The Third Way: Is It Real?

Panel hosted by the World Institute for Development and Peace and the
Center for Economic and Social Justice
National Press Club Building, Washington, D.C., September 10, 1998


Dr. Norman A. Bailey, international monetary economist
Norman G. Kurland, President, Center for Economic and Social Justice
Dr. Marcus Raskin, Distinguished Fellow and co-founder, Institute for Policy Studies
Dr. John Schmitt, labor economist, Economic Policy Institute


Antonio Betancourt, President, World Institute for Development and Peace

Antonio Betancourt:

For the sake of time we are going to begin. We hope that more people will be able to join us. We are competing with very heavy news, what people have been waiting for over the last year, President Clinton’s report from Prosecutor Starr.

Good afternoon, everyone. My name is Antonio Betancourt, President of the World Institute for Development and Peace. I will be the moderator today.

It is very timely that we convene this meeting, in anticipation of the meeting next week with President Clinton and Prime Minister Blair of England, Jospin of France and Prodi of Italy. They are definitely making headlines, [as noted in] recent articles by E.J. Dionne, Jr. and William Drosdiak in the [Washington] Post, and are trying to address the problems of the global economy today with an approach called “the Third Way” which appears to be taking the positive aspects of both the socialist and the capitalist paradigms.

These two models have affected the entire world in an unprecedented manner in this century by focusing on stimulating the lower and darker part of human nature. This is my opinion. Greed and usury on the right, and jealousy and envy on the left–as a purpose and motivating factor in economic activity. These two aspects of human [nature] have been glorified and also [have become] the driving force of economic development in the Twentieth Century. However, there is another aspect of human nature–a higher, lighter and a true one–which is justice.

A third way has to be based on the stimulation of this noble aspect of human nature: Justice in economic activity. A true Third Way has to be able to bring a critique and a counter-proposal to both economic systems, without leaving winners and losers. [It has to address] the problem of the majority of the population who have no wealth [or] savings or who at best participate in the economic activity through a wage system.

The problems that we have witnessed in recent years–the collapse of the socialist experiment and the challenges of the Wall Street capitalist model in Indonesia, Thailand, Korea, and similar problems of the newly inaugurated experiments of China and Russia and the eastern blocks–demonstrate the exhaustion of our system.

Humanity is marching inevitably towards one world politically, democratically empowering the majority towards one-person, one-vote. Burma, Africa, South Africa, Latin America, [and] the old Socialist countries are changing, but political democracy and empowerment for the majority cannot march with economic plutocracy. One-person, one-vote has to be matched with one-person, one-owner. True economic democracy has to parallel true political democracy.

We commend President Clinton, Prime Minister Blair, and all of the other European leaders for their good intentions in trying to address the economic problems of the world today and alleviate the pain imposed on the majority of the world’s population as a result of restructuring of the international economy.

As the world transforms itself into one global free market network of goods and services, [leaders] cannot pretend to address these problems with an exhausted model that needs to be looked upon again, challenged and reformed. Our purpose today is first, to introduce a real, fair way that will challenge the existing ideas of Clinton and Blair and to introduce clear counterproposals to those ideas. Second, to give educated public opinion-makers, especially journalists and economic commentators, valid arguments to question Clinton and Blair’s assumptions. If we are able to do that we will have fulfilled our purpose this afternoon.

The World Institute for Development and Peace is focusing its energies and resources in promoting economic empowerment for the majority based on the ideas of economic justice of the late Louis Kelso–the visionary lawyer and economist of the 1950’s who first challenged in-depth the flaws of both the democratic system of capitalism and the system of communism, [who pointed out] in a prophetic manner the problems that besiege the world today, and whose work has improved the lives of millions of Americans.

The man who inherited the vision of Kelso is with us today: Norman G. Kurland. For eleven years Norman Kurland, who will be our first speaker, was the Washington counsel to Louis Kelso, the inventor of the Employee Stock Ownership Plan (ESOP) in America . Mr. Kurland helped draft and develop the laws, the legal and financial instruments that have allowed ten million workers in America to participate in the national economy through whole or partial ownership of the corporation[s for which they work]. In 1985 he was appointed Deputy Chairman of President Reagan’s task force on [Project] Economic Justice. In 1982 at the request of senior White House officials, he developed the “Industrial Homestead Act” [now known as the “Capital Homestead Act”], the comprehensive package of national infrastructural monetary and tax reforms for broadening citizens’ access to capital ownership. He is co-founder and President of the Center for Economic and Social Justice. Mr. Kurland also serves as President and Managing Director of Equity Expansion International, Inc. (an ESOP investment banking and consulting firm) and is Co-chairman of Equitech (formed to provide expanded ownership financing for the commercialization of advanced technologies developed in the U.S. Space and Energy programs). He will be the first speaker. Each one will make a presentation and then we will open the floor for a nice healthy debate.

Norman Kurland, J.D.:

Good afternoon. I really have very little to say now that Antonio introduced the subject, because you practically said everything that I would say. But in any event let me talk about the Third Way, which I call the Kelsonian system for connecting people to money, technology and economic power.

Baron Rothschild has been quoted as having said the following: “Give me control over money and credit and I care not who makes the laws.” In other words, control over money and credit controls who will own, and who controls the economy in the future. It will determine who will share economic power and who will be economically disenfranchised.

There can be no meaningful discussion of the Third Way if Baron Rothschild’s point is ignored.

On August 24th the lead article in the Wall Street Journal began: … “the financial fire storm that has been scorching economies around the globe is intensifying into one of the world’s worst and most baffling currency crises since the system of fixed exchange rates crumbled a quarter of a century ago.” And then the article goes on to say, “what makes the crisis so unnerving is that there is no clear solution in sight, no financial fire break that governments or international financial institutions can construct to slow the spread.”

Today’s general pessimism is increased by other problems such as the growing gap between the rich and the poor, [the] technological separation between the worker and the technology that he uses, and the export of jobs from high- to low-wage areas. In 1996 the United Nations Development Program pointed out that three hundred and fifty-eight billionaires around the world had accumulated more wealth-producing or income-producing assets than forty-five percent of the world’s close to six billion people.

Even America, which seems today to be enjoying relative economic prosperity in the midst of the world’s financial slide into depression, is showing similar symptoms. The United States now has one of the widest gaps between the “haves” and the “have nots”. American business has the widest pay gap between CEOs and people on the line. Low unemployment masks an underlying displacement of human workers by technology and cheaper foreign labor reflected in greater economic uncertainty and shakier retirement incomes. This puts an enormous strain on the relatively sound U.S. social safety net represented by Social Security welfare and the health care system. People are worried and they don’t know which way to turn.

This lack of direction is reflected in growing demands that something be done, yet with a conspicuous absence of anything substantive. Media pundits are now talking about a “Third Way.” But none of them seems to know quite what it is. People on the left describe the Third Way as socialism with a capitalist whitewash. People on the right claim it is capitalism with a socialist veneer. The European and U.S. power elite, as Antonio pointed out, represented by Prime Minister Tony Blair and America’s President Bill Clinton, have begun to use the phrase of the Third Way but have failed to define it in any meaningful way.

