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  • The “How To” Problem

    by Eric Pavlat

    One of the biggest problems with Distributism–the idea that economies should not be based on corporations (pure capitalism) or on the State (pure socialism), but on individuals and families–is the question of how to achieve that goal.  Frequent commenter R.C. pinned the tail on the donkey when he wrote:

    “Is there anything we can do to make the largest corporations smaller, and competition with them easier, in the interests of Subsidiarity, without using anti-Subsidiarist methods which in the long run, by stretching Constitutional norms and expanding the precedent for government intrusion, actually reduce Subsidiarity by consolidating power into the government?”

    In other words, what could the government do (theoretically) in order to advance a more Distributist economy without inordinately increasing the power of the State?

    R.C.’s suggestion was a sliding corporate tax.  I’d be curious about eliminating the corporate tax altogether and instead implementing a sliding value-added tax (sliding based on the size of the business).  Others have suggestted removing all regulations on small businesses under a certain size–an idea I’d be interested in partially implementing, but can’t totally support.

    Other ideas?

    The views expressed by the authors and editorial staff are not necessarily the views of
    Sophia Institute, Holy Spirit College, or the Thomas More College of Liberal Arts.

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    • Jay

      While I would disagree with the definition of “pure” capitalism you have provided here, and the existence of the State is a good therefore at the very least some minimum form of tax is required such that the State will participate in the market somehow. I think the central question that needs to be addressed in order to properly support subsidiarity is education, and very importantly this education is not to be placed in the hands of the state. This would incorporate why subsidiarity is a good thing, why solidarity is a good thing, to more practical measures such as the extent of how advertising is manipulative…etc…Who would do this education? The Church.

    • Stuart

      The Distiributist theory, as originally proposed by G.K. Chesterton, is an impractical one unless some policies are implemented to make it happen. Here are some suggestions:

      1. Have a gradual transition period where the economy slowly transitions from a capitalist/socialist model to a distributist one. This will take some time.

      2. Restrict the size of major corporations, but allow some multi-national companies to exist for purposes of international trade.

      3. Place all utilities and banks under government control.

      4. Maintain and strenthen the social safety net, so that no one falls through the cracks.

    • Chris B

      1st – as a marketing strategy – Say “Subsidiarity” instead of “Distributism.”

      2nd – lower full spectrum tax rates on small businesses by levelling their rates to NMT effective rate of largest big corporations –

      3rd – limiting size of commercial companies / commercial corporations / banks / financial institutions is sensible; and even better…

      4th – incentivize diversification/subsidiarity – lean toward wide-open advantages for smaller commercial entities, including smaller banks…

      5th – completely eliminate social safety nets for commercial entities and quasi-govt entities (Fannie Mae/Freddie Mac)engaging in hi risk / hi reward investment operations.

      6th – low, flat income tax rate (which supports investments in small entities in #4 above)

    • Brandon

      That is what this all amounts to. I asked in another thread about Libertarianism, and in all the years the song has been sung, has government actually gotten smaller in any significant way?

      The chair of Caesar (government) is like the Ring of Power in Lord of the Rings…a temptation too great to be wielded “properly.”

      That is why there will never be a “True” Communist State.

      That is why there will never be a “True” Free Market Economy.

      That is why there will never be a “True” Distributist Society.

      For any of the above to be enacted, Heavy Government interference Or Totalitarian Methods would have to be employed.

      What to do? A fair question Mr. Pavlat. I think a good start would be to examine each “ideology” and take some workable ideas from each.

    • Michael

      Individuals would not pay any income or property tax. For profit corporations would pay property taxes only. The larger a company’s asset portfolio becomes, the greater its tax burden would be.

      This would have the affect of encouraging individuals to save, invest, and purchase property, while penalizing a company that seeks to ‘own everything’.

    • Mark

      “Is there anything we can do to make the largest corporations smaller, and competition with them easier, in the interests of Subsidiarity, without using anti-Subsidiarist methods..”

