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July 27, 2011

The Commons Offers Hope for Healing America's Racial & Class Divide

Whites are now 20 times wealthier than African-Americans on average

The civil rights movement ended the legal basis of white supremacy in the U.S. several decades ago yet vast inequalities of wealth still persist, making equal rights a stubbornly elusive goal. There have been modest advances in reducing the Black-White income gap. But if African-American income continues to rise in the future at the same rate as they did between 1968 and 2001, it would take 581 years for black America to reach income parity with white America.

According a Pew Research Center report released in July 2011, the median family net worth of African-Americans was $5677, while median white net was $113,149. The median net worth for Latino families was $6325. That means whites are twenty times wealthier than African-Americans on average, and 18 times wealthier than Latinos.

Our nation needs to make a dramatic re-investment in broadening wealth and opportunity for Americans who have been historically left out of prosperity. Massive government investments of the past that helped reduce the income gap, such as the 19th Century Homestead Act and post-World War II veterans and housing benefits were effectively “whites only.” Since the end of legal discrimination in the 1960s, there has not been a similar mass investment in economic opportunity that African-Americans and other people of color could benefit from as equal citizens.

How Wealth is Really Created

One barrier to new programs that could elevate the economic standing of lower-income Americans is a widespread misunderstanding of how private wealth is created. Both the media and popular mythology extol rich people as the best and brightest, with the assumption that they made it on their own. Yet no one amasses wealth entirely alone. In truth, many, if not most, wealthy Americans inherited a substantial portion of their net assets. And even for those who did not, private wealth (savings, homeownership, investment wealth) was created from a combination of individual enterprise and the “commons.”

The story of “wealth creation” in the U.S. needs to be revisited through the perspective of both race and the commons. There is a long and unseemly history of the U.S. government channeling common wealth to expand the individual wealth and opportunity of the most privileged citizens, almost all of them white.

Even before the existence of the U.S. as a nation, Europeans confiscated and enclosed land and natural resources from indigenous peoples, creating the base of wealth on which our modern economy was built. Similarly, the U.S.—often through military intervention—appropriated the resources of foreign people.

Black labor—first slaves, and later sharecroppers and low-wage workers—have generated immense wealth for wealthy white Americans and got very little in return. While workers of all ethnicities have been exploited, African-Americans, along with other minorities, were systematically singled out for the lowest pay, worst working conditions, and greatest environmental impact on their communities. We can look back at the “robber baron” fortunes of the Industrial Revolution that were based on a small set of white elites gaining free access to the nation’s commons resources to exploit for personal enrichment. Companies, buildings and charitable institutions still carry the names of the individuals who cornered markets built on the natural commons, including oil, timber and minerals – as well as socially-created wealth such as railroads and the stock markets.

But even the historical government programs most celebrated for boosting the fortunes of ordinary citizens generally excluded Latinos, Asians, Native Americans and African-Americans. The Homestead Act, the most extensive 19th Century program for creating family wealth, essentially expropriated indigenous peoples’ lands – and enclosed large tracts of common property – to grant private property titles to white homesteaders.

In the 20th Century, the programs of the New Deal and GI Bill are often lifted up as bold initiatives to expand the American middle class. But as Ira Katznelson chronicles in When Affirmative Action Was White, Social Security, the educational benefits of the GI Bill and homeownership programs of the 1950s all deepened the racial wealth divide.

These programs were designed by a Congress where Democratic Party white supremacists still wielded wide power and were implemented in many states so as not to upset local white rule. As a result, the first two decades of Social Security excluded agricultural and domestic workers, occupations disproportionately held by African-Americans. During World War II, African-Americans faced unequal treatment in the segregated military and were less able to access the bountiful benefits of the GI Bill upon their return.

The post-war economic boom was fueled by subsidized housing assistance to more than 35 million Americans between 1948 and 1972 in the form of VA and other federal loan subsidies. The biggest beneficiary was “whites only” suburbia, which also benefited the most from mortgage interest tax deductions.

Due to economic inequality and various racist practices – such as redlining, bigoted realtors and outright racist violence used to maintain segregated neighborhoods – most African-American families were excluded from this huge infusion of government investment into the middle class. By 2004, 76 percent of whites owned their own home, compared to 49.1 percent of Blacks and 48.1 percent of Latinos.

Today, the children and grandchildren of GI Bill recipients benefit from intergenerational wealth transfers that enable them to purchase homes, attend top colleges and start businesses. But they probably don’t think of themselves as beneficiaries of “white affirmative action.”

The Myth of Self-Made Wealth

It will be difficult to overcome this gaping racial economic divide if we ignore the role of the commons in creating wealth. We must start with the seldom recognized premise that much of what we consider personal “wealth” derives from common wealth.

Yet the American myth endures that people’s level of wealth is a reflection of their individual effort and achievement. As long as whites and privileged individuals believe their wealth derives largely from their own effort, it will be difficult to build political support for an inclusive initiative to spread economic opportunity more widely.