As Antonio said, on the twenty-first of this month together with several world leaders, there will be a meeting at New York University Law School to try to give content to the Third Way. Many skeptics view this new summit meeting as an attempt to give moral legitimacy to the Wall Street capitalist approach to economic globalization. The Washington Post on August 30, 1998 editorialized that “there is in fact no Third Way,” adding to the confusion on what Clinton and Blair have in mind.

But let us examine more closely the Washington Post statement that no third way exists. On the one hand there is capitalism, an economic system governed by market forces but where economic power is concentrated in the hands of a few who own and control productive capital. An illustration of this system is Bill Gates who went from 16 billion to over 50 billion dollars without any extra effort within a two-year period. That is an accumulation that is more than the combined assets of fifty percent of the entire American work force. Most workers-for-hire have great difficulty meeting their consumer debt which is pushed down their throats, and accumulating any income-producing assets. Indeed capital breeds capital, but only for those who [already] own most of it.

On the other hand, socialism, in all of its forms, is an economic system governed centrally by a political elite who enjoy even more highly concentrated ownership and economic power. In practice, socialism doesn’t work. The world is full of examples of traditionally state-dominated economies which cannot meet their massive foreign debt obligations or compete effectively in the emerging global market place. So logically a Third Way would be a free market system which economically empowers all individuals and families through direct and effective ownership of the means of production. This is the best check against the potential for corruption and abuse.

A mistake made by many academics and economists today is to equate democracy and the market system with the top-down Wall Street capitalist model, with its growing gap of wealth and power between the rich and the poor. That there is excessive corruption under capitalism and socialism even where governments are democratically elected should come as no surprise. Lord Action warned us years ago about the inherent corruptibility of systems that concentrate power. As you recall, power tends to corrupt. Absolute power corrupts absolutely. Even in what is going on in Washington politics, I think that too is a reflection of concentrated power.

Capitalist theorists like Milton Friedman pay no attention to concentrated ownership of labor-displacing technology. Marxist theorists do, but conclude that the state should own and regulate all means of production. Keynesians offer a feeble synthesis between these two models of development based upon the premise that the maldistribution of ownership is acceptable. Read Keynes’ General Theory, [which states that as a basic premise].

The so-called “Third Way” of Clinton and Blair follows the Keynesian model.

Too much discussion on the Third Way is based upon a narrow search within conventional media and academic circles. For this reason, proponents offer fuzzy versions of the Third Way strongly reminiscent of a slicked-over rendition of the welfare state. They assume that the Keynesian economic model is adequate for analyzing and solving major social and economic problems in the global economy.

However, we assert that no Third Way is a genuine Third Way if it does not economically empower the people [individually, not collectively]. If economic and social power is concentrated in the hands of a small elite. If it does nothing to raise the dignity of the vast majority of the people. If it keeps most people in the status of being workers-for-hire, servile dependents on the state or on other people. If it ignores widespread ownership over modern technology, land, and natural resources as a major pillar of national and global economic policy and as an alternative means for obtaining distributive justice in the twenty-first century. If it lacks a coherent theory and principles of economic and social justice to guide policy makers and to remove institutional barriers–barriers to widespread economic empowerment. If it lacks a logical systems framework for closing the gap between the rich and the poor within an evolving global market economy. If it ignores the central role of such social technologies and social tools as money, capital credit and central banking in determining how some people gained power in the past and how all people can acquire access to assets in economic power in the future. And it cannot be a Third Way, a genuine Third Way, if it remains trapped by the inherently bankrupt pay-as-you-go Social Security, disability and welfare redistribution systems instead of offering creative asset-backed systems to link future consumption incomes with future wealth production. You can’t distribute what isn’t produced.

Is there a solution? Yes! There is a Third Way that goes beyond the traditional answers supplied by the right and the left. It rejects both the Wall Street capitalist model and all forms of socialism as inadequate for closing the wealth and economic empowerment gap. The real Third Way is a comprehensive global development model based on the work of Louis O. Kelso. This was his first book, called The Capitalist Manifesto, which was a great book full of gems, [but which had a] terrible title. That is why most intellectuals wouldn’t read it, because labels do count. Words count. As the bible says, first came the word. You had better use your words very carefully.

But Kelso’s fame has unfortunately been limited to his invention of the ESOP (Employee Stock Ownership Plan). His book co-authored with the Aristotelian philosopher Mortimer J. Adler had a totally radical vision of the future that made sense. At least it made sense to me, and it made sense to, I know Norman Bailey, and I think others in this room. [Kelso and Adler] examined the principles underlying modern corporate finance in a modern market economy, where human labor is constantly displaced by the relentless forces of advanced technology. There is no end to that process.

Kelso and Adler offered a genuine Third Way for achieving an economically just and sustainable market economy both locally and globally. The media generally concede that Kelso’s ESOP has enjoyed legislative support from politicians of every persuasion, from far left to far right. And today it is used in over ten thousand companies in this country and a growing number abroad.

What is not generally recognized is that an ESOP is only one of several tools and only part of an overall comprehensive restructuring plan to democratize access to money and credit–the key to widespread capital ownership and universal economic empowerment. Remarkably, Kelso’s larger vision and theories have been trivialized and virtually ignored by academia and the mainstream media. That is where we have our job to do for the future.

Kelso’s revolutionary insights helped him solve an economic enigma–how Say’s Law of Markets, which was rejected both by Karl Marx and by Keynes, could in fact work to achieve sustainable and balanced growth in the modern global economy.

Kelso focused on the means by which ordinary people could become owners of productive assets; that is, how people without any assets could become owners of assets and participate more fully in the economic process. Kelso provided the systems theory and the practical mechanisms for implementing expanded ownership throughout the world. To illustrate the practical social potential of Kelso’s revolutionary insights, let us focus on the growth increment of income-producing assets in the American economy.

According to the President’s Annual Economic Report, the U.S. adds roughly one trillion dollars of new productive assets, wealth-producing assets, annually to its existing capital tree. In other words, about four thousand dollars for each man, woman and child is added in the form of new plant and equipment, new technology, new rentable space, and new physical infrastructure in both the private and public sectors. That is not bad even in a slow growth environment. What makes it bad is that we financed this growth, this ring on the tree, in ways that add no new owners.

This explains why capital breeds capital for the rich and disconnects most people from the means to share ownership, profits and power from this growth. Kelso’s Third Way among other things would reconnect people to ownership, to the economic process, just as the ballot connects people to the political process. Kelso has developed the social means for connecting people to ownership, profits and economic power that flow from this growth. We can talk about existing capital in another way. We can revise our inheritance laws to encourage the spreading out of existing assets, because nobody can take their assets with them. So it is a matter of law as to encouraging the widespread ownership of existing assets. Just slight changes in the inheritance and tax laws could achieve that.

Unfortunately even advocates of expanded ownership who have supported Kelso’s policy goals have failed to unite behind a unified system theory such as Kelso’s. I am not going to give you the names of those people unless you want to discuss it later. But there are a number of books that have come out in the last ten years on Kelso, but basically they think his theory doesn’t make sense or they don’t give enough credence to it. The only one that did a pretty good job is William Greider in the book One World, Ready or Not: The Manic Logic of Global Capitalism. Bill devoted Chapter Eighteen [to] one of the best popular versions of what Kelso was saying, it is excellent, as well as to some of our work here in the District [of Columbia]. We are talking about a major program for the District, but I am not going to go into that right now.

