Historical Context of a Strained Social Contract

Over the past half century, the lived experience of ordinary Americans has diverged from the promises made on behalf of competitive markets. After the Second World War, growth in productivity, wages and broad based prosperity moved roughly together. Many households could reasonably expect that diligent work would support stability, home ownership and modest upward mobility for their children.

By contrast, data from the last five decades tell a different story. Middle income households once received nearly two thirds of all United States household income. In 1970 they accounted for about 62 percent of aggregate income, while upper income households received about 29 percent and lower income households around 10 percent. Today the middle class share has fallen into the low forties, while upper income households receive close to half of all household income and lower income households receive a slightly smaller share than before, despite a larger share of the population living in lower income households.

Over the same period, the gap between typical high income and low income households has widened. In 1980, households near the top of the income distribution earned about nine times the income of households near the bottom. By 2018 that ratio had grown to about 12.6, a clear sign that incomes at the top have pulled further away from the rest.

Wealth has become even more concentrated. Saez and Zucman’s distributional macroeconomic accounts show that between 1978 and 2018 the pre tax income share of the top 1 percent rose from around 10 percent to about 19 percent, while the wealth share of the top 0.1 percent increased from roughly 7 percent to about 18 percent. Federal Reserve distributional data, as summarized in 2024, indicate that the top 1 percent of United States households currently hold a little more than 30 percent of total wealth, while the bottom half of households hold about 2.5 percent.

These patterns are not minor adjustments. They represent a structural shift toward greater concentration of both income and wealth at the top, and a long term squeeze on the financial position of the broad middle.

Public Perceptions and the Search for Alternatives

The public senses this shift. In national surveys, most Americans now state that there is too much economic inequality in the United States. In a detailed 2019 study, Pew Research Center reports that a clear majority of respondents described inequality as excessive, and among those holding that view about two thirds believed that the federal government should have a lot of responsibility for reducing it. Many pointed to the tax system, corporate practices and unequal starting opportunities as important causes, and large shares believed the economic system needs major changes or even a fundamental rebuilding.

At the same time, the dominant labels of the twentieth century, capitalism and socialism, have lost some of their clarity. In 2025 Gallup finds that capitalism still enjoys a positive rating from 54 percent of Americans, but that figure has slipped from about 60 percent in 2021. Socialism holds a steady 39 percent favorable rating. Earlier Gallup and Pew work shows that younger adults and many Democrats are more favorable toward socialism than older adults and Republicans, and in some surveys Democrats have rated socialism more positively than capitalism.

The picture that emerges is one of ambivalence. Many people still rely on markets and private firms for daily life and recognize their flexibility and innovative capacity. At the same time, there is growing discomfort with an economic order in which gains accumulate heavily at the top, while risk and insecurity accumulate below.

Limitations of Existing Capitalist Structures

The standard corporate form in the United States concentrates residual claims in private hands. Shareholders supply capital and in return receive the right to residual profits after all contractual obligations are met. Managers are expected to maximize those residual returns subject to law, and in practice many are compensated in ways that link their pay to stock prices. This combination of legal structure and incentive design encourages a relentless focus on short term financial metrics and cost control.

Within that framework, wages, benefits and working conditions are costs to be minimized. Communities become locations to be entered or exited as conditions change, rather than partners in a shared project. Once the shareholder wealth contract is set, it is difficult to give sustained priority to non-financial objectives that do not feed directly back into profits.

Taxation and regulation can mitigate some of these tendencies, yet they do so from outside the firm. The internal logic still pushes toward concentrating surplus in the hands of those who own capital claims. Over time, as Saez and Zucman’s work shows, this produces exactly what one would expect: rising shares of income and wealth at the very top, and a retreat of the middle from the center of economic life.

Limitations of Traditional Socialism

On the other side, traditional socialist models place productive assets under state ownership or centralized public control. In several historical examples, this approach was motivated by a desire to avoid exploitation and to socialize the gains of industry. In practice, however, concentrating economic decision making in state agencies or party organs created its own distortions. Production targets were often set politically rather than based on reliable feedback from users. Innovation lagged, and local initiative was frequently stifled.

Modern democratic socialists sometimes envision a pluralist order with cooperative firms and stronger public services rather than full state ownership. Yet classic state centered socialism, as practiced in the twentieth century, demonstrated that central planning faces formidable information and incentive problems. Many citizens in market democracies regard wholesale replacement of private enterprise with state ownership as neither politically plausible nor institutionally wise.

The result is a conceptual gap. People worry about inequality and stagnation, and significant numbers express openness to “socialist” ideas. Yet most also rely on price signals, decentralized entrepreneurship and competitive markets for the dynamism of everyday economic life.

Commons Based Enterprises as a Pragmatic Alternative

Commons Capitalism occupies that gap. The published definition describes it as a viable hybrid economic system that is neither capitalism nor socialism. It integrates the capitalist principles of profit making and market competition with the management of net profits as a commons, in order to distribute business generated wealth across past, present and future workers and to reduce the concentration of wealth in the economic elite.

