Ed Miliband's big idea of "predistribution" reminds me of a line attributed to Samuel Johnson: "Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good."
The idea, says George Eaton, is that:
The state, rather than merely ameliorating inequalities through the tax and benefits system, should act to ensure that they do not arise in the first place...To this end, it should legislate for policies such as a living wage and introduce curbs on predatory energy and rail companies.
Let's take the original(ish) and bad part of this first - the idea of capping rail and utility prices. This runs into several problems:
- It redistributes most to heavy users, who are not necessarily the poor. Commuters and people living in big houses gain more than poor people in small flats.
- Lower prices encourage the use of scarce resources. High prices, remember, are signals to use the product sparingly.
- Price caps tend to reduce profits. To offset this, companies will try to cut costs - for example by reducing maintenance spending. The upshot will be a worse service and job cuts.
For reasons such as these, economists have traditionally hated the idea of using the price mechanism to redistribute incomes - a dislike embodied in the second theorem of welfare economics. As Kenneth Arrow put it:
Problems of equity can be separated from those of efficiency; if the existing distribution of welfare is judged inequitable, rectification should proceed by redistributing endowments ("lump-sum transfers") and then allowing the market to work unimpeded rather than by direct interference with the market in the form of, say, price controls ("Pareto Efficiency with Costly Transfers", p290 in Collected Papers of Kenneth J. Arrow vol 2).
By all means cap prices as part of a remedy against monopoly or other market failure. But don't think of it as clever redistribution.
The second part of predistribution is good, but not original. Miliband says predistribution is about "making work pay" and creating "a higher skill, higher wage economy." Laudable aims - if tricky to achieve. But they were exactly New Labour's ones. A high wage, high skills economy was exactly Gordon Brown's objective. Hence such policies as the NMW, tax credits, Sure Start, EMAs and higher education spending.There's nothing new here: a "living wage" - which Miliband does not seem to endorse - is just a higher minimum wage.
There is, however, a third category of predistributionist policies - those which increase workers' power.These could include: increasing unions' (pdf) strength; encouraging the growth of worker coops; and a citizens basic income sufficiently high to allow people to reject low wages and poor working conditions.
Predistributionists, however, seem to be ignoring these options. But then, social democracy has always been about accommodating capitalists' power more than challenging it.