The Third Way argues that there is a connection between the wealth gap and the currency meltdown. Kelso’s economic paradigm explains why they are happening, and its principles of economic justice and binary economics offer a comprehensive, coherent analytical framework for solving these problems.

Our Center for Economic and Social Justice goes one step further, and we are joined with the World Institute [for Development and Peace] on this. We lay out a comprehensive Third Way economic restructuring program. We call it “Capital Homesteading,” for reasons that you will soon understand. This program, any nation can adopt it and there are several that are now considering it. It is aimed at getting the world out of the economic mess that it is in and helping to build a more just and equitable free market system. A free market by itself doesn’t deliver justice.

The Third Way focuses on the redistribution of ownership opportunities in new wealth; and as I said, you can deal with old wealth in other ways. In new wealth the major focus is the future rather than the redistribution of ownership of existing wealth. More important is what is going on now and what is going on in the future. Kelso’s system radically reduces the pressure on governments to redistribute incomes from Peter to pay Paul for Welfare State schemes. At the heart of the program lies a revolutionary proposal for democratizing the central banking systems of the world, beginning with the United States’ Federal Reserve System. This would return America’s central bank to its original purpose of creating money for local banks to finance the industrial, agricultural and commercial needs of the country.

The innovation of Kelso is an added twist that would open up ownership opportunities for millions of Americans and their families the same way that Abraham Lincoln’s Homestead Acts of the 1860’s opened up the possibility of widespread ownership of land in the mid-Nineteenth Century. The Third Way takes Lincoln’s vision and translates it from the agrarian economy of Nineteenth Century America to today’s technologically advanced and globalized market economy. There are no limits to the frontier of technology, so it is much bigger than Lincoln’s vision. Although I must say, Lincoln’s vision probably accounts more than any other piece of economic legislation, for America’s relative success in the world. It was very important [for getting us] where we are industrially.

Let me close with the single most important way to reform the American economy, and by example, other economies that follow the leadership of American economic policy makers.

The Proposal:

Section Thirteen of the Federal Reserve Act gives the twelve regional federal reserve banks the power to discount “eligible paper”–notes, promissory notes, representing the growth in the productive capacity of the American private sector. This power has been used in recent years only to bail out banks like Continental Illinois when they are “too big to fail.” When Freedom National Bank in Harlem tried to be saved through the Section Thirteen discount powers, the Fed turned their thumbs down. The U.S. dollar was supposed to be backed–Norman Bailey is going to go into this in much more detail; I am finishing up here–the U.S. dollar was supposed to be backed by private sector assets. But the Section Thirteen discount powers were abandoned when America looked for a way to finance budget deficits as we entered the First World War. So we have been on the wrong track since the First World War.

There is a paper out there on the table and I invite your attention to it. It is my paper on the Federal Reserve Discount Window and there is an exchange between Alan Greenspan and a Congressman who is friendly to us, as well as Norman Bailey’s comments on Alan Greenspan and my comments on Alan Greenspan. We will win with Alan Greenspan at the right time. I propose that we revitalize the discount powers of the Fed.

Here is the proposal: To monetize private sector growth by creating new money at an unsubsidized service fee–maybe half a percent, which is all that it costs to print currency and to regulate the banks. That should be the cost of money. But [it is] to be used exclusively for enabling financial institutions that make loans to any of these vehicles here, these credit democratization vehicles, so that the new capital will result in new shares to be acquired on credit by people without savings.




The way the rich become richer is to get credit repayable with the future profits of the enterprise itself. So that connects the people directly with the productive enterprise and the profit system. But it would be [used] exclusively for loans for spreading future capital ownership to all Americans through Kelsonian credit mechanisms. This single act would make the money system work for all workers, not just today’s already wealthy elite. Then, instead of people being controlled by money and those who control it, money would created in ways that put people in charge of their own lives.


Thanks to Baron Rothschild’s advice there is a democratic way out to save America and other economies in today’s global village. Before their future is decided for them on a permanent basis, people should ask whether the prescriptions being touted by our economic high priests and the Wall Street money movers will really build a better society for every citizen? Or will the Wall Street capitalist model once again merely empower a small elite? Is capitalism the only logical alternative for rebuilding, transforming and revitalizing a market economy? Or is it possible to conceive of a globalized free enterprise alternative to the wage and welfare systems of capitalism and socialism? One that is consistent with the vision of America’s founding fathers, a truly revolutionary and Third Way.

Thank you.

Antonio Betancourt:

Very good. I for one am relieved that the debate is not over. We hear a lot of people saying triumphantly, “we won, we won,” that democratic capitalism has won. They have to go to China, Russia, Vietnam, Laos, Burma, and Latin America to see who is paying the price of that so-called victory–workers, the retired people, the elderly and so forth.

Norman Bailey, Ph.D. in 1981 joined the Reagan administration as Director of Planning and Evaluation for the National Security Council. He was later appointed Special Assistant to the President and Senior Director for International Economic Affairs at the White House. He was a principal author of President Reagan’s Caribbean Basin Initiative and a major force within the White House for encouraging ESOP’s in U.S. domestic and foreign economic policy. He has worked on international economic and strategic issues for over thirty years as a consultant-economist specializing in international debt and monetary affairs. He has extensive experience in international investment banking. He serves as Senior Consultant to Equity Expansion International, Inc. among many, many other concerns. Let us welcome Norman Bailey who will talk about monetary policy.

Dr. Norman Bailey:

Thank you, Antonio, and thank you for taking almost two decades off my life. I joined the Reagan Administration in 1981. My doctorate is considerably before that. I won’t say exactly when.

I am going to be talking about money and credit. Money is made up of cash and credit. [I’m going to] explain this arcane topic which many people are interested in making as dark and impenetrable as possible in order to increase their own professional functions.

I am reminded of a luxurious reception that took place in Lima, Peru following a presidential election back in the 1980’s. In that election the party in power got something like five percent of the votes, so the government ministers were understandably somewhat depressed. One of the ministers went to the reception and because he was depressed– otherwise he certainly wouldn’t have done it–he got very drunk. He staggered out of the ballroom and he saw this gorgeous, tall woman in a beautiful red gown sitting by the wall. There was music playing in the background and he staggered over to her, kissed her hand and said, “Madam, will you dance?” The woman stood up, and she was very tall. She towered over him. She looked down at him and said, “Not on your life. And for three reasons: One, you are drunk; two, the music which is playing is the national anthem; and three, I am the Cardinal Archbishop of Lima.”

Now I never tell a story like that simply for general jollity and humor and so on, because this is a serious meeting about serious topics. I tell that story because of the moral involved in the story, and the moral, of course, is that things may not always be what they seem.

In the case of money, or cash and credit, they are almost never what they seem. Because almost everything that you read about [money] and hear about it is, not to put a fine point on it, wrong. First of all, the money supply in any advanced economy now is made up primarily of credit. In the United States cash in the form of bills and coins is somewhere in the neighborhood of five percent, the smallest measure of the money supply.

