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.