“We can deliver fairness even when there’s less money around“ said Ed Miliband yesterday.
This is not a theoretical claim. It’s a historical fact. The 1945-51 government inherited a debt-GDP ratio three times today’s level and yet built the modern welfare state, created the NHS and increased income equality* whilst running a budget surplus.
Poor public finances, therefore, are no obstacle at all to egalitarian policies. So what are? There are,
I suspect, five differences between now and then:
1. Social solidarity. After 1945, the recipients of redistribution were regarded as deserving - people who had risked all in the war. Today, they are more commonly regarded as scroungers - a largely erroneous idea which Labour, to its shame, doesn‘t challenge. This weakens support for redistribution.
2. Mobility. After 1945, the rich were to large extent captive and could thus be taxed heavily. Today, though, there is perceived to be a danger that high taxes will cause an emigration of talent. Whether this perception is correct or not is, however, another question.
3. Statism. In 1945, people had faith in the state - Hayek’s The Road to Serfdom was popular precisely because it was a counterblast to the dominant ideology - not least because it had defeated the greatest-ever threat to civilization. Today, the state’s CV looks shabbier, so confidence in its ability to achieve “fairness“, or anything else, is much diminished.
4. Full employment. The need for post-war reconstruction generated a high demand for even unskilled labour; a lot of what equality was achieved in the post-war period was due to full employment rather than tax and welfare policy. Today, there’s no hope of this.
5. Rising costs. Baumol’s cost disease means that the relative cost of state services such as health and education has risen. Combined with points (1), (2) and (3), this threatens to crowd out other redistributive policies.
The question is: what to do about these problems? Adam Lent, acknowledging (5), says:
If Labour is serious about a major shift in spending priorities to promote jobs, growth and inherent fairness in the economy, then the party will almost certainly have to face up to the need to save money in the big spending areas of welfare, health, and pensions.
But this raises the question of where such savings will come from, given that the notion that top-down government can find efficiency savings is just a managerialist fiction.
I’d suggest two other things - which Miliband did not sufficiently address.
One is to look to expand the tax base - for example through land value taxation; people can emigrate, but land cannot. This implies having an open mind about the top income tax rate; let’s just find out what rate causes people to flee.
Another would be to empower labour against capital. Naturally, this’ll be tricky when there’s an excess supply of the former. But support for stronger trades unions - an efficient alternative to laws - and more worker power on boards would be a start.
* The 1979 Royal Commission on the distribution of income and wealth estimated that the share of after-tax income going to the richest 10% fell from 34.4% in 1938 to 27.1% in 1949.