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Democracy At Risk: Rescuing Main Street From Wall Street

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In "Democracy at Risk", author Jeff Gates opines that democracy in the United States has actually become a plutocracy. Average citizens have little to no influence with legislators when compared with the access extremely wealthy capitalists have gained from years of dominating the financing of the major political parties. Declining voter turnout suggests that citizens are resigned to a condition of powerlessness, one of many symptoms of an unhealthy democracy.

Against this backdrop, Gates believes that the time is ripe for a new form of populist politics. He boldly sketches out a proposed populist political agenda that he believes could connect with today's disillusioned voters. Gates includes an interesting section where he describes the type of personality an ideal populist Presidential candidate might need to possess in order to attract voters and deal effectively with opposition parties.

As a veteran Beltway insider and architect of the legislation that created ESOPs (employee stock ownership plans) in the 1970s, Gates knows a lot about finance, ownership and public policy. He shows how current laws privilege finance at the expense of labor and the environment but argues that such laws can be changed if the people demand it. Therefore, Gates believes that an important task for a populist party will be to educate the public about the link between concentrated financial power and ownership with economic and environmental sustainability.

Gates writes with knowledge and passion, but at times the rush of ideas is so intense that the book tends to wander off course. For example, there are dozens of brilliant and imaginative ideas sprinkled throughout the text. But this is sometimes confusing for the reader, given that Gates organized the book into four distinct sections; shouldn't these important solutions have been grouped in one place to facilitate ease of reference?

But Gates does in fact reserve section four of the book for his cornerstone idea: "Share Our Wealth", a highly controversial program of wealth redistribution (from the rich to everyone else). Understanding that this proposal will raise more than a few eyebrows, Gates includes a Question and Answer section to address objections to his plan. But while the idea may have some merit, I think that the proposal would generate such intense opposition that it might overshadow and crush the otherwise adminrable populist agenda that the author has successfully envisioned. Indeed, "Share Our Wealth" is an idea of such magnitude that it more rightly deserves a separate book to flesh out the idea more fully and provide the support it needs to make the idea defensible.

Overall, this book in my view accurately diagnoses much of what is wrong with our democracy and proposes some useful populist-flavored solutions, but unfortunately does not convincingly make the case for the "Share Our Wealth" concept. Nevertheless, "Democracy at Risk" is recommended reading for those who may be pondering how a fully-functioning democracy might be restored in this country.

Jeff Gates is clearly a powerful thinker and a thoughtful human being. He writes with conviction and credibility. He knows what he's talking about. He was the consummate 'insider', having spent more than a decade on Capital Hill as counsel to the Senate Finance Committee. DEMOCRACY AT RISK provides stark evidence that 'we the people' are no longer citizens who are served by the 'common good'. Instead, we are 'consumers' being herded and manipulated to serve an all powerful 'marketplace' and the small number of people who have become obscenely wealthy as a result. For example, 70% of all earnings growth in the U.S. since the 1970's has gone to less than 1% of the people. Gates says that highly concentrated wealth patterns aren't forces of nature: they're political choices. We can choose something quite different and far more inclusive - provided we're offered that choice. Gates calls for a society built on a more natural, caring form of capitalism, with broad ownership patterns. Gates argues that this 'populist' agenda is neither liberal or conservative; Democratic or Republican. It's about restoring a democracy that is badly broken. It's about removing corruption from a political system awash in influence money. He does not suggest making things right will be easy; only that it is necessary. If you want to understand the powerful, largely hidden forces shaping our society; if you want a vision for something better; if you want to be part of the solution, read this book.

Jeff Gates met Lou Kelso while Jeff was in law school, where he wrote articles about Lou's ideas for his law school newspaper. At Lou's suggestion, Jeff worked on Stuart Speiser's book, A Piece of the Action. Jeff then went on to be counsel for Russell Long's Senate Committee on Finance during the 1980s, where "I crafted much of the federal legislation encouraging employee stock ownership plans." He became special counsel to Kelso & Company and has since been a consultant to governments and other organizations on "ownership engineering." His books are The Ownership Solution: Toward a Shared Capitalism for the Twenty-First Century, Addison-Wesley, 1998 and Democracy at Risk: Rescuing Main Street from Wall Street, A Populist Vision for the Twenty-First Century, Perseus, 2000.

