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A moral and economic critique of the new property-owning democrats: on behalf of a Rawlsian welfare state

Abstract

Property-owning democracies combine the regulative and redistributive functions of the welfare state with the governmental aim of ensuring that wealth and capital are widely dispersed. John Rawls, political philosophy’s most famous property-owning democrat, argued that property-owning democracy was one of two regime types that best realized his two principles of justice, though he was notoriously vague about how a property-owning democracy’s institutions are meant to realize his principles. To compensate for this deficiency, a number of Rawlsian political philosophers have tried to add institutional and policy content to the idea. While their efforts have advanced the discussion, few have criticized the soundness of these attempts. This article attempts to fill the void. I claim that, in comparison to welfare-state capitalism, property-owning democracy is both prohibitively impractical and unjust on Rawlsian grounds. I first argue that property-owning democracy is economically ineffective. Even granting the assumptions of Rawlsian ideal theory, property-owning democracies generate bad incentives and face severe information problems in comparison to more market-friendly welfare states. Further, in nonideal theory the motivations of political officials and citizens will likely be corrupted by the temptation to abuse the awesome state power at their disposal. Second, I argue that property-owning democracy is unjust relative to welfare-state capitalism. The three principles used to defend property-owning democracy—the difference principle, the principle of fair equality of opportunity and the “political liberty” proviso—do not vindicate property-owning democracy and may even prohibit it. Welfare-state capitalism does much better.

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Notes

  1. I cite a variety of their papers throughout, but for many of their articles, see the edited volume, O'Neill and Williamson (2012b). Through Rawls, political economic work on property-owning democracy began with economist James Meade. See Meade (1964). In this paper, I focus on the Rawlsian interpretations of the idea.

  2. This piece was submitted for publication prior to the appearance of the Analyse & Kritik symposium on property-owning democracy, so it does not directly incorporate its many insights. However, from my read of the issue, none of the defenses of POD address my concerns.

  3. O'Neill and Williamson (2012a).

  4. Ibid. It is unclear what “local” refers to.

  5. See Williamson (2013) for discussion of how to guarantee these rights through constitutional amendments.

  6. I will discuss whether this distinction is viable below.

  7. It is less clear whether O’Neill and Williamson would endorse these bodies, but they endorse the basic functions of the bodies in any case.

  8. Ibid., pp. 496–505 explain how compliance with justice is an important good that restrains psychologically developed persons from pursuing their other aims.

  9. For a taxonomy of Rawls’s forms of ideal and nonideal theory, see Simmons (2010).

  10. I assume here, I think fairly, that most capital owners are in it largely for the money. Perhaps in a POD, people will try to accumulate capital that will be confiscated later for other reasons, but no such reasons are cited by POD advocates. Roemer (2013) provides reason to think that certain CEOs of huge corporations aren’t in it solely for the money but status and prestige. But this at most applies to a tiny handful of capital owners.

  11. For classic discussions of the informational function of prices see Hayek (1945) and Kirzner (1973).

  12. Save in cases where capital is acquired through rent seeking, or there are high barriers to entry. I thank ES for this point.

  13. I thank GP for this point.

  14. Note here that I’m assuming there’s no massive market failure in the creation and distribution of capital—as far as I am aware, none POD advocates have claimed that there is.

  15. Even so, many have argued that welfare state redistribution slows economic growth for similar reasons. For a brief review, see Goodin and Schmidtz (1998, pp. 60–79).

  16. For some evidence on this issue, see Alesina and Rodrik (1994).

  17. Narveson (2013) raises some similar worries about how to distinguish predistribution and redistribution.

  18. This point is familiar from simple introductory economic textbooks. See Mankiw (2011, Chap. 8).

  19. For modeling and data to this effect, see the classic work of Vanek (1970). Vanek finds that employees tend to maximize their shares rather than profits.

  20. For a model of underinvestment effects, see the classic Ward (1958). For a review of classic models and empirical evidence, see Dow (2003).

  21. Note that standard proposals for workplace democracy prevent people from divesting their capital stock into income when they leave the firm, so those who leave face a substantial economic loss. For standard models, see fts. X and X+1.

  22. See the introduction to and articles in the recent edited collection, see Kruse et al. (2011). These effects could include fewer principal-agent problems or less rent seeking.

  23. They need not fix price and wage levels, but rather delineate an efficient and just range.

  24. Compare Hayek (1979, p. 55) with Hayek (1973, pp. 134–136).

  25. Some classic works of public choice are Black (1958) and Buchanan and Tullock (1962). Public choice concerns have been analyzed in social science for over 50 years, yet go unmentioned in POD defenses.

  26. For a review of rent-seeking models of regulation and the political process, see Sects. 15.2 and 15.3 of Mueller (2003).

  27. For a classic discussion of regulatory capture models, see Stigler (1971).

  28. Note that this point is not contradicted by the claim that in a POD there will be far more businesses and business owners, such that social coordination between them to influence politics will be weakened. Regulatory capture can happen gradually through the accumulation of local fragments of government. This process is most famously described in Olson (1971).

  29. See the 2014 Index of Economic Freedom http://thf_media.s3.amazonaws.com/2014/pdf/Index2014_Highlights.pdf, where Denmark ranks above the United States and the Netherlands, Sweden, and Finland only rank below the US due to their high tax rates and high rates of government spending. On nearly all metrics of market freedom, Nordic countries have freer national and international markets.

  30. Rawls (2001, pp. 63, 159).

  31. O’Neill has constructed an argument that a right to economic democracy, as embodied in (v), could justifiably be treated as a first-principle liberty. See O'Neill (2009, pp. 32–42). That said, O’Neill and Williamson recognize that Rawls stresses the political liberty proviso rationale for POD in Political Liberalism. See O'Neill and Williamson (2009, esp pp. 4–5).

  32. Freeman (2013) holds that in light of the weaknesses of these arguments, we should understand Rawls’s critique of welfare-state capitalism as based on his association of welfare-state capitalism with restricted utilitarianism. On Freeman’s view, Rawls’s association between the two views led him to overlook a contractualist defense of the welfare state. This interpretation of Rawls is, in my view, uncharitable. It assumes that Rawls did not realize that the defense of the welfare state could be separated from the utilitarian foundation often offered on its behalf.

  33. Though the POD could confiscate their capital whenever it likes so long as the officials that exercise such capricious power are democratically elected.

  34. Though in modern economies, it is rare that people take on all the risk themselves, due to limited liability and shareholder arrangements.

  35. I thank Eric Schliesser for this point.

  36. Again, see Sects. 15.2 and 15.3 of Mueller (2003).

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Vallier, K. A moral and economic critique of the new property-owning democrats: on behalf of a Rawlsian welfare state. Philos Stud 172, 283–304 (2015). https://doi.org/10.1007/s11098-014-0303-2

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Keywords

  • John Rawls
  • Property-owning democracy
  • Welfare states
  • Economic justice
  • Ideal theory