In Defense of Broad Private Property Ownership

Somewhere along the line, we lost our way. We have become apathetic about the type of society we inhabit, and what is required to sustain it.

by James Vitali

This article first appeared on The American Conservative, February 1, 2024

Do democracy and capitalism go together? We would be wrong to think that the tensions between the two are unique to our own time. Anxieties about the viability of a capitalist economy within a democratic political order were present in 1920s Britain with the introduction of universal suffrage, as they were present in the American founding. Would capitalism’s inequalities undermine the sense of shared solidarity required in a self-governing society? Would democracy’s tendency towards equality undermine the incentives for enterprise and industry that a vibrant and free capitalist economy depends upon? Most fundamentally, would capitalism spread the proceeds of economic growth sufficiently to stabilize democratic society, or would it concentrate wealth in such a way as to expose it to division and rupture?

These tensions seem particularly pronounced today, though. In the U.K., according to a 2017 poll, as many people think capitalism is actively harmful and that an alternative economic model is required as believed that it is working well. Just 13 percent of those under the age of 49 thought capitalism was operating effectively. Four years ago, 30 percent of the public were so disillusioned with the way society is economically structured that they voted for a self-professed socialist to become prime minister. Support for capitalism might generally be higher in the United States, but the view that capitalism is the source of socio-economic problems rather than the best vehicle for solving them is creeping in among younger American cohorts too. 

These attitudes towards capitalism spill over into people’s views about democracy. Recent polling in Britain found that the least economically secure fifth of voters are twice as likely to say democracy is a fairly bad or very bad system of governing the country. Contemporary capitalism might be creating too many ‘losers’ who are questioning whether democracy really has their interests at heart. Once again, capitalism and democracy are having to compete in the battle of ideas, and right now, they are losing. 

The institution in which these tensions are most obviously crystallized is that of property ownership. Ownership is a foundational idea in both capitalism and democracy. It enables people to capture the benefits of their enterprise and industry, and thus constitutes the core of the incentive structure that makes capitalism such a powerful way of organizing the economy. Yet the importance of ownership transcends mere economic incentives. Capitalism’s legitimacy partly hinges on the idea that acquiring property is an opportunity open to all. Ownership, as has been long recognized, breeds the sort of moral psychology that undergirds a responsible, participatory politics. Whilst long ago this was thought to mean that only those with property should participate in the political process, in the context of democracy, the imperative is instead that as many people as possible ought to be property owners.

Once, property ownership was a unifying aspirational value. Today, it is a marker of privilege, unfairness, and division. Nowhere is this more manifest than in the housing market. In the U.K., property ownership in general is falling slightly, and it is on the rise for older demographics. For those under the age of 34, it is utterly collapsing. Amongst 25–34-year-olds, homeownership has fallen by 26 percentage points since 1991. Britain is increasingly bifurcating into an older, wealthier, propertied class, and a younger propertyless substratum. Only those in the latter group with inherited forms of wealth can join the former group and get onto the property ladder. And as house prices continue to rise, younger generations are required to transfer more of their limited wealth to those who already own residential property, both because of the price tag of a home and because of the increased amount of time younger workers will have to remain in rented accommodation as they save up for a deposit.

We instinctively associate property with real estate, but property comes in all sorts of forms. Across the economy, the ownership of businesses, assets, infrastructure and so on appears to be narrowing. In 1963, 54 percent of U.K. listed shares were owned by individuals; now just 12 percent are. Only 4 percent of household wealth is invested in listed equities. Upwards of 56 percent U.K. shares are now owned overseas. Of course, many individuals and households are “technically” owners, as Merryn Somerset Webb has put it, through pension funds. But even then, the proportion of U.K. listed shares owned by U.K. pension funds has shrunk to 4 percent. What’s more, the relationship that the pension policy holder has with their invested wealth is an extremely thin form of ownership. Fund managers effectively take on the rights and responsibilities that are usually assumed by an asset owner. Popular capitalism is being supplanted by managerial capitalism.

