Citizens Wealth Funds

= "Such funds are collectively held funds, socially owned, established initially by the state from the pooling of existing or new resources, and used for the wider benefit of society". [1]

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Stewart Lansley:

"Such funds are collectively held funds, socially owned, established initially by the state from the pooling of existing or new resources, and used for the wider benefit of society. They would play a key role in the construction of a new model of shared capitalism which ensures that at least part of the gains from economic activity are pooled and shared among all citizens and, crucially, across generations.

In contrast to the built-in inequality escalator that defines today's dominant model of corporate capitalism – of what the French economist Thomas Piketty calls a ‘fundamental force for divergence’25 – citizens' wealth funds offer a new counterforce for convergence. Over time they would raise the share of all national wealth that is collectively held (this currently stands at less than a tenth in the UK). Such funds operate like a giant community-owned unit trust: a professionally invested portfolio of assets, with the gains accruing to citizens. All citizens would own part of the economy, a part that would grow over time, thus raising their stake in economic success.

As well as locking in part of the gains from growth for all citizens, such funds have many additional merits. They mobilise part of the national wealth for the common good. Allowed to grow over time, they would inject more long-term thinking into economic management. The permanent nature of such funds – with only an agreed proportion of the gains spent each year – would secure greater equity between generations. Provided they are managed with transparency and at arm's length from the state – through an independent board, and ideally with a channel for citizens to participate – they offer a new tool for social democracy and effective reform of full-blooded capitalism. They represent a 21st-century alternative to the top-down statism of old-style nationalisation and the recent fashion for rampant privatisation and uncontrolled markets. They provide a means of raising the level of public capital, and the potential income streams that it offers, bringing a powerful balance to private capital. By taking established stakes in companies – and by so doing being able to influence their behaviour, over, for example, executive pay and levels of investment – they could also help align the interests of society and business more closely.

There is nothing utopian about this idea. There are longstanding and successful overseas and domestic models. The state of Alaska used its oil windfall to create a Permanent Fund which has paid a pioneering and highly popular annual citizen's dividend (of between around $1,000 and $3,000) since 1982. An audacious social experiment, the move has helped ensure that Alaska is one of the most equal of US states. The initiative has also established a vital principle – that part of the economic benefits of natural resource exploitation should be shared by all citizens. Despite this, the concept has yet to be copied elsewhere.

In 2006, Australia established a Futures Fund financed in part by the sale of Telstra, the publicly owned telecoms giant. Its main remit is to help pay the pensions of public sector employees. The Fund – now worth around US$100 billion – has achieved an impressive return and is also helping to pay for disability care costs and medical research.

The giant Norwegian sovereign wealth fund – currently worth in excess of $850 billion (around double the size of Norway's economy) – is also financed by oil. The fund has been a cautious investor, with a real rate of return of some 3.7 per cent a year since 1998, just short of the government's 4 per cent annual target. Designed to accumulate for the future, its investments are monitored by an independent ethics committee, and it has gradually become more active in its approach to its portfolio. So for ethical and environmental reasons, it has divested from heavy polluters, firms involved in deforestation and from some coal companies; it also excludes tobacco firms and those involved in the arms trade. In 2015, it excluded four Asian palm oil companies. It has flagged concerns over companies that misuse water and energy or benefit from child labour and is getting more outspoken on issues like excessive executive pay.

In 1974, Singapore adopted an alternative route, setting up a holding company – Temasek – consisting of the country's major state-owned enterprises, and which has enjoyed higher returns than the Norwegian Fund. Now worth US$175 billion, the dividends are used to support the public finances, thus contributing to sustained investment in public infrastructure.

These models have pioneered a powerful and progressive way of managing part of the national wealth, while ensuring that the benefits of communally owned wealth are shared with future as well as current generations. The Norwegian and Alaskan schemes – now firmly built into the nation's social systems – have been widely recognised as models of how to manage national windfalls." (http://onlinelibrary.wiley.com/doi/10.1111/newe.12050/full)