Co-ownership democracy – the path to a basic income grant


South Africa’s path to a welfare state has not been easy. For starters the problem of how to pay for social welfare in a country with too few taxpayers and not enough full-time employed citizens, has meant that social services have been rolled out first to those in most need — children, the disabled and the elderly. In recent months the ruling party announced the introduction of universal healthcare in the form of National Health Insurance and a number of pilot schemes in which the system would be phased in incrementally.

Although opposition parties and civil society groups have already called for a basic income grant for all citizens along with health care, South Africa has lacked both the political will and the means to achieve this goal. Both the Freedom Charter and our country’s Constitution enshrine the right of citizens to share in the wealth of the country but this promise has appeared out of reach, resulting in ongoing poverty for millions. The pressure on the state to deliver essential services while moving towards a technologically sophisticated industrial economy has resulted in political infighting with far left groups such as the Economic Freedom Front (EFF) demanding that private property be confiscated by the state in a plan that would essentially reduce the economy and the country to a communist dictatorship.

Such a path is not the inevitable outcome of South Africa’s democracy. According to social and economic rights activist Nicole Tin,”Communism tries to correct the imbalance between the poor and the rich through the idea of common ownership. The fault is the implementation of a centralized common ownership. All the wealth gets centralized into the hands of a few people in the government and wealth distribution becomes a problem. China and Russia have given up on this idea of a common centralized ownership.”

Democracy, she says “is attractive as every citizen has a vote to pick the government. However, beyond this vote, democracy has nothing tangible to offer to its citizens. Wealth and power are concentrated among the rich.”

In the new democratic order envisaged by post-Marxists like Tin the common ownership of property would exist side by side private ownership of property by individuals or organizations, as currently practiced in democratic countries. For example, land pieces sold by governments.

The most important difference is that the proceeds from the lease or sale of common properties are distributed directly to all citizens equally.

In current democracies, even communist ones, Tin says, “such proceeds are kept, confiscated, in the government treasury. Common properties include land, oil, minerals, water, air space, road space, electromagnetic wave bands, nature parks, fishery license, sovereign wealth fund, and anything else in the country that is not already owned by private individuals or organizations.”

“In current democracies, citizens get zero wealth from being a citizen. In a citizen-ownership or co-ownership democracy, citizens equally share the wealth realized when common properties are sold. Each citizen in a citizen co-ownership democracy has a right to vote and a right to an equal share of the country’s wealth.”

In South Africa where the dominant theme  of wealth sharing and resource allocation is known as ubuntu, this makes sense, since there are limitations to what can or cannot be shared, necessitating the creation of shares, stocks and bond certificates.

“The amount of citizen dividend per citizen depends on the country’s common wealth. The amount is expected to be very substantial in many countries. For example, in Alaska, the amount can be easily a few thousand dollars per resident. In Singapore, the amount is estimated at about $9000 per citizen. (The details are in the cases supplied by Tin below). The amount over a person’s lifetime is easily hundreds of thousand of dollars, or even a million dollars.

So how exactly are we going to pay for all of this wealth sharing? Welll, South Africa has mineral wealth, the reserves of which remain some of the world’s most valuable, with an estimated worth of R20.3-trillion ($2.5-trillion). Overall, the country is estimated to have the world’s fifth-largest mining sector in terms of GDP value.  Government investment in the economy is in the region of billions of rands and like Dubai plans are afoot to beneficiate mineral wealth and to move beyond this windfall to a modern information economy.

The transition from a democracy to a citizen co-ownership democracy needs no revolution says Tin,  It needs only a political party to champion this idea, win the citizens over and you institutionalize this idea. “In some countries such as Switzerland, citizens can initiate and vote for a new democracy. They do not have to wait for any political party.”

“Careful institutionalization of citizen co-ownership and citizen dividend is essential. Past examples, e.g., the Alaska Permanent Fund and Alberta Heritage Fund, have shown that  dividend funds without careful protection will be diverted by politicians to other “urgent” uses. A good protection is through Constitutional laws that require a high referendum to change. A normal law that can be easily changed by a simple Parliamentary majority is not much of a protection.

