Ed Miliband and predistribution: what does it mean and could it work?

6th September, 2012 1:00 pm

Mark Ferguson writes about Ed Miliband’s new ‘big idea’:predistribution.  This is the idea that the market, rather than the state, should be the primary mechanism for delivering a fairer distribution of wealth.  In other words, people’s wages should be more equal in the first place – so that the state has less need to intervene through the tax and benefit system.

The advantages of predistribution over redistribution are numerous.  First and most obviously, higher equality and lower poverty could be achieved whilst the state spends less money.  In a time when the electorate highly associates Labour with ‘profligate spending’, predistribution thus becomes highly attractive.

A second advantage of predistribution is that it’s more attuned to many people’s notions of fairness and redistributive justice.  To redistribute income through the state you need high levels of solidarity, trust and feelings of reciprocity.  For many complex reasons, we lack these in the UK.  This makes high redistribution – akin to the Scandinavian model – politically untenable.

Predistribution is not a completely new idea.  For those familiar with The Spirit Level, the example of Japan will be remembered.  Japan is one the most equal countries in the OECD world, yet it achieves this with levels of public spending more like the US than Sweden.  How?  Predistribution.  Wages are already more equal in Japan, so the state has less of a need to intervene.  Alternatively, the market distribution of wages in Scandinavia is much more like the market distribution in the US and the UK.  The Scandinavian approach then relies upon the state – in the form of high taxes, generous social transfers and quality services – to achieve a fairer society.

It sounds like a panacea – both for the economic problems the country faces and the political and philosophical impasse that Labour finds itself in.  But it’s potentially not.  As Mark writes, in a predistribution state that ensures high equality and low poverty through the market, there is the question of what happens to those excluded from the market: such as the disabled and the unemployed.

The second problem is even more profound.  This is that the UK economy is not built for predistribution.  Over the past three decades, successive governments have built a labour market that is high in flexibility but low – at the bottom end – in wages, skills and in productivity.  The problem is that predistribution only works in a high skill, high productivity labour market.

This is why the classic predistribution policy – the minimum wage – has an economic limit in a labour market like the UK’s.  Increase it too much, and either unemployment will increase or prices go up – or both.  If Ed Miliband is to make predistribution a real policy goal, he’ll need to flesh out how he would fundamentally restructure the British labour market.  And this will be the real challenge.

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  • This is a really great step from Ed. I wrote a small piece about it in January for my uni’s Labour group when ‘predistribution’ was just a twinkle in Eion Clarke’s eye – http://bangorlabour.org.uk/2012/01/23/responsible-capitalism-an-opportunity-for-the-left/

    Basically, Crosland argued that the taxed proceeds of capitalist growth could adequately solve the problems created by capitalism. Therefore there was no need to really reform capitalism structurally to deliver socialism. This new thinking is a turn against this, the idea that capitalism as constituted creates too many problems and delivers too little to solve them, and that the economy should be changed structurally rather than tinkered with after the fact with some tax-and-spend.

    • Brumanuensis

      Interestingly, I put this point to Anthony Painter a few months ago and he agreed whole-heartedly. It seems that only a few years after David Miliband cited him as a chief intellectual influence, Crosland is falling out of favour with all wings of the Party.

      Mind, Crosland spent the last year of his life campaigning against austerity and in favour of traditional Keynesian social-democracy. So he was never an exact fit for the Progress wing of the Party.

      • I think Crosland believed that capitalism had been tamed – but the evidence is that after his death, the opposite happened.

        Given his social liberalism and his strong belief in egalitarian outcomes, he’d be considered towards the left of the party these days – he was a sceptic about the market but believed that it had been successfully tamed. That was his mistake.

  • Redshift1

    Not sure of the accuracy of your comparison to Scandinavia. From what I can tell they BOTH predistribute and redistribute. Sweden for example has a far higher minimum wage than we do and sectoral wage bargaining in a workforce than is over 70% unionised….

    • Agreed, the Nordic countries have actively restructured their economies to give organised labour a seat at the table. That is ‘predistribution’.

  • 000a000

    Does this mean Ed does not support redistribution then in the many instances where “pre-distribution” can’t work? Also please can we have some concrete policy measures as it sounds like a Thick of It buzzword at the moment (though I’m sure Ed will go beyond delivery of “pre-distribution” and beyond that).

