Virtuous Rent
Description
Peter Barnes:
"a form of rent that would have distinctly positive effects.
A perfect example of virtuous rent is the money paid to Alaskans by the Alaska Permanent Fund. Since 1980, the Permanent Fund has distributed equal yearly dividends to every person who resides in Alaska for one year or more. The dividends—which have ranged from $1,000 to $3,269 per person —come from a giant mutual fund whose beneficiaries are all the people of Alaska, present and future. The fund is capitalized by earnings from Alaska’s oil, a commonly owned resource. Given the steady flow of cash to its entire population, it’s not surprising that Alaska has the highest median income and one of the lowest poverty rates of any state in the nation.
Broadly speaking, virtuous rent would be any flow of money that starts by raising the cost of harmful or extractive activity and ends by increasing the incomes of all members of society. Another way to think of it is as rent that we, as collective co-owners, charge for private use of our common assets. Think, for example, of charging polluters for using our common atmosphere and then sharing the proceeds equally.
There are two key differences between traditional and virtuous rent. The first has to do with how the rent is collected, the second with how it’s distributed.
Traditional rent is collected by businesses whose market and/or political power enables them to charge higher-than-competitive prices. It leads to higher prices that serve no economic, social or ecological function. Virtuous rent, by contrast, would be collected by not-for-profit trusts that represent all members of a polity equally. It would be generated by charging private businesses for using common assets that most of the time they use for free. Such rent would also lead to higher prices, but for good reasons: to make businesses pay costs they currently shift to society, nature and future generations, and to offset traditional rent.
The second difference is distributional. Traditional rent flows upward to the small minority that owns most of the stock of rent-extracting businesses. Virtuous rent would flow to everyone equally.
When collection and distribution are merged, the effects of traditional rent are doubly negative: it diminishes the efficiency of our economy and the incomes of all those who pay it but don’t get any. The effects of virtuous rent, by contrast, are doubly positive: it increases the health and fairness of our economy and the security of our middle class.
At this moment, of course, traditional rent totals trillions of dollars a year, while virtuous rent (outside of Alaska) is more of a concept than a reality. But virtuous rent can and should grow. To understand how this could happen, it’s necessary to explore two other concepts: common wealth and externalities.
Common wealth has several components. One consists of gifts of nature we inherit together: our atmosphere and oceans, watersheds and wetlands, forests and fertile plains, and so on. In almost all cases, we overuse these gifts because there’s no cost attached to using them.
Another component is wealth created by our ancestors: sciences and technologies, legal and political systems, our financial infrastructure, and much more. These confer enormous benefits on all of us, but a small minority reaps far more financial gain from them than do most of us.
Yet another chunk of common wealth is what might be called “wealth of the whole”—the value added by the scale and synergies of our economy itself. The notion of “wealth of the whole” dates back to Adam Smith’s insight two-and-a-half centuries ago that labor specialization and the exchange of goods —pervasive features of a whole system—are what make nations rich. Beyond that, it’s obvious that no business can prosper by itself: all businesses need customers, suppliers, distributors, highways, money and a web of complementary products (cars need fuel, software needs hardware, and so forth). So the economy as a whole is not only greater than the sum of its parts, it’s an asset without which the parts would have almost no value at all.
The sum of wealth created by nature, our ancestors and our economy as a whole is what I here call common wealth. Several things can be said about our common wealth. First, it’s the goose that lays almost all the eggs of private wealth. Second, it’s extremely large but also (like the dark matter of the universe) mostly invisible. Third, because it’s not created by any individual or business, it belongs to all of us jointly. And fourth, because no one has a greater claim to it than anyone else, it belongs to all of us equally, or as close to equally as we can arrange.
The big, rarely asked question about our current economy is who gets the benefits of common wealth? No one disputes that private wealth creators are entitled to the wealth they create, but who is entitled to the wealth we share is an entirely different question. My contention is that the rich are rich not so much because they create wealth, but because they capture a much larger share of common wealth than they’re entitled to. Another way to say this is that the rich are as rich as they are—and the rest of us are poorer than we should be—because extracted rent far exceeds virtuous rent. If that’s the truth of the matter, the solution is to diminish the first kind of rent and increase the second kind." (http://evonomics.com/dont-ditch-capitalism-tax-extractive-side-effects-fuel-growth-barnes/)