The path towards a Basic Income Grant in which citizens gain financial freedom from birth and where the state essentially pays each and every citizen a basic salary every month is a long one. We may not ever get there as a developing nation, but we can certainly redistribute the nation’s wealth on a per annum or quarterly basis. There is no reason why the annual windfall from the state on the basis of co-ownership could not benefit us all in the same way that below par taxpayers already receive annual benefits from SARS in the form of a tax return. If you earn under R99 056 pa you already get your employees IRP pay deductions back, but if you unlucky enough to be unemployed you receive nothing. This is the gap which opposition parties need to fill in order to stay relevant to the 25% -36% segment of South Africans who remain unemployed.

A) Case I. Citizen-ownership Democracy – The Alaska Example

Alaska is the closest practicing citizen co-ownership democracy where citizens get a direct and equal share of the country’s wealth. In Alaska, part of the oil royalties is put in the Alaska Permanent Fund, and the fund’s investment earnings is given to residents annually. (From Oil, profits, and peace: does business have a role in peacemaking? By Jill Shankleman)
http://www.apfc.org/home/Content/aboutFund/aboutPermFund.cfm

The investment fund pays Alaska’s residents dividend year after year. It has been doing this for 3 decades.
http://www.apfc.org/home/Content/dividend/dividendamounts.cfm

1990 $952.63 2000 $1,963.86 2010 $1,281.00
1991 $931.34 2001 $1,850.28 2011 $1,174.00
1982 $1,000.00 1992 $915.84 2002 $1,540.76 2012 $878.00
1983 $386.15 1993 $949.46 2003 $1,107.56
1984 $331.29 1994 $983.90 2004 $919.84
1985 $404.00 1995 $990.30 2005 $845.76
1986 $556.26 1996 $1,130.68 2006 $1,106.96
1987 $708.19 1997 $1,296.54 2007 $1,654.00
1988 $826.93 1998 $1,540.88 2008 $2,069.00
1989 $873.16 1999 $1,769.84 2009 $1,305.00

However, Alaska uses only a small part of its oil revenue for this fund. A full citizen-ownership democracy will distribute revenue from all common properties.

B) Case II. Singapore.

How much is the citizen co-ownership income if Singapore becomes a citizen co-ownership democracy? Consider three sources of income.

a) Road space auction.

Citizens own not just the land of their country. They own all the common assets that have not been sold to private organizations or individuals. Proponents of citizen income / basic income tend to overemphasize land value. Take Singapore, for example. There is a common wealth in the value of road space. Because there is more demand for cars than the roads can handle, road space commands a premium. The government issues certificates for car ownership, and residents bid for these very limited certificates.

In essence, car owners are paying an ownership premium that stops others from owning cars. People who cannot afford the premium cannot buy cars. In recent months, the certificate (excluding the car) costs nearly $100,000 Singapore dollars.

Road space is a common wealth. In a citizen co-ownership democracy, the certificate premiums would have been distributed to all citizens.

In 2010, the certificate premium is $1,600,000,000 (S$1.6 billion), and in 2011, it is S$2 billion (source: Singapore government budget reports).

With a citizen population of about 3.2 million, each citizen would have received $500 in 2010 and $625 in 2011.

b) Land sales.

“In Singapore, income from government land sales is booked directly into reserves and not reflected as revenue in the annual budgets. Citi estimates Singapore collected nearly S$10 billion in land sales in the 10 months to January 2012.”
http://www.asiaone.com/Business/News/My%2BMoney/Story/A1Story20120217-328384.html

Assuming the government of Singapore sells or leases $12 billion worth of land every year, each Singaporean citizen can expect to receive $3750 annually, if Singapore becomes a citizen-ownership country.

(2013 update: The above is an underestimate. The actual land sales in 2012 is $27.97 billion. This updated number is not used in the citizen dividend estimate shown below.)

c) Sovereign wealth investment returns

The “Net Investment Returns Contribution” is $7.35 billion for FY2010 and $7.78 billion for FY2011.