  • markfergusonuk

    He said today that there will always be a case for redistribution – I just think we will see less of it Sent from my BlackBerry® smartphone

    • Redshift1

      If only you could redistribute from your Blackberry lol. Sorry…that just tickled me.

      • DavePostles

         To be superseded by singleboard computers which cost less than £50 – RPi, Via APC8750, Humane PC, Gooseberry Board, and Intel’s prospective offering – using Linux and its derivative Android.

    • Brumanuensis

      Blackberries for all = predistribution?

      Giving surplus Blackberries to those without them = redistribution?

      • jaime taurosangastre candelas

        It reads to me as though Mark is fed up with seemingly paying the entire social security budget on his monthly data roaming charges.

        Solution:  6 year old Nokia left in the car glovebox, £10 pay as you go credit, and switched on about once every 3 months.

  • Serbitar

    Oh, boy!

    So a much higher minimum wage, a living wage, and lower social security then? Which beggars the question: What happens to the under-employed, unemployed and the non-working in Ed Miliband’s brave new predistributive world? How will the sick, disabled, carers, elderly, young, single-parents, unemployed and part-time workers earning very low wages going to fare when for millions of men, women and families a predictable future of well-paid, full-time and secure employment, with a decent pension at the end of it,  is destined to be an unrealisable dream in a country rife with temporary, minimum wage, casualised part-time employment?

    Any ideas anyone?

    • Redshift1

      Isn’t that the whole point of what he is saying? That we don’t want to be a country rife with temporary, minimum wage, casualised part-time employment – and that we do want to be one of decent paid, secure, and pensioned employment…

      • Serbitar

        I think we all want that it’s the “how” that remain unanswered. 

        Whenever free markets dominate history shows that incomes within society do not rise proportionately but geometrically. The rich become very much richer and the poor relatively very much poorer with a widening gap between one and the other: income rises by a minimal amount for the majority, especially the lowest paid families, and shoots up for the wealthy few for the most part undeservedly. This is the end result whenever you have unrestrained free trade bet it in the Roman Empire or twenty-first century England.

        The end result is a plutocracy in which the richest and most privileged gain sufficient power to influence government policy and thwart any attempt made by conscientious politicians to move towards a more equitable redistribution. You can actually see this NOW by considering the bankers and bosses of large corporations who brought the world near to ruin and yet who are STILL demanding ludicrous remuneration, with no personal risk or liability themselves,  for the work they do. Despite every reasonable argument to the contrary these individuals exercise such influence that they can resist sensible changes being made to their pay structures and responsibilities – by the legislature of the nation AND the shareholders of the companies that employ them.

        Only by governments actively intervening in markets can this dismal state of affairs be challenged. I don’t think Ed Miliband is powerful enough, clever enough, brave enough, or accomplished enough to pull anything remotely like that out of the bag.

        Although I hope he does well enough to rid the country of Cameron.  

        • DavePostles

           I agree.

  • Brumanuensis

    I actually thought it was an incredibly dull speech. Not because I think pre-distribution is a dead end, but because Ed said precisely nothing that he hasn’t said before and all with an annoying fuzziness as well.

    There was only one really interesting section and that was when Ed said:

    “And at conferences like these in the 1990s there were debates about the role of Governments versus central banks in making low inflation happen.But low inflation didn’t ensure growth and stability”.

    Is this a signal that a future Labour government would take a cue from the likes of Kenneth Rogoff and adopt Nominal GDP Targeting instead of the current inflation targets used by the Bank of England? I know Vince Cable is attracted to the idea, but politically will Ed be brave enough to make the case for higher medium-term inflation? 

    The big question for all policy-makers is how social security will adapt to the ballooning numbers of the self-employed and the growing tendency for firms to reclassify employees as self-employed, for tax purposes. Around 500,000 full-time employee positions have been lost since 2008 and in turn, 300,000 self-employed positions created. There has also been a huge increase in the amount of ‘under-employment’, with people working part-time because they cannot work full-time. These trends have led to falling per-capita productivity in 2012 – which may explain why unemployment and GDP have diverged, as the ONS explored recently in a paper called ‘The Productivity Conundrum’. How do we reverse this trend?