What is the difference between cash and credit? This is something that people don’t think much about, although they deal with both all of the time. Cash is a current claim on goods and services. I give you ten dollars and you give me something in return. Credit is a lot more interesting topic. Credit is a bet on the future. It is a bet that is shared by both the lender and the borrower. They are both betting on the future: one by lending money and the other by borrowing money. If the bet on the future looks like it is going to be too risky, or that there won’t be any future, there won’t be any credit. And if you believe that, as Antonio said, go to Russia today or Indonesia or any number of other countries. There is no credit because nobody is betting on the future. They think there is not going to be any future. They are wrong; there will be some kind of future.

I am reminded of two important publications of the twentieth century. I am not talking about publications like The Capitalist Manifesto by Kelso. I am talking about publications that are important because they were so terribly and completely and totally wrong. In 1910 an English author published a book called The Great Illusion. This was the best seller of all time. This book … has anyone here heard of it? Thank you, and yet it was the best seller of all time in the year 1910 when it came out. No books other than religious books such as the Bible have ever sold as many copies as The Great Illusion in all of its various translations. What did The Great Illusion say? The Great Illusion said that because of the advancing globalization of the world economy–he didn’t call it that; globalization is a new word that we have coined recently; but it was the same concept–because of the interconnection of the economies and the finances of the world, war among the advanced countries was unthinkable. That was in 1910.

Following the end of the Cold War, a gentleman who at that time worked in the Policy and Planning staff of the State Department–a fertile source of meaningless and wrong documents–published a paper called “The End of History,” later published. His thesis was that there will be no history because nobody writes history about positive things. They only write history about wars and depressions and other such things. With the end of the Cold War the world was becoming increasingly democratic and capitalistic and therefore there would be nothing to write about. Following the publication of this work of theoretical genius, the gentleman was hired by the Rand Corporation. Recently he admitted that in fact he had been wrong. I am not sure the author of The Great Illusion ever admitted that he was wrong. He may simply have died in the First World War and not have had a chance to do so.

In any case we are now going through a phase of major economic and financial upheaval in the world, as some of you may have noticed if you haven’t been living in an igloo in the northern part of Greenland for the last couple of years. This is a process that began not in the European Union, not in the United States, not in Japan–it began in Thailand in July 1997 a little over a year ago. The Thai currency, which I would have challenged any of you a year ago to name, collapsed. Most people in the world said, “Oh boy, isn’t that exciting, what else is interesting and what is for dinner?”

Nevertheless, it turned out that the collapse of the baht–because that is the name of the Thai currency, for those of you from the igloo community–began to spread around to the rest of its neighborhood and everybody said, “well okay, there is something wrong with that neighborhood; it is a bad neighborhood.” Of course, just a couple of years before that everybody had been writing books and giving speeches about what a wonderful neighborhood it was: “The Asian countries have the formula for endless economic growth. High savings rate, hard-working people, lots of education,” so on and so forth.

And the leader of this whole thing was none other, of course, than Japan. And people who wrote books, people who are being remarkably quiet nowadays, people wrote books about how Japan was going to take over the world. Literally. I kid you not. Those books are not even remaindered anymore. They have been recycled. Well, in order to explain what is going on now–because, of course, it turned out it wasn’t just that neighborhood–most recently the South African currency has collapsed, and the Russian currency has collapsed and several Latin American currencies are under severe attack, and [that of] such backward countries as Canada.

What is the explanation of this? Well, in order to explain it I have to talk about two things. One is what are the forms of credit, because as I have explained, the money supply nowadays is principally credit, not cash. What are the forms of credit? We are going to go through this very quickly. I have to do that because Norman Kurland occupied a good deal of my time, which is hardly unexpected, I must say, for those of us who know and love him.

The first form of credit is consumption credit, such as credit card debt. You borrow money, and you buy something, and you consume it, and it is gone. It is gone; it is no longer there. So it is not collateralized. It can’t be collateralized, because it doesn’t exist shortly after you purchase it.

I don’t know whether any of you have noticed that during this, one of the longest booms in the economic history of the United States, we also have had a rapidly increasing series of bankruptcies, personal bankruptcy. People are declaring bankruptcy all over the place. Now one reason they do so is because we have particularly bad bankruptcy laws, but that is only one reason.

Another reason is because of consumption credit which is spreading like wildfire throughout the land. It is particularly risky. It is the riskiest form of credit and that is why, Ladies and Gentlemen, not because of the boundless greed of the credit card companies, why interest rates on credit card debt are so high. If you get one at twelve percent you are doing very well. Generally it is more like seventeen or eighteen percent per annum. That is because they expect a lot of it not to be repaid. So they are going to have to make up for what isn’t repaid, by the interest that is paid on the rest that is repaid. That is what they are primarily interested in. They make their money not simply because you use a card to buy something and pay within thirty days. They make their money by you buying something, making a small payment within thirty days, stretching it out, becoming more and more in debt–to the point where in many cases they will get unhappy if you do pay promptly on your credit card debt, and they will write you nasty letters and sometimes even take your card away.

Now if somebody issues consumption credit they are obviously not looking to the use of it for the repayment. They are looking at something else, namely your income stream outside of that credit.

Actually, nowadays they don’t look at much of anything, they simply send you letters saying, “We don’t really care what your credit rating is. Sign up for our card.” Secondly, what I call–and this terminology is not necessarily what you will find in the textbooks, but it is my terminology and I am up here with the microphones and everything–the second form of credit I call asset acquisition credit. I am talking primarily about houses and cars. Now this is a fundamentally different form of credit from simple consumption credit for a number of different reasons.

If you buy something with consumption credit and consume it during that period of time, before you consume it is yours, it is your property. You may never pay back the credit card company but it doesn’t matter. A court of law will say during that period it was your property. If somebody steals it from you they can be prosecuted for doing so. If you buy a house or a car on credit, I don’t care what it says on the various documents, you don’t own it until you have paid it off. If you don’t believe this, make your mortgage payments on the house for twenty-nine years and eleven months and skip the last one, and what will happen is your house will be seized. Or make your car payments for four years and eleven months and don’t make the last one and your car will be repossessed. You don’t own it; the bank owns it, or the financial institution, or whatever it is that has made you the loan.

The ownership is released over time, usually thirty years in the case of a house, five years in the case of a car, but it could be different. But [the loan is not paid] out of the earnings of the asset because the assets don’t have any earnings. They don’t earn for you. They cost you money and in the beginning [are] mostly interest. If you ever pay any attention to your mortgage payments for the first several years of your mortgage, you are paying primarily interest. That is to the definite benefit of the lenders, which is why it is like that. And it is always collateralized. You pledge the house. You pledge the car. But in most states–such as California for example, which is a pace-setter for everything bad that comes in the United States and then everybody copies it–if the housing market goes bad you stop making your payments. The bank possesses the house, sells it, doesn’t make enough money to pay off your mortgage–and you still owe them the rest.