The Singapore government has given more clarification: “The Net Investment Returns Contribution (NIRC) comprises up to 50% of the Net Investment Returns on the net assets managed by the Government of Singapore Investment Corporation (GIC) and the Monetary Authority of Singapore (MAS), and up to 50% of the investment income from the remaining assets (which includes Temasek Holdings). For more information on the rules governing how investment returns from Past Reserves can be taken into each year’s Budget for spending, please refer to Section II of “Our Nation’s Reserves” ”

So $7 billion is at most 50% of the net investment returns from GIC, MAS and Temasek Holdings. It could be less, even 10%, of the net investment returns. As stated by MOF, Temasek Holdings has $198 billion, MAS has $304 billion, and GIC has well over $100 billion. . Lets take the minimum of $600 billion. A 3% return will mean $18 billion in investment returns. But Temasek Holdings has been reporting 15% returns. So TH alone will have $30 billion investment return. It is likely that the declared $7 billion is a small fraction of the net investment returns.

Assuming NIRC is 50% of the net investment returns, the net investment return from sovereign wealth funds would be $14.7 billion in 2010 and $15.56 billion in 2011.

If Singapore were a citizen co-ownership democracy, its citizens (3.2 million) would have received $4594 in 2010 and $4862 in 2011 per citizen from the sovereign wealth investment.

Singapore case summary

From just three sources of common wealth, the estimated citizen income for 2011 is at least $4862 + $3750 + $625 = $9237 for every citizen. IF Singapore becomes a citizen-ownership democracy, there will be no poverty in Singapore. $9237 per year per citizen is above poverty line.

C) Case III. Mongolia.

Mongolia has recognized citizen dividend rights to the wealth of their country. It is also a citizen co-ownership democracy, although the citizen dividend amount is decided by Parliament annually.

In 2009, Mongolia started the Human Development Fund that distributes cash dividend annually to its people. Here are a few details about the Human Development Fund, from this paper: Managing Mongolia’s resource boom, by Asel Isakova, Alexander Plekhanov and Jeromin Zettelmeyer.

By law, the Human Development Fund is financed from mining dividends pertaining to the state and an (unspecified) part of royalty payments to the budget. The funds can be used for cash handouts to all citizens, as well as for payments linked to pensions, health care, education and housing. The law does not contain explicit provisions determining the size of payments from the Fund. The revenues and expenditures of the Fund are approved annually
as part of the general budget process.

In addition, Article 8 of the law contains a somewhat vague indication that every Mongolian may hold non-tradable preference shares in a state-owned legal entity, which holds strategic mining licences. The law leaves open to interpretation the exact relationship between such a holding and the Human Development Fund.

In February 2010 every citizen received a cash handout of MNT 70,000 (equivalent to about US$ 50), followed by smaller instalments totalling another MNT 50,000 in that year. Earlier public promises were made by key political parties to make total cash transfers of MNT 1.5 million per capita (US$ 1,200). In 2011 monthly cash handouts were sustained at MNT 21,000 (around US$ 15), and approximately a quarter of this amount was additionally disbursed as tuition fee support, leading to projected annual spending of around US$580 million (almost 10 per cent of 2010 GDP).

Mongolia recognizes a citizen co-ownership dividend. It is a giant step toward a citizen co-ownership democracy. Legal recognition of citizen rights to the country’s common wealth is a very significant step. Most countries only give lip service.

Independent Mongolian Metals & Mining Research: Law on Human Development Fund. Monglia’s sovereign wealth fund to pool in all revenues from mineral resources including OT and TT has been approved: (2009)

Parliament Speaker D.Demberel said :
“ Just now Parliament approved very important law. This is not about simply distributing money to citizens. This has created legal environment that decided to have citizens receive a share from revenues gained from minerals.”

Frequently asked questions

Q: Are you taxing the rich to give to the poor?
A: No. This is returning money that has been confiscated by the state back to everyone. Everyone, poor or rich, will get back his rightful citizen-ownership dividend. Money for citizen dividend does not come from tax; it comes from the revenue generated from commonly owned properties.

Q: Why do you want to give money to the lazy who are not working?
A: Income does not come only from working. Landlords get rental. Shareholders get dividends. People get interest on deposits and pay interest for loans. Citizens are owners of huge common properties. Whether a person is lazy or hardworking is not relevant. We don’t stop lazy shareholders from collecting their dividends.

Q: Why don’t we use the money for community projects instead?
A: If you look at stolen properties, do you return them to their rightful owners or do you misappropriate them for community projects? According to a 2013 court ruling in France, it is illegal to have a marginal tax rate above 66%. For the poor with no or little income, their rightful income from citizen dividend is 100% confiscated.

[Thanks in advance to Nicole Tin for allowing me to adapt her excellent work]

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3 comments

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