Property is becoming more concentrated, and, for those who do own property, their relationship with their assets is frequently becoming less direct and more distant.

This is certainly bad for capitalism. If the vital incentive provided by the ability to acquire property and wealth (and to pass it on to subsequent generations) is dampened, we risk losing one of the most elemental drivers of economic growth and prosperity. 

But this decline of ownership is also bad for democracy. Property ownership gives people independence and self-sufficiency, and a practical medium for self-expression. It also gives responsibility and a sense of stake, and it is a sense of stake which encourages someone to make decisions in the interest of a community. Taking these things away risks sapping the ethical reserves that a democratic society depends upon: Fewer property owners means fewer people with independence, and thus more people dependent on the state. At the same time, increasingly concentrated ownership produces jealousies and resentments that undermine solidarity and a feeling of mutual obligation amongst citizens. 

We are not short of big public policy dilemmas to unknot, from climate change and energy independence to the housing crisis and low investment rates. But the core problem that sits behind all these challenges is the imbalance that has opened up between those who own property and those who do not. The question of ownership relates to who feels responsible for the maintenance of the natural environment. It relates to investment patterns and the need to get capital to the places where it is needed the most. It relates to the preparedness of people to make the trade-offs required for economic growth. Finally, it relates to people’s sense of mutual obligation as a society.

How do we redress this situation? Two putative solutions are frequently offered, both skeptical of the benefits of diffuse property ownership. The first, call it the Marxist standpoint, sees property as the problem to be addressed. In this perspective, it is the institution of private ownership that is making society less balanced, less cohesive, and less fair. Private property, argue Adrienne Buller and Mathew Lawrence, is “inherently” exclusionary and productive of dynamics of “dispossession, concentration [and] dependency.” Capitalism, they go on, is a “contract for legalized economic exploitation,” at the heart of which is private ownership.   

Such a perspective might not always be held in such a strident form. But the sentiment underlying it is expressed in numerous ways, from those suggesting that we should move away from a homeownership society and towards one in which there are high levels of social renting, to those that want more state ownership of British companies. By taking property from those who already have it and placing it in the hands of the state, so the thinking goes, more people can participate in “collective” ownership.

A second potential solution—which we might term the social democratic standpoint—is to compensate for the gulf between the propertied and the propertyless through the tax system. Here, increasingly progressive taxation is advocated to redistribute wealth. Edmund Fawcett has written that welfarism and redistribution represents a compromise that has been struck between democracy and capitalism in modern politics. And since wealth disparities have grown, we ought to increase the taxation of wealth and redistribute the proceeds to wage earners. Given the painfully high marginal tax rates on young people, such a course of action is alluring.

These two “solutions,” however, are fundamentally flawed because they fail to address the core problem set out above. The Marxist perspective rails against the concentration of capital and power yet proposes to concentrate ownership even more by placing it in the hands of the state. The social democratic alternative suggests we try to equalize the relationship between owners and earners by taxing wealth more and more progressively. But as the great American economist, Louis Kelso, who pioneered the employee stock ownership plan (ESOP), argued, the productive potential of capital vastly outweighs that of labor, such that the burden of taxation would have to rise continuously to mitigate a growing gulf between the propertied and propertyless. Higher and higher levels of taxation would be self-defeating; they would undermine incentives for enterprise and empower the state at the expense of the citizen.

Most importantly, neither of these putative solutions would widen the ownership of property. The idea that state ownership is a meaningful form of ownership for the many is a chimera; what is owned by everyone is really owned by no one. An ever-increasing tax burden on capital would erode and attenuate the value of property without producing any more property owners. The problem is that the opportunities for ownership are being denied to a growing proportion of the population. Far from making that aspiration and ideal more accessible, the Marxist and social democratic approaches would render it increasingly unattainable.