Third, is what I call reproductive capital credit. This is the least risky form of credit. It is the least risky because it is credit for something that, in principle at any rate, is supposed to pay for itself out of earnings. You borrow the money and you make an investment in some productive activity. That productive activity should repay the loan and interest and make a profit for you. So the lender has that form of security. So if you don’t pay, if the project is not a success and it doesn’t throw off enough money to pay back the loan, they can look at your other earnings just like on other forms of credit. It is now in most cases usually collateralized. They insist on some other form of collateral. You pledge something else. You work for thirty years, pay off your house, and now you want to start a business. The bank says, “Sure we will lend you the money to start a business. You pledge the earnings of the money, you pledge your salary or outside income, and you refinance, you re-mortgage the house.”

So the least risky form of credit is the one that is most highly collateralized. That is the way it is at the present time. This is not the Third Way; this is the second way. The first way, of course, is the way of socialism/communism. Well, the second thing I want you to understand–and forgive these excursions into the obvious because unfortunately we tend to forget the obvious because of the way our minds work, or fail to do so as the case may be–I am going to go into a little Marxist history here.

Karl Marx had a theory of economic history. I am not going to go into whether it was right or wrong. It was certainly highly oversimplified and it was totally Eurocentric. He neither knew nor cared about anything outside Europe. According to Marx, the first phase of economic history was one based upon slavery. The social institution of slavery. That went on for millennia until the collapse of the Roman Empire in which case slavery gradually died out and was replaced by serfdom. This was the second phase.

Now what is serfdom? Serfdom is a contractual relationship among individuals. A serf and a lord, to over-simplify. There are thousands of these medieval contracts in the archives of Europe. Then in the thirteenth century, according to Marx, the feudal system or serfdom began to die out and was replaced by capitalism, and capitalism went through three phases.

The first phase from the thirteenth to the eighteenth centuries was dominated by commercial capital. The emergence of Venice, Genoa, the Hanseatic states, and so on and so forth. In the eighteenth century, the second half of the eighteenth century, commercial capital declined in importance and was replaced by industrial capital. It didn’t disappear–there was still commercial capital floating around, but it was no longer the dominant form of capital. Industrial capital was dominant.

Now according to Marx–and if people actually read Marx instead of just talking about him they might understand this–Marx did not say that the capitalist system was going to be destroyed by the revolution of the proletariat. He said that the capitalist system was going to destroy itself. It was going to destroy itself because of a development that he saw with great prescience, because it had not actually happened yet. That was the replacement of the dominance of industrial capital by the dominance of financial capital. And that in fact happened around the turn of the twentieth century, the twentieth century.

Of course commercial and industrial capital is still around, and in parts of the world, serfdom and slavery is still around. Nevertheless in the advanced countries, financial capital is now clearly the dominant form of capitalism. What is meant by financial capitalism is an economic system which is dominated by paper instruments. In fact nowadays usually not even paper is involved. It is all computerized, and gigantic sums of money are shifted around the world by the pushing of buttons.

In most cases this paper is related to anything real only in the most tenuous, indirect and remote fashion. You will say, “Well, why in that case didn’t capitalism disappear?” Why did communism take place in a country like Russia which had barely gotten into the phase of industrial capitalism much less financial capitalism? Well, of course, Marx would have been absolutely astounded by the fact that communism took over in Russia and then he would have looked into it and he would have realized that the ideas of the Bolsheviks had nothing whatsoever to do with his ideas as put down in his writings. I put it to you that the reason this hasn’t happened is a very simple reason. Fifty eight percent of the twentieth century has been involved very efficiently and very effectively in destroying capital, and I refer to World War I, the Great Depression, World War II, and the Cold War.

In all of these periods capital, productive capital, was destroyed at a great rate. Now what are the two principal periods when it wasn’t happening? They are the 1920’s and the 1990’s. Now what happened at the end of the 1920’s was that the house of cards imploded. The paper pyramid fell down, and I put it to you that that is exactly what is happening right now with a similar paper pyramid that began to be constructed after the end of the Cold War.

That being the case, assuming that my analysis is correct, what we need is a Third Way monetarily as well as from the standpoint of ownership. Law from the standpoint of finance. Fiscal policy and so on and so forth. I therefore propose the following–and unfortunately I do not have time to go into the history of central banking because the central banks of the world are, by and large, there are exceptions, are an institution that has been perverted beyond recognition from what its original purpose was. Certainly that is true of the Federal Reserve System, which in no way resembles the Federal Reserve System that was in the minds of the people who designed it and who passed the law. I propose the following, which would be a Third Way to prevent the collapse of financial capitalism and the sinking of the world into chaos and anarchy as a result and possibly another world war or another great depression.

Under the following principles. One, the central bank is a government agency which cannot and should not stand aside from, much less impede government policy designed to fulfill the functions for which that government is elected. If it cannot be reformed it should be privatized.

Two, monetary policy is not a mystery religion to be presided over by a caste of high priests and–if any of you have ever listened to the testimony by the Chairman of the Federal Reserve Board to Congress–with all of the congressmen knowing they don’t have the faintest idea what he is talking about, of course, but they don’t want to admit it. I mean this is the kind of language that can only be, forgive me, Rabbi, found in something like the Talmud. This is Talmudic speech. Monetary policy is not a mystery religion to be presided over by a caste of high priests. It is the basis of any monetary economy and best managed by technicians in the service of the people’s representatives.

Monetary policy is an extremely powerful tool which coupled with an appropriate fiscal and proper juridical framework–these are the three pillars of the Third Way–can erect a third pillar of material prosperity to accompany those of life and liberty so strong that nothing can shake the stability, present and future, of the democratic society.

To achieve these goals, the central bank can and should adopt the following policies. Are you listening, Mr. Greenspan?

Incidentally, the whole world is looking to him for salvation–talk about religious fervor. You know, this can only remind me of being in some kind of, pardon me, Father, of being in a monastery and everybody is imploring an icon of the Virgin on the wall to save them from the results of their own improprieties. And that is exactly what the world is imploring Mr. Greenspan: “Save us!”

Okay, the central bank can and should adopt the following policies: First, limit the issuance of credit to the discounting of paper presented to it by the financial system–representing the production, transportation, storage, import or export of real goods and services, or the expansion of productive facilities–with maturities corresponding to the economic nature of the transactions involved. That is exactly what the Federal Reserve system was established to do. All such paper must be qualified as self-liquidating in principle, but need not be collateralized by existing physical assets. Speculative and government paper will be ineligible for central bank discounting.

Unfortunately, those who wrote the Federal Reserve Act simply said it can’t discount private financial paper. It forgot to forbid it from discounting government financial paper. You know what the backing of the U.S. dollar is, this thing that everybody around the world wants? I mean, they kill to get hold of dollar bills. I wonder if they understand that the backing of the U.S. dollar is the Federal debt. Which brings us to the reductio ad absurdum that if the Federal debt were ever paid off, we would have no money supply. That is literally true, as Dave Barry would say. Speculative government paper would be ineligible for central bank discounting; thus only the productive economy will have a lender of last resort, not the government. The central bank will not allocate credit, but will only set criteria of eligibility for paper presented for discounting by the commercial private financial system, which will have the responsibility of assessing the economic feasibility and value of the underlying project or transaction.