      While I don’t get involved with unrealistic theories very often, this may become possible by:

      - only allowing stock purchases to company employees (eliminate public trading)

      - making all large corporations (200+ employees) 50% employee owned and extra large corps (500+ employees) 51% employee owned

      - eliminating almost all benefits from companies of any size

      - eliminating government tax breaks for large corps

      - removing sales tax and property tax for small businesses

      - allowing part-time employees (under 20 hrs per week) to be paid cash

      - eliminating the social security matching by employers .. and for that matter, social security all together

      Before anyone objects, I realize that none of this will happen.

    • HDW

      The question is a little ironic: “How can we use the power of big government to reduce the power of big corporations?”

      To make economies more centered on individuals and families, work to make your household a place of value creation. This is both powerful and satisfying.

      Gardening, homeschooling, raising chickens, caring for elderly parents, shopping at the farmers market, fixing your own stuff, starting a small business are all (more or less) accessible, fun and worthy of encouragement.

      The government has a role to play in not discouraging small scale value creation. Why is it that I pay sales tax on vegetable seed, fruit tree starts and animal feed, but not on canned corn, frozen apple juice, and breaded chicken breasts?

      PS: The suggestion to substitute “Subsidiarity” for “Distributism” is excellent.

    • Eric Pavlat

      1. Jay, I’m not sure I can support the elimination of public schooling. I’d like to see someone’s breakdown of what-would-happen-if-that-happened.

      2. Stuart, I support your idea #1 (take it slowly & allow for transition time), but the others, IMO, would require a “big government” approach.

      3. Chris B., I think distributism is an awful name. Someone else once proposed “productionism” or “productivism” or something like that. I think subsidiarity is only a piece of distributism, and that the two concepts should not be merged–it’d be like re-naming Catholicism to “Franciscanism.”

      4th – incentivize diversification/subsidiarity – lean toward wide-open advantages for smaller commercial entities, including smaller banks…
      5th – completely eliminate social safety nets for commercial entities and quasi-govt entities (Fannie Mae/Freddie Mac)engaging in hi risk / hi reward investment operations.

      I love idea #4. Idea #5 will be unnecessary once we don’t have entities that are “too big to fail.”

      4. Brandon, this whole thread is about finding out of you’re right about that.

      5. Michael, I can’t support the no-individuals-pay-tax idea, but the corporate property tax one is interesting.

      6. Mark, neat ideas, some of which wouldn’t require “big government.” I especially like the cash for PT employees idea.

      7. HDW, you’ve completely misunderstood the question. The challenge was to AVOID using “big government” power and yet still achieve Distributist goals.

      Your DIY ideas presage a blog post I’d been planning myself; good anticipation (and good ideas, too).

      All. Two more ideas: End “crony capitalism” (benefits given only to large corporations) and increase the preference given to small businesses in government grants and contracts.

    • Jay

      I just think at the very least the Church(I would include protestant churches, but sometimes they act as big businesses) will be complementing the education received.

      But the implication that I was making from my comment is that any change that might be made will be largely voluntary(i.e. you decide to be more helpful on the level of local government and engage in good civic acts, you decide to buy some more local stuff, etc…). I think this is the only way forward with this type of system.

      Using the State to put more regulations on private business will increase the power of the State. Putting trust into businesses to act morally is just naive.

    • HDW

      Sorry for the misunderstanding.

      When you wrote “what could the government do”, I didn’t realize your intent was to “AVOID using ‘big government’ power.”

    • Catholic State Legislator

      Great Question and Excellent Discussion.

      If you want to limit the growth and size of corporations and promote distributism, try eliminating the income tax on dividends, thereby encouraging the distribution of corporate profits out of retained earnings back to individual shareholders. The prospect of tax-free dividends would also incentivize individual shareholders to take a more active role in the governance and investment policies of the companies they own.

    • Carl

        Education
        We the People…(preamble to the U.S. Constition)

    • Michael

      You may not like the idea of eliminating personal property and income taxes but you have to admit that personal property taxes are as anti-distributist as a government can get. They are a symptom of a system in which the government has final claim to all property. Another point worth making is that inheritance taxes have to be eliminated for good. They work to prevent the accumulation of personal wealth within families from generation to generation. My understanding of distributism as an economic system is that its purpose is to encourage ownership of property and capital on as wide a basis as possible. It is the concentration of capital away from the people that is anti-distributist in character, not corporations per se.