  • jaime taurosangastre candelas

    It is an interesting concept, not to be written off without a full examination.  But in practical terms, how would Government policy force a change?  I can only think of raising the level of the minimum wage through law, and where the Government can in the public sector, imposing some maximum level of difference between the lowest paid public sector worker and the highest paid.  But they cannot enforce that on the private sector.

    What else would bring about this change?

    • Brumanuensis

      I imagine works councils are a large part of what Ed has in mind, as well as favouring mutually-owned organisations through the tax system. Increased personal allowances aren’t a very efficient way of pre-distributing though.

      • jaime taurosangastre candelas

        That does not sound as though it will work in anything less than 4-5 terms in power (ie a generation). I do not imagine that Labour would remain in power until 2040 if they win in 2015, and if the tories do take power again, they just reverse the laws, so resetting the clock.

        How would “works councils” achieve this affect?  I can imagine the scene:  the union representative on the works council saying “We want more money to achieve predistribution“, and the management saying “No“.  And then what?  Strikes all around? A private company is not compelled to support Government policy unless there is some new law, and even then they have the option to take the business somewhere else (normally to a tax haven).

        Changing the more than million businesses in the UK to mutually owned organisations is going to take a huge amount of effort.  Take Royal Dutch Shell as an example.  It is owned by shareholders.  How do you transfer ownership to the workers in a way that is not nationalisation without compensation?  I have just Googled it.  It has only 90,000 employees (presumably all of the garages are merely franchisees), and a market capitalisation of £140 billion.  How is each individual worker going to be able to afford to buy out the investors at market value:  putting the £1.5 million that is his 1/90,000th share onto his credit card?

        (Of course, I deliberately choose an extreme example, to make my point).

        So, I hope Ed Miliband has something rather more sensible on his mind than works councils and mutually owned organisations.

        • If there is one lesson Labour needs to learn, it is how to frame legislation to make it difficult to reverse without considerable cost. The Tories did this in all sorts of areas.

          • jaime taurosangastre candelas

            Mike,

            is there not some convention that states that a current Parliament cannot “bind” a future Parliament?  I think there is, which would make your outcome difficult to justify.

          • Brumanuensis

            Legally, under Dicey’s definition of Parliamentary Supremacy, it is true that no Parliament can bind another – although there are gradations in how easily a statute can be repealed, see the case of ‘Thoburn v Sunderland City Council’ [2003], QB 151.

            What Mike means though is that once established, it’s hard for another government to repeal major reforms due to legislative inertia. Which is why Labour will probably not abolish free schools or wholly reverse the ‘reforms’ of the NHS, regardless of what might be said prior to an election.

        • Brumanuensis

          Works councils could operate by taking the remuneration decisions jointly with the management, which is partly why the Germans have never implemented a national minimum wage, as collective-bargaining normally means that earnings are set at a favourable level for employees as part of the agreement. Perversely, the very weakness of the British trade unions is what led to the minimum wage’s enactment, as otherwise they would have probably preferred to negotiate it with the employer directly. Works councils do have a strong correlation with higher wages, even where they are not formally supposed to be used as a wage-bargaining mechanism – see here: http://www.rcfea.org/RePEc/pdf/wp13_07.pdf    (you can skip to the conclusion if you like). 

          What works councils primarily do is mitigate hostility between management and employees, by giving an employee-body formal status within the organisation. Similarly, mutuals work by giving customers and staff a formal stake in production – like with John Lewis. I don’t think anyone is proposing requiring companies to mutualise – which is why I used the word ‘favoured’ – but even so, I think you have misunderstood how cooperatives work. It’s not a question of a financial share per se, it’s more a matter of giving the employee a constitutional stake in the ownership of the company. Traditionally, mutuals have operated on a ‘one member, one share’ basis – rather like ‘one member, one vote’. I’m a member of the Co-Operative, for instance, which means I have certain voting rights and also, of course, get a dividend every year depending on the points I accrue – quite a lot at the moment, as my car and home insurance, as well as most banking services, are done through the Co-Op. 

          More to the point, the Shell employee wouldn’t get a fixed financial share: they would get a nominal share which might realise a share of the profits at the end of a given financial year.