These two perspectives display a detachment from the desires, hopes and impulses of real people. They are based on a political economy that begins not with the individual, the household, or the local community, but with the aggregate. The basis of a successful economy and a strong democracy is that the institutions, systems, and structures of a society make sense at an intimate, human level. Economic growth does not occur because the state set’s optimal levels of consumption, savings, and investment by fiat. Growth occurs because the incentives for a particular worker or a particular family to be enterprising or thrifty or industrious are sufficiently compelling. Likewise, democracies make effective collective decisions not because the answers to questions of burden sharing are already intuitive and obvious; rather, they depend on a sufficient number of people possessing a genuine stake in the local and broader national community and a sense of personal responsibility for their health. 

People feel distant from the material of economic life in this country, and disconnected from the political decisions made on their behalf. They are playing the role of passive observers, rather than of active participants. The current economic moment requires us to renew a sense of responsibility. Surely such a feeling will emerge only if we diffuse property and genuine ownership more widely throughout society.

Property is too concentrated, and this is threatening to sunder Western societies. But to give up on the very idea of private property is to throw out the baby with the bathwater. The great challenge of our time is to widen and strengthen property ownership, not to deny it to people. But how? 

We must start with the housing market. Homeownership is plummeting amongst younger people, but that isn’t because they are choosing not to own. It is because we have as a society systematically privileged the interests and concerns of existing owners over those of aspirant ones. We have an obligation to extend the opportunities and responsibilities of home ownership as widely as possible, and today, that can only be achieved by making housing more abundant.

Yet spreading property ownership is not just about housing. Indeed, the privileging of residential real estate investment over other forms has had detrimental effects for the U.K. economy more broadly. British investment at the aggregate level is analogous to an overleveraged and insufficiently diversified portfolio, and critically, most investment in the housing market is not going towards building new homes, but to extending credit to those trying to accommodate ever rising house prices. Capital is pouring into the housing market and fueling house price inflation, whilst other, productive parts of the economy go capital hungry.

We must help more people become owners of different forms of capital, then. That means helping people to save, yes, particularly those on the bottom of the income distribution, but it also means translating those savings into investment. We should embark on a crusade to incentivize retail investment in the stock market through a proactive advertising campaign modeled on the highly successful “Tell Sid” commercials of 1980s Britain. 

We must also restore a sense of ownership at the level of the community. Regional policy is politically and morally hollow if it simply equates to the pork-barrel politics of government subsidies. Such an approach merely inculcates further dependency on the state. If we truly want to tackle the inequalities between regions, we need to support local communities in becoming owners again of their local economies and infrastructure. 

Finally, we need to greatly expand the number of people with a direct equity stake in the firms that they work for. Data suggests that those companies with employee share ownership schemes vastly outperform those without, but take up of plans like CSOPs, SIPs and Sharesave remain low. So we should incentivize employee share ownership schemes with a tax super deduction for the value of shares offered to workers.

Of course, all of these things are designed before anything else to promote ownership and the values that being an owner inculcates. But advancing this cause is also tied to the quest to revitalize the economy. It will improve the quality and quantity of investment; it will focus incentives for enterprise and industry; and by enabling more people to share in its proceeds, it will help to generate support for the trade-offs and compromises that will be required to achieve meaningful economic growth.

Somewhere along the line, we lost our way. We have become apathetic about the type of society we inhabit, and what is required to sustain it. Most fundamentally of all, we appear to have lost sight of the basic truth that the viability of a political community depends on it having broad foundations. We need a new political economy configured around a profound moral mission: to give more people a proper stake in their local community, in the national economy, and in British society more generally. And we need politicians with the courage and conviction to deliver it.

This article is part of the “American System” series edited by David A. Cowan and supported by the Common Good Economics Grant Program. The contents of this publication are solely the responsibility of the authors.

James Vitali is the Head of Political Economy at Policy Exchange, a leading London think tank.