    • Brandon

      Some Issues:

      -Sticking it to the big corporations while extending preferences to Small Businesses (Through “Bennies”) is still “Corporate Welfare” but reversed, all the while it will stifle the big companies. In short, it equals Big Government.

      -Eliminating Public Trading is “anti-Freedom” because the government is telling a business who it can and can’t sell to, all the while denying the Consumer the opportunity to buy into a business it might support. It equals Big Government.

      The problem is that by encouraging Distribution you have to discourage Accumulation. Is the power of the government going to be used to smash up entities that become too big and “upset the balance?”

    • Mother of Two Sons

      I believe that we all participated in the current lopsided growth in a number of ways, like it or not! I am not for restriction of growth but rather an engagement of the Adults in our country to learn wealth building and money management. Stop trying to fix THE SYSTEM and change your own relationship to your personal budget and personal economy.

      As long as the majority of Americans insist on buying the cheapest products, the WalMarts of the World will continue to grow…. I believe that the 3rd world countries know how to monetize all of their products and services; Americans were lulled into lining up to a JOB! I suggest if we want to do something to fix the BIG Corporations, buy local and don’t buy or work for government agencies and corporations who negatively contribute to our DEBT and to our dependency on imports over domestic products. We still have the power in our purchasing patterns.

    • Michael

      Some Issues:

      -Sticking it to the big corporations while extending preferences to Small Businesses (Through “Bennies”) is still “Corporate Welfare” but reversed, all the while it will stifle the big companies. In short, it equals Big Government.

      -Eliminating Public Trading is “anti-Freedom” because the government is telling a business who it can and can’t sell to, all the while denying the Consumer the opportunity to buy into a business it might support. It equals Big Government.

      The problem is that by encouraging Distribution you have to discourage Accumulation. Is the power of the government going to be used to smash up entities that become too big and “upset the balance?”

      Your first two points are right on. Regarding your third, I am not certain that the problem is discouraging accumulation so much as discouraging aggregation under only a few owners. People would still be allowed to accumulate wealth. They would have to be able to for the system to have any hope of working.

    • Catholic State Legislator

      The problem is that by encouraging Distribution you have to discourage Accumulation. Is the power of the government going to be used to smash up entities that become too big and “upset the balance?”

      Brandon

      I disagree. By encouraging the distribution of dividends through changes in the tax code, I am not discouraging accumulation and savings. While accumulations at the corporate level my certainly decline, the savings of its individual owners will increase by the amount of the tax-free distributions. By eliminating the dividend tax, individuals are thus empowered to save and invest while the power of the federal government is reduced.

    • Brandon

      To Michael: How would a fair and equitable “Distribution” be enacted? There will always be people who are greedy (or substitute whatever business friendly term you like) and want to accumulate more and more…as there will always be people who want to abdicate the field and are willing to sell to the accumulators. Will a limit be imposed as to how much in assets they can purchase or acquire?

      To CSL: The success of your system would depend on people acting as they are “supposed to.” As I pointed out to Michael, some people will be vigorous investors, while others don’t want the hassle and would just be content with the cash…there will always be people buying up that stuff. Will you impose a limit on how much they can have? Inequality will inevitably occur…again.

    • Michael

      To Michael: How would a fair and equitable “Distribution” be enacted? There will always be people who are greedy (or substitute whatever business friendly term you like) and want to accumulate more and more…as there will always be people who want to abdicate the field and are willing to sell to the accumulators. Will a limit be imposed as to how much in assets they can purchase or acquire?.

      The intent is not to enact a “fair and equitable” distribution, but as broad a distribution as possible. You would still have poor and rich people and I don’t understand even Chesterton as hoping to eliminate the extremes. There could still be large corporations. People would just not have to depend upon them as much for survival as they do now because the system encourages the development of a self-sufficient middle class.