In this framework, the central enterprise structure is a Commons Capitalism Entity. It consists of a nonprofit commons corporation and one or more wholly owned market facing subsidiaries. The commons corporation holds the equity of the subsidiaries. The subsidiaries operate in competitive markets, set prices, manage costs and pursue high net profits within legal and contractual constraints. However, crucial features distinguish this structure from both conventional corporations and classic socialist firms.

First, there are no private residual claimants. Neither managers, nor outside investors, nor other stakeholders hold claims to distributable surplus beyond wages and contractual compensation. The commons corporation cannot distribute net profits to private owners. Instead, surplus is retained within the commons entity and allocated according to defined internal rules.

Second, the entity has no charitable or “public purpose” in the sense of serving as a tax exempt public benefit corporation. It is not designed to qualify under familiar tax exempt categories that require relief of the poor, advancement of education or analogous public missions. Its purpose is to reshape the internal allocation of business surplus in favor of workers and long term commons stewardship, not to operate as a public charity.

Third, the commons corporation and its subsidiaries do not have investors in the familiar sense. There is no role for private equity owners, minority stockholders or socially responsible investors seeking financial returns. Capital is supplied and accumulated within the commons entity itself, and the commons corporation is the sole shareholder of its subsidiaries.

Fourth, the structure is polycentric. The commons corporation provides overarching governance for surplus allocation and capital stewardship. Each subsidiary is a distinct legal entity with its own board that focuses on operating performance in the market. The relationship between parent and subsidiaries is that of an internal network of firms, not of a holding company seeking to maximize shareholder value in the traditional sense.

In designing governance rules for such entities, the model draws implicitly on the findings of commons research. Elinor Ostrom’s work on long enduring commons institutions demonstrates that shared resources can be managed successfully when there are clear boundaries, locally appropriate rules, meaningful participation by those affected, effective monitoring, graduated sanctions and accessible conflict resolution mechanisms. These principles can be translated into corporate governance features for a commons corporation and its subsidiaries, including clear definitions of who participates in surplus allocation, well specified rules for how surpluses flow into different internal funds and transparent decision processes for revising those rules over time.

Why Commons Capitalism is Reasonable

From a legal and institutional standpoint, this model does not require overturning private property or abolishing markets. It works with existing tools of corporate and nonprofit law. A nonprofit commons corporation without members can hold 100 percent of the shares of standard business corporations that operate in the marketplace. Boards can be structured to include independent directors, worker representation and local expertise, subject to fiduciary duties that are carefully tailored to the commons purpose. None of this conflicts with basic principles of corporate law. It reconfigures ownership within the bounds of that law.

From an economic standpoint, the model respects the information carrying role of prices and the discipline of competition. Subsidiaries are encouraged to pursue high net profits, because strong operating results enlarge the pool of surplus that can be allocated to premium wages, robust benefits, education, reserves and acquisition of additional enterprises. The difference lies in what is done with the surplus once it is earned. Instead of paying it out to private shareholders, the commons corporation treats it as a shared resource to be managed over time for the benefit of workers and the stability of the enterprise network.

From a social standpoint, this approach directly addresses the patterns documented by contemporary data. If the top 1 percent has roughly doubled its pre tax income share since the late 1970s, and now holds around one third of national wealth, while middle income households have seen their share of aggregate income fall from about 62 percent to the low forties, then any serious attempt to renew the social contract must alter the way surplus is claimed and stored. Commons corporations and their subsidiaries do this by eliminating private residual claims and by committing surplus to internal funds that support workers and long term reinvestment.

This path does not depend on higher tax rates alone, although tax policy remains important. It changes the ownership and allocation structure inside firms themselves. It also avoids some well known difficulties of state centered socialism. Decisions about investment, hiring and innovation remain at the level of operating subsidiaries that are close to markets and customers, rather than being dictated by distant ministries. The commons corporation sets broad allocation and governance rules, but it does not attempt to plan the entire economy.

Why Commons Capitalism is Necessary

The empirical trends summarized at the outset show that inequality in income and wealth has grown significantly, and that the broad middle has lost ground. A majority of Americans recognize that there is too much inequality, and many believe that the current system needs major changes. At the same time, capitalism still commands a narrow majority favorable rating, even as support has eroded and openness to socialist ideas has grown among younger people and many in one of the major political parties.

An economic order that combines competitive markets with entirely private residual claims will predictably channel a large share of gains to those who already hold capital. An order that replaces private enterprise with state ownership risks governance failures of a different kind. Neither alone appears likely to restore the broad based security and opportunity associated with a healthy middle class.

Commons Capitalism, as embodied in Commons Capitalism Entities, offers a third path that matches contemporary needs. It keeps the productive engine of competitive enterprise running, yet it rewires the ownership and surplus allocation mechanisms to favor workers and long term communal stewardship rather than private accumulation at the top. It does so through institutional designs that echo proven commons governance principles, adapted to modern corporate forms.

Given the documented rise in inequality, the decline in the middle class share of national income, and the evident public appetite for structural change, the introduction of legally robust, market compatible commons enterprises is not a utopian gesture. It is a reasonable and necessary response to the conditions of the United States in this era.