In The Ownership Solution, Jeff suggests "a steady broadening of ownership, in the knowledge that a vigorous effort in that direction will, in time, correct the current concentration." Beyond the economic effect, he sees shareownership "as a social tool for linking people not only to things (productive assets) but also to each other, to their community and (importantly) to their endangered environment."

Jeff presents a clear, compelling analysis of the current ownership of financial assets and the "closed system" of business finance. However, he does not believe that new shareowners will be created if shares must be purchased "from their already stretched paychecks." He argues that the "best way . . . is for government to intervene with a foresighted policy environment that induces capitalism to create a broader base of capitalists." Examples from his own consulting work are ESOPs and extensions to RESOPs (Related Enterprise, such as a company's vendor's employees); CSOPs (Customer) and GSOP (General, "in which ownership is based on geography or citizenship.")

Jeff uses his experience in federal government policy to suggest "twelve areas where the government's presence could be retooled to broaden ownership." They include favoring companies with ESOPs or "certifiably broad-based ownership" in making government purchases, licenses, access to public property, trade assistance, loans and loan guarantees, public pension plan investments and antitrust enforcement. He adds ten changes in taxation "to foster broad-based capital accumulation," as well as a "major education and communication campaign to better school citizens about finance, business and the various paths to ownership." Combined, all of these measures are to achieve "a `critical mass' of encouragement so that the current closed system of finance (which concentrates ownership) becomes less attractive than financial techniques that broaden ownership."

In Democracy at Risk, Jeff describes the current "people-disconnected capitalism" and argues for a "people-responsive economy." In chapters like "Killer Capitalism," he documents many of the negative effects on people and our environment from poverty, erosion in real income from work and the continuing concentration of capital ownership.

The chapter on "Education for Democratic Capitalism" proposes an education campaign for voters to learn about "today's economic disparities, . . the unmet obligations due our children, . . the antidemocratic nature of our current financial structure," and "the threat that economic centralization poses to the democratic tradition."

However, Jeff also says that "the idea of people accumulating significant capital through personal saving is a particularly vigorous exercise in futility." Our experience has shown that people will choose to buy shares with some of the earnings they have left after paying for necessities. Loan guarantees, tax benefits and other government programs could increase the amount of those purchases, but the political agenda today does not even include any studies about broadening the ownership of capital.

We see the work to be done as a marketing and education challenge. In direct offerings, a business presents itself to its own communities and helps individuals decide whether they want to become shareowners. No new government program is required. While the actions that Jeff suggests would seem to be helpful, they risk involving the law of unintended consequences that so often follows the political process. Direct offerings can be completed with no new attention from government.