    • Brandon

      You speak of a that not being the intent, Michael…but that is precisely what would have to be determined. Capital and Property is concentrated as it is now, and a large government club would have to used to break up the party, because those companies are not going to just spread out its assets amongst the masses willing if they don’t want to. Fair and Equitable would have to be determined, because you can’t be arbitrary.

      You also state that there would still be large corporations, but in that you are placing limits on their size. Who determines those limits?

    • R.C.

      Hello, folks! I’m happy to see that my earlier observation has prompted such worthy discussion. (Eric, thanks so much not only for quoting me, but approvingly! If in response I begin to strut too much, the Lord may have to prompt my wife or kids to say something suitably deflating.)

      One caveat, though. Please keep in mind the important qualifier that we need solutions which don’t expand the anti-Subsidiarist nature of our Federal government.

      Eric mentioned my willingness to see a certain kind of tax on the income of for-profit business concerns, in which the smallest would be taxed not at all, and the largest most of all, with the intent of encouraging entrepreneurship and community businesses and discouraging excessive integration (vertical, horizontal; anything that contributes to monolithic bigness) by the largest corporations. My thought is that such a policy would gradually cause the largest corporations to “spin off” many arms of their existing businesses into smaller, less unwieldy, separate entities.

      Now, I’m usually a small-government, keep-the-taxman-away kind of guy. Why, then, this openness to a (merely partial) solution implemented through taxation?

      Well, because we already have corporate income taxes; and we already have “progressive” taxation in the individual income tax world. My idea therefore introduces no expansion of government authority; it is “off-the-shelf” technology, so to speak.

      The context for this is one of legal precedent. Much of what the federal government does through legislation and regulation today is, in a certain way, illegal: That is, it involves powers never granted to the federal government under the Constitution, and which the federal government therefore has no just authority to exercise.

      But of course nobody goes arresting Congressmen over it! The evolving precedents for interpretation of the Constitution have become somewhat divorced from the intent of its authors, especially in the area of the Commerce Clause. The result is that if one is willing to ignore the authors’ intent, the words of the Constitution now permit all kinds of anti-Subsidiarist legislation which would never have been contemplated in the first century of the Republic, when folk were less sophisticated and imagined that words mean what they meant to their authors.

      *cough*

      Since setting precedents for expanded power is how the government camel gets its nose into our tents, we must avoid setting new precedents.

      Hence my comfort with a sliding tax, which involves only tents in which the camel’s nose has already explored every nook and cranny.

      I would be concerned, though, with suggestions like these three from Stuart:

      2. Restrict the size of major corporations, but allow some multi-national companies to exist for purposes of international trade.

      3. Place all utilities and banks under government control.

      4. Maintain and strenthen the social safety net, so that no one falls through the cracks.

      Restrict the size…how? My sliding tax attempts to do this by following the usually-accurate dictum that whatever one taxes, one gets less of. But Stuart doesn’t specify tax; does he mean making it illegal to exceed a certain market cap? That would be quite new, in terms of exercise of power.

      Likewise, the placing of all utilities and banks under government control: What a growth of centralized power! What a frightening precedent! I can hardly think of a less Subsidiarist move, save perhaps placing our health-care economy under government control. (Oh, wait….)

      And, with regard to the social safety net: I agree with strengthening it, provided one takes a Subsidiarist view of “strength.” A social safety net in which Subsidiarity was fully implemented might function something like this:

      1. Persons first try to care for themselves when they are able.
      2. When they are not, their families and friends and neighbors chip in to assist them.
      3. Also their church, and perhaps other nearby churches, get into the act.
      4. If 1-3 are not enough to get all needs adequately provided, the local town government has assistance programs which cover most of the rest of what is needed, in nearly all cases.
      5. To handle the minority of cases in which local government can’t quite handle a particular need, sometimes the county government gets involved.
      6. In very rare cases the state may also get involved.
      7. Since all the burden is carried by those lower levels, federal involvement is rare, and as a consequence, over a 100-year period, federal funding accounts for less than 5% of all the dollars spent on assistance to the needy.

