substitution. One of the primary reasons for this is that developments in CTs such as AI and machine learning algorithms coupled with advances in complex robotics, will erode the enduringly human dimensions of tacit knowledge, including skills at both ends of the tacit spectrum (such analytics at the top end and dexterity at the other). To that end,

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20 DeCanio (2016) finds that the expansion of AIs capabilities will increase the elasticity of substitution and encourage more intense competition among the labour reserve and thus depress wages over time (289). Such competitive pressure, at least in the near to medium term, is expected to be concentrated at the lower end of the skill distribution (Acemoglu & Restrepo 2018). Thus, Bryonjolfsson and McAfee emphatically find that ‘there’s never been a better time to be a worker with special skills or the right education… there’s never been a worse time to be a worker with only “ordinary skills” and abilities to offer, because computers, robots, and other digital technologies are acquiring these skills and abilities at an extraordinary rate’. (2014, 11).

2.4. Automation and Inequality

(1) Employment and Incomes

We can conclude from the discussion so far that even those sceptical about the severity of automation concur that the scale effects of this phenomenon (in the form of job creation) are unlikely to keep abreast with its substitution effects (Khan 2018: 345). There is even an approaching consensus on the distributive implications of cognitive and other advanced technologies to the extent that while they open up more time to be devoted to more creative and fulfilling tasks and, at least in the near term, will augment the value of those tasks over which labour continues to have a comparative advantage, the polarisation of the labour market they induce will extenuate income inequalities. We have also noted that the consonance of labours comparative advantage will erode as technological bottlenecks are overcome, thus leveraging higher rates of substitutability. This, in turn, will generate more unemployment and increase income inequality further, even if populations stagnate or the pool of available labour becomes scarcer as populations age (Prettner 2016). Further, it’s clear that total factor productivity has largely become decoupled from compensation, which obscures the validity of complementarity claims (Ford 2015: 36).

(2) Capital Accumulation

As I mentioned in the introduction, Meade predicted that the proportion of the national income that derives from capital holdings would increase relative to labour (1964). This is because as technological

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21 factors deepen (existing technology improves) the relative productivity of capital will increase vis a vis labour. Even if we assume that productivity gains will stimulate labour demand in the aggregate, the reduction in output cost per unit of factors employed stimulates capital accumulation, which Prettner observes is diverted either toward a “unique share of savings” from which future automation capital is purchased and researched, or directly to the capital owners themselves (2016). Indeed, Acemoglu and Restrepo find that the countervailing effect of scale is mitigated by the fact that automation increases output per worker more than wages, propounding the discrepancy between capital and labour in the share of national income (2018: 142). What’s of greater importance here, however, is the question of who owns the capital? For as Picketty reminds us, a lopsided capital/income ratio alone does not tell us much about wealth inequality by itself (Vallier 2018: 144). Fortunately, Picketty provides a historically informed account of capital concentration, which helps substantiate our findings and embed them within a superstructural critique of capitalism9_{. Perhaps his most important contribution to the literature on}

OECD WSCs is that wealth inequality is not merely “possible” but “probable” (ibid). This is because the rate of return to capital (r) has historically been higher than the overall growth rate (g) of the economy, hence r > g. If capital were evenly distributed then this fact would not itself cause inequality, but because capital is not equitably distributed, the higher rate of return relative to the growth rate of the economy renders the concentration of capital stock in the hands of those who already have it (Picketty 2014).

Synthesising the discussion, we can deduce three dimensions of inequality that are directly affected by automation; inequality of incomes deriving from SBTC and polarisation; net reductions in the demand for labour thus generating unemployment; concentration of capital in the hands of the already capital wealthy.