There is no reason for the central bank to make a profit. In the United States the profit is returned to the Treasury. In other words, the Treasury borrows from the central bank at practically no interest–something a lot of people don’t realize, including professors of money and banking. Thus, eligible paper will be discounted at a rate only sufficient to cover the administrative costs of the central bank. Perhaps one percent per annum or less. The Federal discount rate was kept at this level in the U.S. during World War II.

To be eligible, all paper presented to the central bank for discounting, representing past or future capital formation–that is, the purchase and employment of existing or prospective reproductive assets–must involve the existence or formation of an Employee Stock Ownership Plan or other form of expanded capital ownership. This procedure will be applied among others to the expansion or modernization of privatized state enterprises and local subsidiaries of multinational corporations. All other credit users, including the government, will have to finance their requirements through drawing upon the existing stock of capital and paying the market rate for its use without recourse to a lender of last resort.

Thus a two-tiered credit system will be established with maximum incentive to productive uses involving the spread of capital ownership, as opposed to the present system which rewards anti-economic activities and penalizes the productive economy. In this way the question of availability of funding for productive purposes [is answered] without resort to additional external indebtedness. The inflationary bias of direct or indirect monetization of the public debt is eliminated, since the increased money supply will be matched and exceeded by the value of the increased production of goods and services. The country will again have an asset-backed monetary system–backed not by sterile commodities such as gold or silver, but by productive plant and equipment.

Antonio Betancourt:

Thank you, Dr. Bailey. Now it is a pleasure for me to introduce Dr. Marcus Raskin, co-founder and Distinguished Fellow at the Institute for Policy Studies (IPS). In 1963 in opposition to the decisions being made about the Vietnam War, Dr. Raskin resigned his position as member of the National Security Council in the Kennedy Administration to launch the IPS with Richard Barnett. He was instrumental in helping Louis Kelso publish one of his books–the third one, Two Factor Theory: The Economics of Reality, by Random House in 1968. A renowned writer and widely respected for his independent thinking, Dr. Raskin is the author and co-author of numerous books including, The Limits of Defense, After Twenty Years, The Vietnam Reader, An American Manifesto, Washington Plans an Aggressive War, The Problem of the Federal Budget, The Federal Budget and Social Reconstruction, The Politics of National Security, New Ways of Knowing, Winning America, Essays of a Citizen, and Abolishing the War System. An iconoclast, observer , and commentator on politics for more than thirty years, Dr. Raskin has had a selfless commitment to challenge conventional thought on behalf of the middle class and workers. Currently he is a professor of public policy at George Washington University. It is an honor and a pleasure to have Dr. Raskin with us.

Dr. Marcus Raskin:

First of all, I want to congratulate you for having this meeting, and to explore at this point the international economy, and to do it in such a way that makes sense. That is to say, to look at fundamental problems of the international economy and look also toward the question of where should the twenty-first century go. So this is a very important occasion and I hope it will be the basis of continued discussion and dialogue on the question of what is economic justice, and what is an economy for, and whether or not in any specific nation state there is more than one economy. There may be indeed different economies that operate at the same time.

I wanted also to state certain other matters and to make my remarks very brief, not because I know so much but rather because I know so little. So I wanted to go through certain of the points that I have heard so far and which concern me.

One is the assumption that technology provides, so that the future is something that will see greater and greater technology, and the technology is something that is of benefit to human kind. Now for the most part this is a principle of modernism. This is a principle of both capitalism and socialism, that is, that the technology allows for the conquering of nature, the transformation of nature for the use of human beings. And so what is missing from this is the question of whether there should be constraints over technology and whether or not indeed technology itself should be part of moral philosophy. If so, what is that moral philosophy? So that turns out to be one set of concerns that is there when you begin to reconsider what the nature of economic justice is and the whole question of capitalism and socialism itself. Where does technology play in this whole game?

The second thing that one has to look at is, what is political power and who in fact will share that political power? Thus, for example, who chooses the central bankers? Who are the central bankers accountable to? Is this a democratic process? Is this something which is allowed, for example in this country, through a public-private mechanism, or indeed is it now something which is to be opened to the people as a whole for making choices as to who should be on, if you are going to have a central bank, and who should run the central bank? So the question of political power remains. The question of political accountability.

The third question which remains is the issue of profit or surplus. That is to say, let us assume that the system as promulgated here really becomes the system. What happens to the profit? What happens to the surplus? Is that something which is to be shared? Is it something which is to be taken out of the society and is to become part of private property–that is, private acquisition which can be held against the society, or is it indeed something which can be repatriated and should be repatriated through a taxing system or some other mechanism? That question, in my view, does not go away.

Now beyond that, there are certain other matters that it seems to me really have to be looked at very carefully. In the United States, and I referred to this in the beginning of my talk, one could begin to see the American economy through different ways. First of all, you could begin to see that the United States Democratic Party since the Wilson administration has followed an international export strategy, and there are several reasons for that international export strategy to keep in mind. Dr. Bailey referred to the work of Norman Angel. There is a theory behind all of this, and that theory was that trade would stop war. This also was fundamental to Wilsonianism. If you had an international economic export strategy, a strong export strategy, somehow this would allow for peace to exist in the world.

Notice that indeed President Clinton has followed essentially an international export strategy as well, talking about globalization, talking about international competition, so forth and so on, but as a base for suggesting that there has got to be an alternative to the war system which he viewed–that is Wilson viewed and I assume that perhaps Clinton did–as trade, as economic trade and economic competition as the alternative means.

I raise this point just to make it clear that there is a theory behind all of this by these various people who did run the government over this period of time. Not necessarily articulated, always inchoate, but it is there. But what hasn’t gone away is, as pointed out, is the question of capital in the sense of who controls it and where should that control be vested.

Now, Mr. Kurland tries to duck out of this question and in part so does Mr. Bailey, by distinguishing between capital which already exists and new capital. That is a political statement. In other words what this political statement is, is we believe people in place who have, for example, fifty billion dollars, we will leave them alone. That is just wonderful that they have made this money and have this active political power in the society. But we are starting new, we are going to start from day one as if everything which has occurred up to now hasn’t existed. That is the premise behind that and the hope is that in one way or another by shifting the gaze, by fixing it on a new frame of reference, therefore a new paradigm will come into existence.

It is very similar to what surely what must have happened with witchcraft and the demonology of witchcraft. The scientific method in effect said, look, we don’t need witchcraft any more or the demonology of witchcraft–let us think about other matters. That is the view. But of course witchcraft stayed on for a very long time and it is still there with us in different forms. So that is a problem.

Now having said that, it does lead us then back to the question of political power. Presently we have a system of international capital in which socialism as defined most recently in the Soviet Union became the last stage of a particular form of capitalism. That is what in fact it turned out to be. It was the last stage of capitalism taken over in a sense by a new form of what I would describe as “Picaro capitalism,” which is what occurred over the last decade or so in the Soviet Union.