      Sadly, that is not quite what is meant when, say, a left-leaning national-level politician calls for “strengthening the social safety net.” His understanding is something like: “The federal government spends half the dollars ever spent on assistance to the needy and disaster relief; let us increase that to three-quarters, consider every perfectly predictable weather events to be a “disaster,” and ensure that private citizens, churches, cities, counties, and states feel absolutely no urgency about implementing their own preparations and assistance systems, knowing that, after all, Big Brother is watching over them.”

      That, to put it mildly, is not quite the same thing as Subsidiarity.

      Anyhow, I don’t mean to criticize Stuart overmuch: Kudos to anyone willing to toss out a few ideas and participate in the discussion. But his was an early post and happened to give three good examples of what I was trying to avoid. (Unless I misinterpreted his intent.)

      So, again: If we can curb the kind of steroid-inflated corporate overgrowth which currently homogenizes the economic landscape, fine: But only if it can be done without turning the already overlarge, musclebound, and oafish federal giant into something even larger and more hamhanded than he already is. Deny him the growth-hormone of expanded precedent, and we just might keep him small enough that he doesn’t step on us while trying to help.

    • SteveG

      Simply go back to what we had in the U.S. for much of the 19th Century, and revoke the corporation as a business entity type altogether.

      The reason corporations can become so large is because of the purpose for their existence…limited liability. In a partnership, all partners of the endeavor are considered equally liable for the actions of the business. This means each partner is on the hook for the misdeeds and mistakes the business commits. This acts as a natural break to irresponsible behavior as well as a break on growing too large.

      By providing for a business entity that is considered an ‘artificial person’ for which each owner is on the hook for only the amount of their investment, you are basically encouraging companies to both grow large, and to act irresponsibly. If the brunt of the consequences are too be felt only by this artificial person (the corporation rather than the owners), even in the worst case, then you are just asking for trouble.

      I think the revocation of the artificial person-hood of corporations (which didn’t exist in the U.S. until after 1844) is the first step in the process and by itself would make for a more distributist society by default.

      Not saying that would be a small thing to accomplish, but I think it’s fundamental to the problem.

    • Michael

      Your comment is frustrating because it seems to have ignored both the original post and my two previous comments. I do not propose limiting the size of corporations except to the extent that replacing the corporate income tax with a property tax would accomplish that effect. The point is to create a legal and tax environment that disincentives unlimited growth. That is the question we are struggling with here.

      I also apologize. Thinking that the exclamation point might be a means to reply directly to your comment I clicked on it and reported your comment unintentionally.

    • Joe H

      I’m not one of those kinds of Distributists who believes that everything needs to be broken up into a small business. It is the distribution ratios of ownership in firms that need to be leveled, not the sizes of businesses themselves.

      It is not necessary to use violence to redistribute property. There are ways government can promote the process, such as providing tax incentives to firms that move towards greater employee ownership and control (such as the Employee Ownership Act of 1999 – mostly supported by Republicans, by the way, but unfortunately did not make it to a vote).

      Ultimately the idea is to replace the wage laborer with the economic citizen – a member of society whose income and livelihood is tied to something concrete, and not merely the fluctuations of the labor market.

      This was not and could not be accomplished through home ownership for reason now all too painfully obvious. It has to happen at the level of production, at the level at which men and women engage in creative activity, in which they must taken into account the needs of others (the consumers, the community at large), as opposed to their own private plots and nothing beyond. Creating goods and offering services is far more social than simply owning a home and racking up equity.

      And yes, businesses rise and fall – there is no planned utopia waiting around the corner. But a cooperative enterprise always has more humane ways of dealing with economic difficulties than the typical firm, in which employees often discover the existence of business woes with a pink slip. That’s no way for people to live and function in a modern society. I see absolutely no reason why the objective economic difficulties facing a firm can’t be explained to and dealt with by all those who will be affected by them. If we assume that people are rational agents, then placing people in an ownership role will probably be better for society than having them in a worker role. To me ownership doesn’t just make economic sense, then, but it is a corollary to modern democracy – the principle that people should have a say in the decisions that affect their lives. This “say” can only have meaning and foundation if it is rooted in ownership.