Implications for Distributive Justice and Policy

(a) Skills and Education

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22 As SBTC coupled with advances in CTs valorises certain skills over others and render an increasing number of especially human comparative advantages susceptible to automation or complete obsolescence, the task of ensuring that both the next generation of labour - and current workers who are at risk of displacement - are sufficiently equipped to acquire the residual skills of value, is an extremely important exigency. Consequently, if the contingent demands of equal substantive liberty are to be met, such as its stringent standard of substantive equal opportunity, then access to quality education must meet the following criteria: universal access at the primary level, homogenised quality, and comprehensive state sponsored and subsidised retraining initiatives for developing both technical and interpersonal capacities. As it will become clear in the following chapter, there are some welfare states, sometimes called universal welfare states (UWS), which have countenanced parallel criteria and education policies (Schemmel 2015). However, I will later argue that this does not delimit ideal standard arguments for POD.

(b) Maintaining Equal Dignity and the Right to Work

The costs associated with unemployment are well known, and as we have documented in chapter one, there are strong normative demands liberal egalitarian justice can be placed on political authorities to ensure those costs, such as the diminishment of the social basis of self-respect, are averted.

(c) The Distribution of Capital Gains

Capital accumulation at the individual level requires savings, and savings are only possible when individuals possess the surplus income to save. If, as we have diagnosed, the total number of jobs in advanced economies is expected to decrease over time and the elasticity of substitution is anticipated to increase as technical capital deepens, then the possibility for the majority of individuals to save and therefore generate a capital stock from which their incomes from employment can be supplemented (or replaced entirely in the case of redundancy), is profoundly inhibited. It follows that the freedom of uncapitalized individuals “to be” or “move toward” their conception of the good and enhance their capabilities so that they might acquire what is of intrinsic value to them, requires a deepened pre-earned guarantee of capital.

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23

3. Property-Owning Democracy

3.1. Prologue

This chapter has three overarching objectives. Firstly, we will establish on what grounds welfare state capitalism (WSC) can be fundamentally rejected from the perspective of distributive justice. To do this, I will briefly recount the arguments put forward by Meade and Rawls, before leveraging additional weight against this regime type from the perspective of equal substantive liberty. We will also briefly consider some methodological objections to the schematic characterisation of WSC both Meade and Rawls can be accused of and consider whether the present paper entirely escapes those accusations. Secondly, I will provide a brief overview of the institutional makeup of POD and relate its core ideational objectives and corresponding policy features. Finally, I will also begin to flesh out the variation of POD I champion, in terms of the kinds of capital that it should distribute and by what means it will achieve this broad equalisation. Regarding the former, I concur with Thad Williamson (2009) that a constitutional guarantee of universally accessible human capital and three types of nonhuman capital (personal property, productive and cash assets) is vital to meet the requirements of ESL indicated in chapter one.

3.2. Why not Welfare State Capitalism?

The welfare state can be defined as a regime that constrains capitalism by supplying a publicly funded social safety net or social minimum to protect basic welfare needs (Bou-Habib 2016: 652). It aims to achieve this by imposing a range of tax and transfer initiatives on income and capital surpluses and goods but, on the whole, it can be said to instantiate stronger negative rights to property compared to POD as it allows for greater discrepancies in wealth and generates (weak) reciprocity to the extent that the gains of the rich are used to subsidise the incomes of the most disadvantaged (ibid).

Turning to Meade, we should first recall his concerns regarding technological unemployment as it is against that background process his discussion of WSC and several other ideal regime types

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24 rested. Meade foresaw that the rise in output per person employed (due to the refinement of technological capital) would lead to a consequent rise in the relative importance of machines over labour and therefore a net increase in the elasticity of substitution. According to Meade, the outcome of these three interacting variables would be a lopsided ratio Q (whereby income from capital would make up an increasing bulk of the national product) and prolonged periods of unemployment for vast numbers of otherwise able and willing workers. Couching his objections in this context, Meade rejected WSC on two bases10_{(1) in order to achieve a desirable standard of equalization, income taxes would have to}

be inordinately progressive and therefore inefficient (2) the system may well equalise incomes but it would not equalise property ownership (1965: 38). The first rebuttal is a common one in conventional economic theory, which states that higher income taxes are associated with declining per capita output. The second is a direct corollary of his ratio Q and as we have observed, has since been amplified by the process of automation and Picketty’s work on capital accumulation. Meade also recognised that WSCs medium of reciprocity is still predisposed to the creation of a class of “dependents”, whose material wellbeing is inextricably tied to the wealthy. This, we can state without much hesitation, is an affront to the basic prepositional and political equalities discussed in section one and, if true, would surely render WSC incapable of satisfying the ESL framework.