Now the question is, if all of this is out of control, I will come back to the international situation in a moment, what about internally in the United States? We have heard from both speakers and correctly so, [about] the increasing emiseration within the society. That emiseration is in terms of what the cultural possibilities are for the society itself as a whole. Is there going to be education for people or is it going to be mediated through advertising, for example? The other question is whether some people have access to resources; most people in fact do not. So that becomes a very serious question which is added to by a third and a fourth. The third question is, I am alienated from my work at work and I have nothing to say about what goes on at work. The issue at my work is not only that I am highly productive, but I don’t like what we do in our work. It is dreadful, but I have no choice. I have to work at a meaningless job, at things that shouldn’t be done in the first place. So another question that has to be looked at again is, what is the nature of production and productivity? What are the values that we put on them and are what their purposes?

Now the market system in fact has attempted to cover that up. So that, for example, the sale of missiles and the buying of missiles, the sale of pornography and the buying of it are equal to anything else. In the centrally planned system it is indeed a value-driven notion of “basic needs” which sometimes works and unfortunately many times does not. So alright, so that is this piece of the story.

There are a couple of other things that have to be looked at. One is the question of where is the public in all of this? Where is public accountability? Is, for example, the notion that I own a piece of stock or a hundred shares of a particular corporation in fact going to take the place of either public accountability or political access or political participation, both in that corporation and in the society as a whole? The problem is that the answer is that it won’t. So that what we are really looking at are absolutely fundamental structural transformations at this point. If we are serious–and forget the language about the Third Way; this is all a put on–but if we are serious about the notion of where we want to go in the twenty-first century…. Now one of the things that always happens in any discussion at this point is that the speaker will lay out several points in kind of counter form about an alternative. Let me do that and you can burlesque what I am about to say. Indeed, I will burlesque it myself.

Let me suggest the following: If it is the case that we can’t get away or shouldn’t get away from the question of accountability and political power, where is the accountability over the top five hundred corporations in the world that now run basically the economies of two-thirds of the world? What is that mechanism of control now? Should these corporations be internationally chartered? Should they be nationally chartered by Congress? Should they in fact have representation on their boards? Should their stock be owned by the stockholders who would be workers and shareholders and communities? What should be done in those cases?

Secondly, what about those people who work for governments and who have been systematically demoralized over this last generation because they have been seen somehow as parasites. Stupidly, foolishly this has been one of the things that has gone on, which is the demoralization of public servants. Where do they fit into this situation? The fact of the matter is that without government what we see is capitalism would collapse. So now the question then becomes where are they? What do they do? What sorts of things should they undertake to do? Should, for example, governments undertake yardstick industries of the kind that the New Deal talked about and undertook at certain stages such as the Tennessee Valley Authority? What should they do? What is their role vis-a-vis health, education, and productive enterprise?

The third question is, supposing it is the case that I do indeed want to start a small or mini business: Where do I get credit and capital to do that? Should there be banks set up specifically for that purpose? Is it the case that I should be allowed to run as I want to run, in a kind of free enterprise way? But indeed if I decide to employ workers, how are those workers to be protected? Supposing it is the case that it is a minimum-wage activity or a sub-minimum-wage activity? Supposing it is the case that I want to start a laundry and I can only pay five dollars and twenty-five cents an hour, but in my area of the country it costs eight dollars an hour to live at the minimum. Who is going to subsidize? Should it be the case that the public should subsidize this, mediated through the government? In this sense, what is the definition of a just wage? Where should the idea of a just wage be made and put forward and undertaken to analyze for the society as a whole, or is this something that a just wage doesn’t matter any more? So that question becomes a critical one.

The fourth question is around the issue of co-ops and worker-owned co-ops. To what extent at this stage should they be stimulated in American life? So that in fact we have a situation of a worker controlled ownership locally by people who want to operate in that particular way, in a cooperative way. Now beyond that it becomes clear that in order to make this work you have to have several other things. One, you have to have a federal government which isn’t dissolving itself into some mechanism of states rights, which is what is going on now. This is an absolute disaster in my view.

Secondly, you also have to be prepared to say that the government has a role to play in all of these various ways, in order for citizenship to exist–citizenship being accountability within the corporate structure, or the economy, or within the political side, that is, the voting side in the civil society. That then, it seems to me, leads to one final other thing. At the end of the Second World War, after some sixty million people died, it came into the heads of some people that indeed we needed a different international economic structure. We need a different structure at this point.

Now how that is to go about, that is to say, how are we going to put that into effect? Whether there can be a different Bretton Woods, a different World Bank, a different International Monetary Fund which has as its purpose some of the UN Declaration of bringing up the bottom, of bringing up the poorest people in this world, I don’t know. That is a question which in part will be resolved by ourselves, that is, the rich who are prepared and should be prepared to give something back. The giving something back also is related to the notion of justice and empathy, and, those of you who are religious, to some sort of sense of religious scruple. That religious scruple then requires the development now of a different international economic structure to move beyond the IMF and the World Bank. There are ideas obviously that we could move to talk about that.

Thank you.

Antonio Betancourt:

Thank you, Dr. Raskin. You formulated so many, many questions and that is part of the purpose for which we gather; to arm ourselves with the proper questions so we can challenge the existing paradigms out there.

Our next speaker is John Schmitt. Dr. Schmitt is a Labor Economist with the Economic Policy Institute. He is the co-author of The State of Work in America, 1998-1999, published by Cornell University Press. He has also written for general and academic publications on wage inequality, the minimum wage, unemployment, and comparative economic development. Mr. Schmitt has an A.B. from the Woodrow Wilson School of Public and International Affairs at Princeton University and an M.Sc. and Ph.D. in economics from the London School of Economics. He has travel, studied, and worked extensively in Latin America, most recently in El Salvador where he conducted economic research with a Fulbright grant and later worked for the United Nations Peacekeeping Mission (ONUSAL). Let us welcome Dr. John Schmitt.

Dr. John Schmitt:

I want to thank Mr. Betancourt for the opportunity to speak to you today on the issue of the Third Way.

I should say from the beginning that I am not speaking either as an advocate or a critic of the Third Way but rather as someone who is interested in what the national debate that we are beginning to see the lines of in the United States around the Third Way, means for a lot of the issues that are of concern to the Economic Policy Institute where I work, which are fundamentally questions of growth and questions of economic equality.

I am particularly happy to do that in this context because I think that we share a lot of beliefs about the way the economy is working right now. On the one hand, I think that there is a belief that the economic and social systems that we live in have some profound problems and in particular they are related to the issue of equality. Also, the belief that the majority of proposals that are under consideration right now fall short of really solving those problems.

What I would like to do right at the beginning is to emphasize what I think are really two of the most important contributions of some of the earlier speakers. I think that the first is the specificity of the program for the Third Way in particular that the first two speakers emphasized. I think that the national debate that is happening, or might be about to begin to happen around, has been hampered a lot by the fact that its current discussions are very nebulous as to what the Third Way is. The first two speakers I think really gave us a more concrete idea of what an alternative way of organizing our society is, and I think that is going to be a very valuable and helpful contribution.

The second contribution that I think that I would like to emphasize is the first two speakers’ emphasis particularly on greatly expanding ownership of capital and access to credit for business formation as a fundamental tenet of the Third Way. This is something that I think has not been particularly emphasized by President Clinton and his supporters and followers who use that term, nor by Tony Blair and his advisors who also use that term.

What I would like to do is basically just make three observations about the debate and in comparison I think my comments will be a lot more low-brow than some of the discussion that we have heard so far, but I hope they won’t be any less interesting.

