Democratizing Investment*

• Author: Lenore Palladino
• Published date: 01 December 2019
• Date: 01 December 2019
• DOI: http://doi.org/10.1177/0032329219878989
• Subject Matter: Special Issue Articles

https://doi.org/10.1177/0032329219878989

Politics & Society

2019, Vol. 47(4) 573 –591

© The Author(s) 2019

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DOI: 10.1177/0032329219878989

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Special Issue Article

Democratizing Investment*

Lenore Palladino

University of Massachusetts Amherst

Abstract

Americans have trillions of dollars invested in public and private companies, yet

stock ownership is highly unequal: the wealthiest 1 percent of households possess

40 percent of all wealth, and there is a large and persistent racial wealth gap. What

if innovations in distributed technologies allowed for democratic facilitation of new

opportunities for wealth and a rebalancing of power within the capital markets?

This article proposes using innovative financial technologies to create a “Public

Investment Platform”—a public option for participation in capital markets—and a

“Public Investment Account” to universalize access to investment opportunities.

Capital markets are currently governed by public policies that submerge the role

of the public in structuring them and enable an inequitable accumulation of wealth.

To democratize finance, new policies are required to democratize participation in

investment.

Keywords

economic democracy, crowdfunding, fintech

*This article is part of a special issue titled “Democratizing Finance” that includes an introduction, anchor

articles by Robert C. Hockett and Fred Block, and commentaries by William H. Simon, Lenore Palladino,

Mary Mellor, Michael A. McCarthy, and David M. Woodruff. The papers were originally presented at a

workshop held in Madison, Wisconsin, in July 2018 organized by the late Erik Olin Wright as part of his

Real Utopias Project.

Corresponding Author:

Lenore Palladino, Department of Economics, University of Massachusetts Amherst, Gordon Hall 218,

Amherst, MA 01003, USA.

Email: lpalladino@umass.edu

878989PASXXX10.1177/0032329219878989Politics & SocietyPalladino

research-article2019

574 Politics & Society 47(4)

Americans have trillions of dollars invested in public and private companies, and the

stock market continues its upward climb. Yet stock ownership is highly unequal: the

wealthiest 1 percent of American households possess 40 percent of all wealth, and

there is a large and persistent racial wealth gap.1 Access to investment opportunities is

a key driver of the increasing wealth disparity, along with housing, income, access to

banking, and assets. The principal role of the government in capital markets is to

ensure disclosure of corporate activity, and little public policy is focused on creating

access to capital markets for those locked out. Part of the Real Utopias Project of creat-

ing a democratic financial system should be reimagining the role of the government in

the private capital markets. This article proposes the creation of a “Public Investment

Platform,” using innovative financial technologies to create a public option for partici-

pation in the capital markets, and a “Public Investment Account” to universalize access

to investment opportunities.

US financial history has shown the power of the government to structure financial

markets; and, as Robert C. Hockett’s work in this issue demonstrates, private financial

entities are best understood as franchisees harnessing the public’s permission to create

credit and wealth. Capital markets are governed by public policies that submerge the

role of the public in structuring them and enable an inequitable accumulation of

wealth. To democratize finance, new policies are required to democratize participation

in investment, and careful attention must be paid to “democratization” proposals that

replicate existing hierarchies of wealth and power.

Today’s capital markets require a minimum sum of available funds to invest, gener-

ally restrict the nonwealthy from investing in private companies, and provide little

opportunity for small businesses to seek equity investment. The average American

finds it all but impossible to buy a small equity stake in a local business, and virtually

no market exists for them to do so. The nonwealthy cannot invest in the pizza shop

downtown; they can invest only in large, public companies, usually by purchasing

stock through a Wall Street–based fund aggregator. The wealthy, or “accredited,” can

invest privately, mainly in large companies or start-ups that have managed to gain

access to venture capital. Although securities laws were put in place with the intention

of protecting nonwealthy investors from the predation that befell them before the

Great Depression, the result has been that the wealth assets of most Americans who

hold equities at all are concentrated in large pools of institutional capital that invest in

large businesses.

Thus America’s businesses have unequal access to capital. Large publicly traded

companies have the best access to bank loans and equity investment. Locally owned

small businesses are crucial job creators and are key to regional prosperity and com-

petition (although jobs at larger firms tend to pay higher wages and have better bene-

fits). Crucial economic activities such as care provision, infrastructure, and clean

energy are currently constrained by the financial sector; and small loans for small

businesses are more difficult to access than large loans for large businesses.

The financial sector is rapidly changing. New financial technologies, the block-

chain, and cryptocurrency are ushering in new possibilities along with new risks. New

players outside the traditional regulated system are emerging, and new ways of doing