In a similar vein to Meade, Rawls contended that WSC was structurally inconsistent with his principles of justice on three accounts; (I) WSC is unable to protect the fair value of political liberties due to its inherent tendency to permit large inequalities in the ownership of productive assets. By “fair value of political liberties”, Rawls means that “the worth of the political liberties to all citizens, whatever their economic or social position, must be sufficiently equal in the sense that all have a fair opportunity to hold political office and affect the outcomes of elections and the like” (Kerr, 328). Rawls assumes, therefore, that when economic power is concentrated in fewer hands this discrepancy in wealth will

10_{Meade also rejected what he called the “trade union state” (TUS) in which a minimum wage rate is set}

through union action and or legislation, thus ensuring that workers cannot fall below a predetermined income floor. The outstanding disadvantage of this model, according to Meade, is once again its imposition on efficiency, as trade unions will often demand wage increases that are higher than productivity growth. According to standard economic theory, a firms marginal profitability is largely determined by productivity gains, but if the firm is forced to compensate labour at a rate that is equal to or higher than those gains, trade union bargaining will actually incentivise the substitution of labour with capital, and thus should be avoided (1964: 35-7).

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25 automatically transude into discrepancies in political power. (II) It fails to satisfactorily decouple life chances from social background, which violates his standard of fair equality of opportunity (FEO). (III) WSC does not foster a principle of reciprocity such as his difference principle to regulate social and economic inequalities (Thomas 2012: 4-7). To be clear, a standard of reciprocity like the difference principle insists that the gains of the most advantaged in a society cannot float free of the least advantaged11

3.3. The Objectives of Property-Owning Democracy

Let us begin our discussion of POD by delineating some of background features that will remain in place whence we arrive at the other end of the discussion. Firstly, POD is envisaged as a market economy in which resources are chiefly allocated, and earned economic gains primarily distributed, through the price mechanism. Second, POD would be a mixed economy, thus permitting both the private and public ownership of assets. Third, individuals are to have free choice of careers and occupation. Fourth, some regular forms of tax such as progressive consumption and income taxes are assumed to be necessary in order to satisfy the budgetary demands of the public purse (that is, to make up for shortfalls in receipts from alternate sources and to serve the basic and universal function of maintaining the legal and political conditions for voluntary market activities to occur). It is also assumed that the proceeds will be spent on the provision of public goods such as infrastructure and education and, depending on the quantity of funds deriving from alternate tax streams. Fifth, POD should be committed to progressive standards and regulations regarding the protection of workers’ rights and the mitigation of externalities, though regarding the latter, it need not impose minimum wage legislation (as this would run into efficiency problems when coupled with the portraiture of capital dispersal we will soon promote).

11_{Rawls first two contentions are broadly consistent with the discussion of chapter one, however, we have also}

rejected his difference principle for the probability that it imposes illiberal conditions on the individuals chosen advantages.

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26 The reader will have noted that there is a significant amount of overlap between the background features of POD so described and those of familiar forms of WSC. However, the extent of the social and economic inequalities these two models permit and the means by which they aim to restrict and redress them, are fundamentally distinct. What follows is not a strict comparative assessment of the two models, but an elaboration of the core objectives and precepts POD operationalises in order to achieve distributive justice. However, comparisons will be occasionally earmarked as and where differences between the two are most punctuated in order to show how POD better satisfies our aims for distributive justice.

1.2 The Core Objectives of POD

Martin O’Neil (2012) outlines three core objectives of POD, those being;

1. Wide dispersal of capital

2. Restrictions on the intergenerational transmission of advantage 3. Safeguarding the corruption of democratic politics

I will elaborate the meaning of these objectives and divulge some of their corresponding institutional and policy features. Where appropriate, I elaborate my own additions and modifications.