What I would like to do is first make a point about economics and then make two other points about what are essentially more political comments and are related to the way the national debate on the Third Way is taking place.

In terms of the economic point, the first point that I would like to make is that I think it is very important to emphasize that despite the recent hype about the expansion and growth of the stock market and the expansion of stock ownership, we still are very far from living in a shareholder democracy in the United States. The most recent, truly reliable numbers that we have are from the Federal Reserve Board study from 1995 that showed that, at that point, sixty percent of Americans owned no stock at all in any form, direct or indirect through mutual funds, through 401(k) plans. And that really means that 60 percent of the people as of 1995 were really excluded from a lot of the benefits of share ownership that have taken place, particularly in the last fifteen years or so.

The other important point to emphasize is that if we make a cutoff of having some reasonable amount of money in the stock market–not just a small amount that you might have inherited from your aunt, but we have put a very low limit of just five thousand dollars or more–the number actually falls to only twenty-nine percent of Americans in 1995 who held even five thousand dollars or more in the stock market. So you can see that there is a fair degree of concentration.

Now, of course, probably a lot has changed since 1995. This stock market and ownership have expanded a lot but Professor Ed Wolf who is at New York University has used the 1995 Federal Reserve numbers, and some outside, about what we know has happened to various assets that Americans hold, and he has made some pretty good projections, I think, for 1997. If you will look at his numbers, it is very striking. The typical household in the United States–that is, the family or the household right in the middle of the wealth distribution–owned 8,000 dollars of stock.

This is certainly a substantial amount for many people, but it is not the kind of image that we have of a shareholder democracy where people are soon thinking about retiring and living off the seven percent return they get on their 8,000 dollars. To put that in context, for that same typical family, the other assets that they held were worth about 90 thousand dollars; the vast majority of that is real estate. Now to think about what that means, the typical household has about eleven times more wealth generally in the form of real estate than they do in the stock market. What that means in practice is, say a five percent change up or down in the value of their house actually has more impact on their financial situation than a fifty percent rise or fall in their shares. So if the stock market falls fifty percent today, but if their house price rises five percent, they are actually better off.

Stock ownership then, the bottom line of what I am trying to argue is that it continues to be extremely concentrated. The top one percent of Americans in 1997 had an average of about 2.5 million dollars in stock; the next nine percent had about 275 thousand dollars. Obviously for that group it makes a big difference what happens in the stock market. For the rest of us it really makes very little difference. The point of mentioning all of this is that the current system is not moving toward shareholder democracy at such a speed that it makes the proposals that we have heard earlier not relevant or beside the point. We really are going relatively slowly down that path and in a way that is very concentrated. In that sense I would also emphasize the point that Professor Raskin made. We already have a distribution of wealth and that needs to be addressed in addition to whatever changes in future distribution we want to make.

The second point that I would like to make is a more political point. And it is more narrowly rooted in the debate that is taking place on the national level–not on the much more, I think, high-brow and more focused discussion that is taking place today–has to do with what the Third Way means in practice. I think here we have to look to the United Kingdom where Tony Blair has been in power for a while. He has had a chance with a very large majority in Parliament to really set out the lines of what the Third Way means in practice in the current political systems that we function in, and I would emphasize that it is very different from what we have heard earlier today.

What I would say is that in practice in the United Kingdom, the Third Way appears to have very little to do with restructuring ownership of capital or access to credit. These are some of the key propositions of what we have been talking about earlier. I think in practice the Third Way in the U.K. really means focusing on changing the way the labor market works and not much more than that.

If you look at what issues the Blair government has addressed in its time in power there, there really has been a very strong focus on questions of getting job opportunities and getting, to a lesser degree, income to groups that are disadvantaged, and on if they have programs to subsidize jobs for eighteen- to twenty-four-year-olds after six months of unemployment. There are a lot of programs to provide job training and education after secondary school for adult workers; there are proposals to provide job subsidies after two years of unemployment. The Blair government has also pushed a working family tax credit that is modeled loosely on the U.S. earned income tax credit. There is a child care tax credit. All of these kinds of programs are really focused on trying to affect the way people receive benefits and in such a way that it might affect their participation in the labor market; or on the other side, to encourage employers to provide job opportunities to people who might otherwise have difficulty in finding them.

There has been a reduction in the national insurance payments that are associated with the low-wage work. There has even been an establishment of a minimum wage in Britain in the last period fundamentally as a attempt not just to bolster wages at the bottom but also to provide incentives to actually go out and find jobs–to try and deal directly with the questions of the poverty trap.

Now a positive interpretation of this would be that these are providing incentives to workers and to employers to hire workers, and that it is creating opportunities for people. A less kind interpretation that I am certainly open to is the idea that it is really about undermining the traditional social safety net and undermining some of the labor market institutions that have helped to protect workers wages and job security in the earlier period, the pre-Thatcher/Major period in Britain.

In that sense, what we are seeing in practice in the Third Way, as I said at the beginning of this issue, is very different from the discussion that we have had today. It is one that is focused on the labor market. It is focused on undermining a lot of the social safety net that existed in the past, without necessarily replacing it with something that is more elaborate or protects workers to a greater degree.

The final point that I would want to make, and again I think that it is a slightly more political than economic point, is that the discussion of the Third Way in the U.S. has suffered tremendously from the vagueness of the concept, at least as it has been articulated by many of its proponents so far. I think that people who are proponents of the Third Way face a real uphill battle, in that the Third Way, I think, means a lot of things to a lot of people. I am reminded from studying Latin American history in college that Juan Perón in Argentina referred to his economic system as a Third Way. Certainly a lot of people look to post-colonial India as offering a Third Way, and you even hear extensive talk of, for example, social democracies in Europe like Sweden representing the Third Way. Now my guess is that when Tony Blair and Bill Clinton and their advisors talk about the Third Way, they mean Peron’s Argentina, India in the 1950’s, or the sort of peak of the Swedish welfare state.

I think more recently what the Third Way has come to mean–and it is unfortunate and it also provides no help to the political project of those like the first two speakers who view the Third Way in a more profound sense–the Third Way has really become a synonym for the term “triangulation” that we have heard a lot about before. Norman Kurland and I were talking about this the other day; that it is really about steering a middle course between Republicans and Democrats, between old Labor and the Tories. It is hard to get politically very excited about that. It is hard to see that as a radical center.

Let me just conclude on that point. I think that what I found most interesting about the discussion today is that Tony Blair and the Demos Think Tank in Britain and others have really popularized this idea of being in the radical center. It is a term that has not caught on in the U.S. as far as I know, but I think that it might, because it is a little more exciting to be in the radical center than to say that you are splitting the difference between Jimmy Carter and Gerald Ford. If that is the case then what I have been most heartened by in the discussion today is the fact that I do think that there is something very radical about the proposals that we have seen. I encourage further discussion on these issues because rather than the sort of typically vague or narrowly focused discussion of the labor market, I think what we have really started to talk about here, and I hope that this goes forward, are fundamental questions about distribution of resources in the economy, and that can only lead, if we can talk about those things, it can only lead in a positive direction.

Thank you.