In The American Dream and the Power of Wealth (Routledge 2006), sociologist Heather Beth Johnson interviewed more than 200 privileged white families about their attitudes toward family wealth. While these individuals acknowledged the role that financial support from their parents made in providing their children and themselves with tremendous educational advantages, they still deeply believed one’s station in life is determined by individual effort. These interview subjects saw no relationship between the privileges offered by their own wealth and the inability of others to achieve the “American Dream.

They Didn’t Do It Alone

Anyone who boasts that they are “self made” is ignoring the crucial role of common wealth in creating personal riches. Individual initiative matters, of course, but is often akin to adding the cherry and whipped cream to the top of the existing sundae of common wealth.

Our best hope for eliminating the historical racial wealth divide lies in people recognizing that each of us has a birthright to share in the bounty of the commons for our sustenance and livelihood. People chafe at the notion of “giving people something for nothing.” Yet we don’t think twice about corporations and generations of privileged families growing rich from the commons for nothing.

Even white middle-class achievement needs to be understood in the context of preferential access to government programs and common wealth that was built on behalf of and through the efforts of all Americans, some of whom have not benefited from their own efforts.

Common Wealth for the Common Good

While private wealth is distributed unequally, common wealth belongs to all, and its benefits should, wherever possible, be universally shared. Income from commons-based resources should be used to reduce inequality and expand opportunity.

At the same time, common wealth should be managed not just on behalf of those living now, but also on behalf of future generations. Each generation has an obligation to preserve its shared inheritances and pass them on, undiminished, to the next.

Collectively, we have a pretty good sense of what needs to be done to broaden opportunity and at the same time remedy the inequality created by “whites only” programs, which were successful in improving the opportunities for a segment of the population. Here are some practical ideas on how we can share the wealth of the commons, which rightfully belongs to all Americans:

• Debt-free higher education, like the earlier GI Bill and Pell grants that enabled millions to graduate from college without deep debts.

• KidSave accounts, such as the proposal is to grant every child born in the U.S. a tax-free inheritance of $5,000. Something similar is already done in the U.K. When the child reaches 18, these funds (which have earned interest over nearly two decades) could be withdrawn for education, first home pur¬chase or starting a business.

• Expanded homeownership, through various first-time homeowner programs such as soft second mortgages and subsidized interest rates.

• Annual dividends to supplement wages. Alaska residents receive an annual dividend from the Alaska Permanent Fund, a portion of the state’s oil wealth. Other sources of commons wealth could be used to fund similar state or federal programs.

• Establishment of “Community Wealth-Building” funds—pools of capital to provide support for community development corporations, nonprofit housing organizations, employee-owned firms, social enterprises, community land trusts and other efforts that help people in underprivileged communities gain financial assets.

• Commons-based revenue being invested in programs that expand opportunity. In Texas, a percentage of oil wealth contributes to several trust funds that pay for K-12 and higher education.

How will we pay for these wealth-broadening initiatives? It only makes sense to fund these efforts by harnessing income from commons-based sources.

Paying the Owners (All of Us) for Using Natural Resources. Historically, polluters have dumped their waste into the natural commons without cost. If we charge for the use of our shared natural resources, we create both incentives to reduce pollution and a revenue stream for programs like those described above. This is at the heart of the commons-based Cap-and-Dividend proposal to curb climate change.

Common Wealth Recycling Program. If we recognize that large accumulations of private individual wealth came from using the commons, then it’s obvious that we should tax inheritances more aggressively. There is also a moral rationale for taxing inheritances: Wealth created from the bounty of the commons may be temporarily claimed by individuals, but at some point much of it should return to society as a whole to be recycled into opportunities for others. Inheritance taxes could be dedicated to a Wealth Opportunity Fund to serve as a source for several of the uses described above.

Socially-created wealth captured by corporations. The wealth of most corporations, like individuals, was generated thanks to commonly held resources. Peter Barnes, author of Capitalism 3.0, outlines the many often unacknowledged ways this happened. First, we grant them special privileges that are not available to real human beings, such as limited lia¬bility and perpe¬tual life. We supplement these gifts with other socially-created privileges, such as patents and copyrights that enable them to charge higher prices than a truly competitive market would allow. On top of that, society provides public infrastructure — roads, the Internet, regulated capital markets and trade policies — that greatly enhances corporate wealth. And even more, we often give corporations commons resources (land to railroad companies, minerals to mining companies, spectrum to broadcasters, pollution rights to polluters) worth billions.

We rationalize these lavish gifts by arguing that corporations create jobs and strengthen our economy. But in reality, most of these benefits flow to privileged elites who own most of the corporation’s stock and are disproportionately white. Corporations historically paid back a portion of this through corporate income taxes, but over recent decades this contribution has shrunk to almost nothing for some of the country’s most profitable enterprises. Barnes proposes a levy on corporate wealth, placing a percentage of stock into an American Permanent Fund, to be managed on behalf of the common good.

The idea of the commons provide us with a new lens, and a host of practical measures, to reduce the racial wealth divide and remedy to centuries of exclusion of African-Americans and other people of color from America’s common wealth.

Excerpted from All That We Share: A Field Guide to the Commons by Jay Walljasper and On the Commons. Adapted from an article in the newsletter Poverty and Race, published by the Poverty & Race Research Action Council based in Washington, D.C.