Firstly, the wide dispersal of capital, what is essentially the raison d'être of POD refers to the broad equalisation of both human and nonhuman capital. The former generally refers to the dispersion of access to, and opportunities for, education and training, while the latter refers to the ownership of assets and properties (O’Neil 2012: 77).

The second aim is an organic corollary of the first, for seeing as (I) much private wealth is inherited and the advantages deriving from it are largely unearned by the benefactors and (II) incomes derived from wealth are becoming proportionately larger than incomes from employment, it follows that if we are to institutionalise a principle of substantive fair equality of opportunity in which arbitrary endowments (which includes the positive choices of ones forebears) do not altogether predetermine the social and economic potentialities of the individual, then the breaking up of gratuitous estates and savings must be instrumentalised to achieve this goal. Of course, much wealth is generated by

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27 corporations and other entities whose ownership is not bequeathed in the same way personal properties are, so the range of tax, transfer and distribution initiatives that fit within this objective, such as inheritance tax against recipients of bequests and gift inter vivos, must be appropriately variegated (as point 1 intimates). These should include

In the absence of precepts one and two, the third objective, being the safeguarding of democratic politics becomes, if not impossible, tendentiously more difficult to institutionalise. As we have seen, this assumes that economic power often covertly or overtly translates into political power, thus demeaning the quality of procedural justice demanded by our liberal egalitarian framework. even though precepts one and two would naturally improve the quality of procedural justice, this objective requires that additional and more explicit safeguards should be imposed to ensure that the fair value of individual liberties and basic prepositional equalities are thoroughly concretised and protected in the political system. Such constitutional or legislative requirements might include strict rules on campaign finance, donorship to political parties, political advertising and so on and so forth12_.

Interpreted together, these objectives seek to limit the (economic and political) power of the most advantaged and efficiently substantiate the (economic and political) power of the disadvantaged. However, models of POD can assume different modalities and thus, depending on the modalities assumed, the outcomes it generates will vary accordingly (Smith 2017: 315). We will return to this point towards of the end of the paper, where I will consider whether or not my particular set of proposals justifies calling this model an “alternative to capitalism”.

3.4. Modelling Property-Owning Democracy

In his egalitarian interpretation of POD, Williamson intimates that “POD should not be a society in which some have property and others do not” even if a maximum cap is imposed on capital holdings or inheritance (2009: 438). He calls this the minimalist conception of POD. In contrast, he advances a model in which all persons are sufficiently capitalised with three types of nonhuman assets, which he

12_{The reader should note that for sake of brevity and centralising our remit focus I will not devote any more ink}

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28 identifies as residential, productive and cash assets. I am in broad agreement with Williamson that all persons should, as a baseline demand of distributive justice, be granted a portfolio constituted by all three asset classes, for only then will citizens have enough tangible property to materially affect their life prospects and exercise a notion substantive personal liberty along the lines I have advocated (ibid). I also agree with him that if POD is to reproduce itself over time and avert regress into unbridled corporate capitalism, productive capital must be integrated into our contentions13_.

At a theoretical level, POD aims not to “redistribute income to those with less at the end of each period… [but rather it seeks to ensure] the widespread ownership of productive assets and human capital… at the beginning of each period” (Rawls 1999: xv). This line of argument should not be read in temporally literal terms but as a metaphor expressing the divergent objectives of redistribution versus predistribution. Definitionally, redistribution refers to taxes and transfers that take from some and give to others in order to either alleviate people from destitution or supplement living costs for the lowest earners in society (and of course, fund public goods). In practical terms, this is usually construed as taxes on incomes deriving from productive activities, such as remuneration from work or returns on capital investments. Conversely, predistribution focusses on the genuine empowerment of persons as economic agents by broadly equalising capital portfolios and augmenting those of the worst off in society (Williamson 2012). To do so, predistributive taxes tend to target different sources of revenue, such as inheritance and gift taxes inter vivos (between living people) as they are more clearly unearned (Meade 1965: 55). Thus, predistribution is concerned with redressing inequalities in the available