THIS IS A BOOK THAT MUST BE RECOMMENDED. IT MAY BE ESPECIALLY IMPORTANT FOR A BOOK OF THIS TYPE TO APPEAR IN OUR CURRENT ECONOMIC CLIMATE AS AN ANTIDOTE TO A POTENTIALLY DANGEROUS COMPLACENCY AND THE TENDENCY TO ENGAGE IN BLIND, GOOD-TIMES BOOSTERISM. AS SUCH, THE IMPERATIVE TO RECOMMEND LIES IN THE VALUE OF THE DETAILED INFORMATION IT PROVIDES IN ARGUING THAT SOMETHING IS AMISS IN THE LAND OF MILK AND HONEY. THIS IS ITS STRENGTH AND MERIT. IT IS THE SAME MERIT THAT DEMANDS THAT CORRECTING ANY PATHOLOGY FIRST REQUIRES RECOGNIZING THAT THERE IS A PATHOLOGY. BUT MY RECOMMENDATION COMES WITH A LARGE CAVEAT; NAMELY THAT THE PATHOLOGY LIES NOT MERELY IN THE LAND OF MILK AND HONEY BUT ALSO IN THE REALM OF ECONOMIC THEORY. ONCE THIS WORK HELPS US TO RECOGNIZE THAT THERE IS A PROBLEM, WHAT DO WE DO TO RATIONALIZE AND JUSTIFY THE IMPLEMENTATION OF A CORRECTIVE, AND WHICH CORRECTIVE? THAT YOU WILL NOT FIND HERE. FOR THOSE WHO WISH TO TAKE THE LOGICAL NEXT STEP OF MOVING ONTO TO THESE ISSUES, I WOULD MOST EMPHATICALLY RECOMMEND A TITLE FROM JUST ONE YEAR AGO THAT POWERFULLY ADDRESSES THESE CRITICAL AND FAR TOO OVERLOOKED SOLUTIONS TO THE PROBLEMS ELEVATED TO OUR ATTENTION IN DEMOCRACY AT RISK AND THAT COMPELLINGLY ARGUES THAT THE PROBLEM IS NOT MERELY IN THE LAND OF MILK AND HONEY, BUT ALSO IN THE REALM OF THE FUNDAMENTALS OF ECONOMIC THEORY GUIDING OUR ECONOMIC MANAGEMENT POLICIES. I REFER TO THE TERRIBLY IMPORTANT WORK, BINARY ECONOMICS:THE NEW PARADIGM, BY PROFESSOR ROBERT ASHFORD AND RODNEY SHAKESPEARE. ANYONE INTERESTED IN AND CONCERNED WITH THE LEGITIMATE ISSUES RAISED IN DEMOCRACY AT RISK, WILL NOT WANT TO IGNORE THE PROFOUNDLY IMPORTANT THEORETICAL AND INSTITUTIONAL POLICY PROPOSALS FOR A SOLUTION TO THOSE PROBLEMS PROVIDED IN BINARY ECONOMICS:THE NEW PARADIGM.

Any book recommmended by Noam Chomsky, Bill Greider, and Ralph Nader is a socialist tome to be sure. Jeff Gates, the author here, needs to acquaint himself with Adam Smith, author of "the wealth of nations". and Hernando DeSoto who wrote "the Mystery of Capitalism." He also needs to come to grips with the truth that Marx's Capitalist Manifesto missed the mark when it failed to cite that human initiative is the most important component in the means of production and the means of exchange.

It isn't capitalism that's out of control but those in the bureaucracy who seek to interposition themselves between the money freely spent by consumers, making one voluntary choice over another, and the corporations that have provided them with the requisite goods or services. Unlike governments, corporations go out of business if they don't squarely meet consumer demand on an ongoing basis.

The reason why those in America have a better lifestyle, more choices, and a greater surplus for the common man is that private proerty in America is protected by a rule of law. In Gates' world he or those like him would make the decisions as to who gets what, when where and how. This is known as crony capitalism and is practiced around the world. Indeed, all of those poverty stricken countries would do well to have companies like Microsoft or Walmart providing jobs for their citizens not to mention the cheaper, quality goods they provide. Instead the political elites enrich themselves while overtaxing and over regulating those who would create new jobs.

Gates' citations of statistics in support of his theories is selective to say the least. Nowhere does he mention that the number of hours the average worker has to work in order to buy a consumer good, say a car, has dropped dratically over the last 50 years. Nor does he break out the amount of income apportioned to capital gains by those he sees as rich. He picks starting dates which come immediately after down markets in securities where capital gains income was at a minimum, and then uses a future date coinciding with the culmination of a long uptrend in securities prices. This is not the way to fairly represent the state of things in the economy. As anecdotal proof, if things are so bad in America where are so many immigrants poring across our borders trying to get in? How many people are taking a raft or swimming to Cuba for that free health care?

This is just another left-wing screed from a guy who truncated his analysis at the point where he felt sufficiently aglow with his own motives. Jeff Gates, the self rightious apostate of the left, needs to continue doing his homework. Adam Smith's "Wealth of Nations" would be a good starting point.