          Say employee J has his share. The value of this share will depend upon the organisation. He might get a share of the profit – like in John Lewis – or he might get voting rights in relation to the company’s governance. The precise form will differ.

          • jaime taurosangastre candelas

            I still think that it will not work, not without very painful (for shareholders) legislation.  Apart from anything, the new measures and “classes” of ownership in between shareholders and employees would need to be passed by a vote of shareholders, and can you imagine them all being like turkeys voting for Christmas?  Perhaps some would, but it is difficult to see a majority doing so.  And so new laws to force this arrangement would be needed, and thus the great new project would start with irritated businesses and a majority of share-holders.  I can understand that a great majority of Labour supporters, typically not tending to be business owners or large share-holders might not be too concerned, but the capital flight would be very destructive.

            Perhaps I am discovering my inner rapacious capitalist, and as you understand I do not own nor have never run a business, but while it is clearly beneficial to have a business with contented employees, I can imagine that business owners will not wish to be dictated to by employees.  If the employees via the works council start demanding too much, if I were a business owner I would firstly tell them that if they did not desist, I would close the business in the UK and take it elsewhere, and then if they did it again I would do it.  There is nothing special about the UK as a place in which to do business in a global economy, and indeed much that is attractive to entrepreneurs (I do not pretend to be one) about almost any other country apart from the UK.

            I have a small “consultancy” role in a forthcoming Spanish language online medical pre-University training film (12 episodes).  I like the concept, the production company has sought me out and made a deal, and I am working on preparing each episode.  I am not the money person behind the idea, but if I was, and the UK became too difficult to deal with, I would take the work elsewhere.  You can find doctors anywhere.  My cousin in Canada tells me that the province of Alberta is trying to attract digital creative media with tax breaks.  Why spend more in the UK and have to deal with works councils and the heavy breathing union brutes for the same results when you can have a tax break in Canada and no big state nonsense?

          • Redshift1

            The whole point is that it need not simply be about demands and concessions. Many issues in the workplace relating to efficiency and productivity can be resolved and even give you competitive advantage by talking to your workforce. 

          • Brumanuensis

            All I can say Jaime is that it works quite well in Germany and other European countries, which probably reflects a less adversarial relationship between employees and employers in those regions. I suspect, given that employers generally want to give the impression of taking their employees’ views on board, that it would be hard for them to resist a formalised structure that did so, without looking hypocritical. I’d also just note that the nature of most works councils is that their approval is needed for certain kinds of change and not all companies can respond to this sort of pressure simply by moving out. If anything, it should make workplace relations less adversarial, because both sides have a formal setting for arbitration, whereas currently the UK only has Acas for those purposes.

            I think the OECD have pointed out that there is almost no link between employment regulations and growth. The Chinese have very onerous regulations on foreign companies, as well as almost no protection for intellectual property, but as long as it’s profitable to invest there, companies will overlook any inconveniences, and in the scheme of things, works councils aren’t much of an inconvenience, unless your HR management is completely inept.

        • Redshift1

          Your dismissal of works councils is nothing short of laughable. Brumanuensis has saved me a lot of writing in his post below. 

          Works Councils have actually reduced the number of industrial disputes by allowing management and workforces to discuss workplace issues in a cooperative manner, rather than the UK-style macho-management where the only counter-weight is an equally macho union.

          • jaime taurosangastre candelas

            Well, they don’t exist in the UK, so in the real world of UK business and the UK economy, they are dismissable as an argument because they do not exist.
            Perhaps your left wing fairy godmother will sort it all out for you?

            The other difficulty for Labour is that the majority of effort by works councils is to adjust framework national agreements to better suit local circumstances.  That is regional and even company pay, which will have the heavy breathing union dinosaurs bellowing in rage.  Actually, it is a step in the correct direction, which ultimately should have every individual worker negotiating his or her own pay, according to his or her own talents.  I do, despite working within a heavily unionised workforce, and I find that it works much better for me than relying on some union oaf to misunderstand my aims in life and then lump them in with everyone else’s, and then make an intellectually poor case for everyone.  And to think that the “services” of the union oaf are worth some form of annual membership fee for achieving greatly sub-optimal results for the individual members.  Even the “union-negotiated” rates of discount for the fringe benefits on liability insurances are easily beaten if you approach the broker direct with a portfolio of individual evidence of competence.