13_{Indeed, the literature on financialization since the 1980s levers added ammunition for this requirement. Most}

prominently, financialization refers to the structural shift (due to market and institutional processes) of economic gains away from the holding of real assets to financial ones (Epstein 2005: 4). As Allen (2017) avers, while inequalities persist in the ownership in real assets, the ownership of financial assets is even more concentrated and in the majority of OECD countries, thebottom half of the population is often without financial assets at all beyond small savings accounts (27). Coupled with the automation induced dimensions of inequality explored at the end of chapter two, we can surely argue that without the inclusion of productive capital in our framework it is likely that corporations and financial capital would continue to be disproportionately owned by the richest in society, which would undermine the fair value of individual liberties and substantive equality of opportunity in much the same way as even best existing models of WSC do13.

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29 capital people can bring to the market, rather than redressing the unequal outcomes of individual efforts and choices (Kerr 2016: 69).

3.5. Additions and Modifications to the Model

Land Value Taxation (LVT)

As a preliminary note for the reader to bear in mind, there are two principal reasons for advocating LVT as a cornerstones policy mechanism of POD (to which I will return after the body of the argument). Firstly, LVT targets dividends from the rental value of land that are expressly unearned, do not derive from productive efforts, and in most cases are not induced by explicit choices. This, quite obviously, strikes a chord with the distributive standard we have conceptualised. Second, it would discourage landowners from underutilising the land and encourage the opposite – productive utilisation. Given that we can expect a net reduction in the number of jobs as time goes on, the corollary of this encouragement is significantly increased employment prospects.

To best understand the normative grounds for LVT, we must first understand logic of economic rent. According to Ricardo, economic rent is “that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil” (1821: ch.2). This is to say that a distinction must be made between the “natural advantages of the land”, which are latent irrespective of its future utilisation, the properties built on it, and/or the capital and labour inputs employed in order to generate surplus. We might also extend this differentiation to include “social advantages”, which are derived from “the presence of a settled community, its population distribution, law and order, infrastructure – roads, railways, bridges and municipal facilities – existing economic development in industry, commerce and finance, public utilities like water, gas and electricity” and so and so forth (Hodgkinson 2008: 73). Thus, the rental value of land derives from three interdependent sources (1) that which is attributable to nature (2) that which is attributable to public services (3) that which is attributable to private activities (Andelson, 2010: 110). Let us explore this categorisation by way of example:

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30 Suppose a pensioner acquires some land in greater London, say sometime in the 1820s. His purchase is surely intelligent, seeing as the wheels of the industrial revolution were already palpably turning. Nevertheless, he lives to an unconventionally old age and witnesses the full birth of mechanical and commercial development in the inner city. Factories abound and land values in the city increase substantially, thus buoyant industrialists are forced to look further afield for their sites of production. Sure enough, this expansion of market activity motivates parliament to up investment in public works, such as quality infrastructure. Together, these processes push up the value of the pensioners land two, three and fivefold. All the while, our pensioner has done little with his land other than building a sizeable estate for himself and several smaller estates for renting, leaving the residual to lay unused. We can conclude that, due to factors outside of his control, he is able to charge his occupants much higher rents and increase his income considerably or, if he decided to sell his land to prospective buyer, the return on his investment would be supremely high.

Applying the Georgist logic outlined above, we can justly argue that only a marginal proportion of this dividend stems from the landowners choices and productive efforts, whereas a more significant proportion the gains can be attributed to public investment and the thrift of individual commercialists. Thus, the gains should be construed not as an individual dividend but a socially owned surplus. In Addition, unlike other common forms of municipal tax, the levy is not imposed against the tenants of the properties built on the land (whether residential or commercial), but against the landowners themselves. This orientation is in some ways normatively parallel to the argument for HIT, which we have argued should be levied against inheritors rather than donors (O’Neil 2007).

