Since the beginning of the modern democratic project, in the founding documents of the United States of America, the "pursuit of happiness” aimed at the economic dimension of being a citizen. Being enabled and encouraged to use the “god given” gifts each person has becomes a core tenet of democracy. In the wake of the Industrial Revolution the “social question” was raised as more and more people lived in miserable conditions and were prevented from leading a self-determined life. Providing guardrails that reflected the claim of democracy to give fair access to everybody to society and its means became a feature of democratic lawmaking henceforth.
In doing so, it was always crucial to balance the rights of the individual to amass their fortune and the general public’s right to access the public sphere in order to articulate their needs and pursue their dream. Democracies have focused on meeting this demand, most notably through affordable public health and free education. The thinking goes that, by providing those two essentials, each citizen will be enabled to find their place in society and contribute. To facilitate this, diverse means of redistribution of societal wealth were established, serving the common good.
Many generations on, we are caught up in our own success. Access to society through the practices mentioned still provides a challenge at the beginning of life, yet it is now increasingly complemented by the challenge arising at the end of life. Amassed fortunes are passed on, creating in certain circumstances inequalities within societies that challenge the democratic promise. The offspring of the haves will be much better off than the children of the have nots.
Passing on a fortune in the form of companies and foundations at the direction of the person with means remains rightfully legally protected as it is often directly related to maintaining workforces and supporting communities through philanthropic endeavors.
Take Germany as an example: It is estimated that around €400 billion ($463 billion) is inherited in Germany each year. The exact amount that actually changes hands is difficult to quantify, as much of it remains tax-free, because there are high tax-free allowances (e.g., 500,000 euros for spouses and 400,000 euros for children) or because special regulations apply to business assets. The free allowances for middle class assets such as houses or apartments ensure that middle-income households can also amass some assets and modest wealth over time.
If you are a start-up entrepreneur and are lucky to sell your company, the proceeds from the sales are tax-free if you reinvest it into further start-up endeavors. The lawmaker wants to reward entrepreneurial risk and the job creation that comes with it.
And if this entrepreneur decides to bring their assets to fruition in a foundation, they would be allowed to do so in Germany, without having to pay taxes on the sale. Because philanthropic foundations serve the common good, they receive this perk. Foundations are therefore also legally protected in such a way that heirs do not have direct access to the foundation's assets, as they must continue to serve the purpose in full in the long term. A wealthy individual can also establish such foundations while still alive and funnel money into projects that they deem worthy of support. Also, in this case the foundation assets are off limits.
However, some heirs deliberately game the system to seize assets from their rightful owners. Consider the Pritzker family, which founded the world-famous Hyatt hotel chain. Despite family patriarch Jay Pritzker’s efforts to preserve family unity after his death, his $15 billion fortune sparked a lawsuit by Liesel Pritzker and her brother Matthew against their father and other relatives. This public dispute damaged the family’s reputation. Although the family business remained viable, that is not always the case in these types of disputes.
In Germany, the Oetker family, known for its $12 billion consumer goods empire, fell into conflict after Rudolf August Oetker’s death. Despite his wishes that his children uphold his legacy, an inheritance dispute quickly drove a wedge between his children. As a result of this escalating dispute and inner-family power plays, the company was permanently carved up into two separate entities.
Disputes such as these continue to unfold today. Zygmunt Solorz, a Polish media entrepreneur, is currently at risk of losing control over his media empire. Although litigation remains ongoing, he has accused his children of deceiving and manipulating him into initiating a premature transfer of his assets, according to multiple media sources. Our democratic system must have stronger legal protections to safeguard against familial betrayals such as this.
It is true that democratic systems intrinsically should seek methods for wealth distribution that are sanctioned by parliament and thereby reflect the different interests and legal rights of everyone expressed though popular will. Yet the private sector’s engagement in social projects complements this. In Germany, such projects can be nationwide studies that put the finger on the pulse of society, thereby helping lawmakers to understand developments better. They can also be hyper-local, reacting to immediate needs of communities. Together, they are the two sides of the same coin that in an ideal word helps establish a fair society. Enabling companies and high-net-worth individuals to sustainably commit to supporting the common good should be seen as a contribution to society, not as a sleek way of saving taxes.
Dr. Alexander Görlach teaches political philosophy at New York University. He focuses on democratic theory, the crisis of democracy and how to solve it.
