Like any candidate seeking reelection, President Joe Biden ran on his economic record: millions of new jobs created, steady GDP growth, inflation tamed, and new legislation allocating trillions of dollars for climate technology, semiconductors, and infrastructure. Kamala Harris aims to build on this record with child tax credits, down payment assistance for first-time home buyers, tax breaks for small businesses, modest tax increases for the wealthy, and a federal ban on price gouging for groceries. Her plan certainly helps—but none of these policy proposals address the root cause of discontent among the middle class: Wealth creation in America today defies gravity and always flows to the top.
Despite recent economic indicators, the quality of life for much of America has been diminishing for decades. Since 1970, the share of income held by the middle class has dropped by a third while the share of income held by the wealthy has nearly doubled. Over the same span, the minimum wage, unchanged since 2007, has lost roughly half its purchasing power. Over 39 million workers, or 23% of the working population, make less than $17 per hour. Over 50% of American households earn less than $75,000, which, based on one study, is what the average family of three in the U.S. needs to earn to cover the costs of its basic needs. Simply put, America is hurting.
At the core of the problem is that over the past half-century, American society has been reorganized, both legally and culturally, to put the interests of investors above all others—a state of affairs we call “the investor monoculture.”
Today, about 80% of public company stock is owned by institutional investors—the likes of Berkshire Hathaway, BlackRock, State Street, Fidelity, JPMorgan Chase, KKR, and Blackstone. In 1980, this number was just 29%. Such investors tend to operate with one objective: to seek maximum profits, regardless of the harm it may cause society. Such harm usually comes at the expense of workers, customers, and communities—and explains much of the malaise and inchoate rage that plagues America.
Today’s extreme profits are being generated in two ways. The first is through cost cutting, which usually means eliminating workers, outsourcing jobs, and lowering wages. Going forward, technological advancement and the artificial intelligence revolution promise to make this worse. The second is a relentless drive for revenue growth, regardless of its effects on society or the planet. For instance, food companies have been supersizing and ultra-processing their products for decades, making a poor diet the leading cause of mortality. Suicide rates for young people are up more than 60% since 2007, but investor pressure pushes technology companies to keep users hooked to their screens for as long as possible. But none of this is the investor’s concern.
The investor monoculture serves the richest 10% of households, who hold over 90% of corporate stock, and whose incomes exceed $250,000. It has been the dominant political influence in the legislative and executive branches of the U.S. government since the Reagan administration—lowering taxes on corporations and the wealthy, diminishing the social safety net, frustrating the efforts of organized labor, and pushing back on market regulation. And in recent years, it has put hundreds of pro-investor judges on the federal bench, and a supermajority of six conservative justices on the Supreme Court.
The Biden-Harris administration’s attempts to correct this situation have been sincere, but don’t get to the root of the problem. The Biden CHIPS and Science Act provides tens of billions in funding and incentives for American semiconductor manufacturers. But chip manufacturers aren’t large employers, and the biggest beneficiary of these funds will be, yes, the investors in those corporations. Harris just announced a plan for $100 billion in tax credits for companies in strategic industries such as biotechnology, aerospace, blockchain, and artificial intelligence. Once again, it will be the venture capitalists and other large investors in these companies who reap most of the benefits.
To materially change our country’s trajectory, a new paradigm is required. Corporations must be redesigned such that everyday people (the bottom 90%) have a more equitable stake and say in corporations. In other words, we need to shift the ownership and governance of corporations away from current investors and toward stakeholders such as employees, customers, suppliers, communities, and the planet. Here’s a set of ideas that can be implemented without any new legislation or funding.
Government spending
This year, the U.S. government will spend $6.5 trillion, or 23% of GDP. Much of this is transfer payments, but trillions of dollars are general expenditures. This represents formidable spending power that can be leveraged to compel corporations to share government-generated wealth more fairly with communities and stakeholders.
What if the corporations receiving government funds through the CHIPS and Science Act were required to share ownership rights or profits with the communities in which they build factories? What if the government gave preference to employee-owned businesses, or stipulated profit sharing with stakeholders, for its purchases of goods and services? What if it mandated that, instead of being owned by private equity players looking to return multiples on their investments, all hospice services receiving Medicare funds be substantively owned by nonprofits or the people providing the hospice care? What would that do for the caregivers? What would it do for the care? Or imagine the pride and dedication of construction workers who share in the ownership and profits of firms building government projects.
Government lending
Each year, the U.S. government lends hundreds of billions of dollars to corporations through agencies such as the Small Business Administration, the USDA, and the Department of Energy. Under the Inflation Reduction Act, the Department of Energy alone will lend over $400 billion to climate technology companies. The biggest gains from these loans will go to just a few investors.
The U.S. government should stipulate higher levels of ownership, profit sharing, voting, and board rights for workers, communities, or other stakeholders in companies that participate in these programs. Such requirements would spread the benefits of these loans more broadly and give stakeholders a greater sense of economic agency and civic participation. Similarly, when state-funded universities or the National Institutes of Health license new drug discoveries or technology to corporations, they should require profit distribution that flows not just to investors but also to other stakeholders such as patients and caregivers. Imagine if patients shared in the profits from sky-high drug prices.
Redesigning corporations to benefit stakeholders and communities using existing market-based approaches presents endless possibilities. The force of government spending and investment applied in this way would foster hope among the 90% who are marginalized by the investor monoculture and begin a process of political healing.
America is hurting. Democrats must acknowledge and address this pain. The investor monoculture is at the root of the problem—and government-encouraged corporate redesign is one viable path to recovery. We already have the tools to do this. The question is whether we have the political will.
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