The rapid and consistent advances in AI over the past few years have created the potential for both enormous wealth creation and huge job losses. As with other fundamental changes in an economy – the discovery of oil, the running of large trade surpluses – AI raises the question of how the gains of one generation can benefit the population broadly, today and for generations to come.

For some, the answer to that question is Universal Basic Capital. UBC would give citizens ownership in AI companies, assets or revenues. This is distinct from Universal Basic Income, which is the simple redistribution of money without any ties to capital markets or investment returns over time.

Recently, aspects of UBC have been endorsed by politicians on both sides of the aisle – Gavin Newsom , Bernie Sanders , Donald Trump and Steve Bannon – and business leaders, including OpenAI’s Sam Altman and Google’s James Manyika .

None of this is a new idea. Oil-rich nations have addressed the issue of how to effectively take the windfall of oil discoveries and invest in assets that will yield returns over multiple generations. Countries employ two distinct models to manage these newfound gains: the sovereign wealth fund or the state-owned company.

As the conversation around UBC picks up in the U.S., the distinction between these two structures will form the crux of the debate over how AI gains should be managed.

The right answer is the first: A sovereign wealth fund spreads one generation’s windfall across many, while state ownership puts the government in the business of running AI.

Sovereign Wealth Funds: Investing For Future Generations

Sovereign wealth funds are investment vehicles. They typically hold a broad array of investments, are managed to achieve a target rate of return over time and are guided by the Santiago Principles , which stipulate that investments are made based on economic or financial grounds.

Typically, sovereign wealth funds invest outside their home country, often with clear and small limits on domestic investments. The best sovereign wealth funds have world-class investment staff and a governance process that keeps them at arm’s length from the influence of domestic politics. Sovereign wealth funds can be large or small, and examples include Norway’s Government Pension Fund, the Saudi PIF, Abu Dhabi’s ADIA and the Alaska Permanent Fund in the U.S. (all oil funds), as well as GIC in Singapore and CIC in China, which were started with trade surpluses.

State-Owned Companies: Governments As Shareholders

State-owned companies are just that – companies with governments as shareholders. Rather than pursuing solely economic or financial gain, they are commonly managed for non-financial goals like employment, economic development and national security. Oil companies, airlines and utilities in centrally controlled economies are the most common state-owned companies, with Sinopec of China and Aramco of Saudi Arabia being two of the largest globally.

Which Is Better For The U.S.?

Either of these models could be applied to AI companies today: Their growth is producing enormous wealth, and their policies will affect citizens broadly. But in the current debate in the United States, the distinct concepts of a sovereign wealth fund and a state-owned company are being blurred. While both have merit, they should not be muddled: One is a generational smoothing of wealth, the other is socialism in the classic economic sense of the means of production being collectively owned.

State ownership has a checkered past in the West, generally leaving those companies less competitive than private peers, often with waste or cronyism – from British Leyland’s slide into serial bailouts to the graft scandal at Brazil’s Petrobras.

There have been a few success stories, such as the U.S. government owning AIG after the 2008 Global Financial Crisis, but they have been temporary measures usually brought on by economic hardship. In the current context, making AI companies state-owned would further blur the lines between profit and policy and distort the incentives of the regulators overseeing this new technology.

Establishing a true sovereign wealth fund, bankrolled by the wealth creation of AI, offers a more practical pathway. If a tax on AI equity offerings or revenues were channeled into such a fund – much like a share of oil royalties – that money could be invested broadly and across generations, so the benefits of the AI boom long outlast today’s markets and offset some of AI’s employment costs.

Of course, there are well-managed sovereign wealth funds around the world – such as Norway’s or Singapore’s – and there are poorly managed funds with conflicts of interest. Establishing a world-class sovereign wealth fund in the U.S. would require building it with the governance principles and incentives to serve future generations.

A different approach would be to use the rewards of AI to lessen the current U.S. budget deficit, but it has little apparent political support. Although it is unusual for a country with a major budget deficit to establish a sovereign wealth fund, the U.S. is uniquely positioned on the brink of an AI windfall — which is why the time to capture those gains is now.

The U.S. can keep private business competitive and still let citizens share in its wealth creation, even as the American people feel the impact of AI on their jobs and their communities. Establishing a durable structure now to capture the upside of AI, like the best oil funds have done, would ensure that at least some of the benefits of the AI boom will accrue to Americans broadly in both this generation and the next.