As Kerr argues, LVT possesses an innately predistributive character due to the fact it targets income that is strictly unearned (2016: 87). Crucially, the proceeds of those funds can help nourish the purchase of shares by public investment agencies for distribution to citizens or they can be directed to the portion of the public purse devoted to cash grants along the lines I will subsequently argue for. Indeed, I argue that LVT would be a more effective policy in a POD than WSC because, if the value of land is reduced (and thereby the value of properties situated on the land), those whose income primarily derives from assets rather than from productive sources should still be sufficiently capitalised. I have also argued that

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31 POD should be choice and efforts sensitive so to the demands of substantive liberty – indeed, it was due to these demands that I rejected Rawls difference principle and thus disqualified it as a normative buttress for POD. I have also argued, however, that a principle of mutuality (that is, a principle that fosters a sense of reciprocal advantage and equal respect between citizens) should be instantiated in POD so to compound the positive dimension of substantive liberty. To that end, I have advanced the view that capitalising all citizens with the three types of nonhuman capital countenanced by Williamson would encourage mutual respect, concretise the notion of equal dignities and serve to prevent the erasure of their fair value. However, even in a society where this has been achieved, additional capital should be made available for those who are unable to acquire incomes due, say, to physical or mental impairment (whether permanent or temporary). Thus, an important question and potential rejoinder must be met square on: how exactly is this particular dispensation to be sourced if not through typical tax and transfer policies that subsidise the losses or disadvantages of some with the gains or advantages of others? To remind the reader, I have not argued the complete eradication of income tax for this and other purposes, but I have argued that it should be limited as much as possible as per the conditions of substantive liberty. That being said, the especially social premise that undulates LVT indicates that it might be the best available revenue stream for such a reserved pot for special dispensation. Should there be a remainder after this justice requirement has been fulfilled, it could be redirected to ensure the satisfaction of the situational endowments proviso of our working standard.

Human capital

With regards to human capital access and development, we must make a longitudinal differentiation between (a) the schooling of young persons, defined as being of pre-college age (18), and (b) the availability of knowledge and training programmes for adults. The moral worth of the former will invariably outweigh the latter in any reasonable account of POD. That being said, any modern account of POD that takes the concerns of technological unemployment seriously must be equally attentive to the latter. Let us first speak generally about why human capital matters before explicating the two aforementioned considerations in turn.

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32 Access to institutions and resources for human capital development are a vital form of property. As Williamson puts it “large inequalities in human capital… are a recipe for long-term inequality at least as consequential as differences in assets or incomes” (2013, 77). Two primary implications follow from this claim, one theoretical and one practical; (1) a good or better-than-average education is more often than not freely converted into material wealth (Meade 1965: 46). To be sure, plenty of choices have to be made along this road and the educated individual should be entitled to many of the gains she might procure due to those choices, but this correlation will hinder the ability of POD to reproduce the mitigation of economic differentials over time, which is its most centripetal objective (2) the education strategy this implies is a (preferably) constitutional or legislative affirmation of (a) substantively equal public education for all including a broadly homogenous national curricula (b) substantively equal funding of schools within the same catchment area (c) additional funding and dispensation for children with special requirements (d) ensuring a proportionate distribution of children from different socioeconomic backgrounds (ibid). To be clear a “substantively equal public education” is understood as one that allocates equal public resources in both quantitative and qualitative terms to all children with, again, special dispensation for the children whose desiderata meet the criterion for additional investment (ibid). While Williamson himself issues these proposals in the context of reforming the United States’ constitution, the precepts are, for the most part, straightforwardly generalisable across cultures and economies. However, it could be argued that something akin to these proposals already exists in the social democracies of Sweden and Norway, among other North European states. That being said, I interpret Williamsons proposals to have another more radical quality; that qualitative differences between schools and quantitative differences in terms of private investment and donation are for the most part prohibited, so to meet both the negative and positive construals of substantive equal opportunity, at least outside of the commercial sector.

Several considerations and potential objections follow from this more radical stance: firstly, prohibiting extracurricular tuition in the same way would be taking this regimentation too far, for the practical reason that such domesticated occupations are difficult to regulate and for the two normative reasons that such an imposition would violate the individuals freedom to choose his occupation and secondly,

Equality, automation and property-owning democracy : restructuring property-owning democracy in light of current and future automation