          • Redshift1

            They don’t exist in the UK, so they don’t exist in UK real world business?

            Erm, right, so perhaps we should ignore every idea that originates in another country regardless of how effective? WTF…

          • jaime taurosangastre candelas

            Try reading back.  It was put to me that the route to achieving this would be through works councils.  They don’t exist in this country.  So, in the absence of works councils, which don’t exist, is there any other intelligent proposition?

            If your answer is along the lines of “well there should be works councils, look at Germany, etc”, it is probably better not to bother replying.

          • Redshift1

            You really are a bizarre person. They don’t exist in the UK, no. They do exist however elsewhere – so it is hardly stretching the boundaries of reality to suggest they can be introduced – as a policy.

          • jaime taurosangastre candelas

            If you want to call me bizarre, I’ll equally question your ability to follow logic.

            The question is about how to bring predistribution about, in the absence of works councils. You will notice that Ed Miliband has not suggested anything about works councils, so he probably does not think too much of them as a delivering agency for predistribution. Or perhaps he has enough sense to realise that they do not exist and that he will make himself look like a “prize pratt” if he goes off on that tangent.

            The logical answer is some form of alternative positive suggestion, not changing the topic and being gratuitously offensive (although I acknowledge that is a fairly normal socialist interaction with real life, so perhaps you cannot help yourself).

          • Work councils do exist within the UK economy – UNISON representatives (of UK power workers) sit on the EDF works council (meeting in Paris) alongside CGT representatives.

          • jaime taurosangastre candelas

            I believe the appropriate response is “woopy doo!”.

            And for the other 99.999% of the economy?  Let me guess, the “from small acorns grow large oaks” argument?

          • “woopy doo!”

            By Jove – what an extraordinarily up to the minute chap you are.

          • “woopy doo!”

            By Jove – what an extraordinarily up to the minute chap you are.

          • jaime taurosangastre candelas

            The benefitof a teenage daughter.

          • Redshift1

            There is no part of your argument that involves following logic. 

            You dismissed introducing works councils as an idea that would bring about pre-distribution.

            When others pointed out (with considerably more evidence) that they are a good idea, you started saying that ‘
            The question is about how to bring predistribution about, in the absence of works councils’ The whole point of what people are arguing above is that we DO INTRODUCE WORKS COUNCILS. In short, you’ve attempted to change the question. You could have said ‘and what else?’ but instead you’re saying ‘not that, what else?’ without any justification of your dismissal of the idea. 

          • PeterBarnard

            And indeed, Redshift (and Jaime), UK auto-manufacturing is full of home-grown companies like BMW, VW-Audi and Daimler-Benz, all of whom are volume manufacturers. In addition, the supply chain for these companies must be pretty awesome.

            We have absolutely nothing to learn from the way that the Germans do business ….

          • jaime taurosangastre candelas

            Peter, I am not dismissing the idea, merely observing that they do not currently exist in the UK.  If people want to set up works councils, they can.  But until they exist in the UK, they can hardly be part of the answer.

          • PeterBarnard

            The answer to your question is way above my pay-grade, Jaime – sorry.

            However, a change in attitude (from the top to the bottom, but especially from the top) is the first step, and if that change in attitude occurs (as it must), then the ways and means will fall into place that much easier.

  •  ‘…there is the question of what happens to those excluded from the market: such as the disabled and the unemployed.’
    Which is why it has to be about structural change. Creating a business environment where there is generosity rather than callousness toward those less able, less experienced or less of a good fit to profit maximisation.

  • Of course, there is also the question of whether countries are  likely to be well disposed to egalitarian post tax outcomes. So, Sweden is a more disposed to higher taxation, which is itself more redistributive.

  • Serbitar

    Japan has been mentioned as an example of a predistributive country in an upbeat way. But when income relies so directly upon economic success shouldn’t we pause to consider what might happen to citizens when the economy of such a nation fails? Here’s an old article about how Japanese predistribution works for the population when markets fail.

    http://www.wsws.org/articles/2009/mar2009/japa-m26.shtml

    It ain’t pretty.

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