Predistribution - good, bad & unoriginal

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.

Comments

[aragon]

This is what happens when people who don't understand a concept, try to squeeze it into their preconceptions.

First category:

However high prices do not just exist to regulate demand but often indicate a monopoly rent seeking (as you acknowledged), in the railways and the other utilities.

Public transport is often regarded as a public good and should be provided as such. Other areas might include child care.

Reducing the basic cost of living is desirable, because just as lowering the cost of services are unequally distributed, inflation effects are not equally distributed, favoring asset owners as we have seen from the current Governments policies.

This is a major contributor to a fairer society in Scandinavia for instance.
You tweeted the following link.

https://theuxbridgegraduate.wordpress.com/2012/09/05/is-the-uks-welfare-state-to-blame/

Second category:

Yes, they lost the plot with standard aspirational nonsense worthy of Liz Truss et al.
The Minimum wage should be in category three.

Third category:

The third category is what is intended. Improvement in wages through a change in the balance of power in society and changes to the distribution of wealth. This is not at odds with redistribution, but redistribution is also required in the short term, although in work benefits like tax credits just subsidies employers.

A fairer more balanced and equal society, something the neoliberals have destroyed.

What can you do when the help isn't up to the job ?

They don't even understand the nature of money!

[Luis Enrique]

another thing a predistributionist might do is try to disrupt whatever it is that allows the finance sector to siphon off rents, and maybe go directly after high executive pay.

I agree with your point about price - suppose energy and rail companies are "predatory" - that can only mean they are making excess profits. But even if you were able to, say, halve their operating margins, that would only reduce their prices by a small amount, because operating margins are small - First Group makes 6.5% according to a quick google, Centrica 7%. So for a £50 train ticket, ending "predatory" behaviour by say halving margins would reduce the ticket to £48.25 or thereabouts. Very back of fag packet. Anyway, big whoop.

If you really wanted to reduce inequality by reducing priced, you'd be talking about using tax revenues to subsidize energy and transport, which has nowt to do with ending "predatory" behaviour. And as you say, ain't obviously a smart idea on egalitarian grounds. Better to issue the poor with energy and transport vouchers, otherwise known as money.

[Diarmid Weir]

'There is, however, a third category of predistributionist policies - those which increase workers' power.'

Indeed. And not just workers' power, but that of consumers and communities too.

See http://www.futureeconomics.org/2010/10/towards-clever-capitalism

[aragon]

The economic debate is framed by the right and too many people on the left accept this framing.

They do not consider or are unaware of the alternatives and support myths like the scarceness of money or that all that is required is more effort by the people at the bottom of society.

It's obviously the fault of the worker if they are unemployed in an unemployment blackspot.
http://www.telegraph.co.uk/finance/jobs/9524855/UK-areas-with-the-most-workless-households-in-pictures.html

Wasn't full employment the responsibility of Governments now economists give us NAIRU.

The 'natural rate' of unemployment.

[aragon]

Luis: Subsidies to the railways have doubled since privatization, something the government has tried to offset with higher fairs.

Everyone has their snout in the trough through inflated costs and monopoly rents.

Including the banks that lease out the rolling stock. Compare UK costs and prices to that of other European railways there are substantial saving to be made.

Hollywood makes lots of money, yet many films never make a profits ! It's called creative accounting and tax management.

[Anonymous]

Yes, spot on.

The labour markets appear to me to be rigged by employer groups to keep wages low. Their business models depend on low wages. Rather than allow wages to rise when labour shortages occur, employers and governments prefer to use immigration to keep wages low. The result? Large dole queues, very low wages, and food banks.

It seems as if immigration is being permitted to sustain employer business models, and is not motivated out of humanitarian ideals as is often presented by such enthusiasts for it as the Adam Smith Institute and others.

To make the labour markets function properly and equitably, worker power in labour markets needs to be increased along the lines suggested by Chris. Immigration can still be permitted but not as a means to keep wages low or non-existent (eg the dole) for indigenous workers.

I sincerely hope that the two Eds go with Chris's 3rd option and eschew the first two.

[guthrie]

What, ask new labour to foster alternative power centres and structures, when their exact method of operation was to continue the destruction of any alternatives that had been done by Thatcher and her pals?

Don't be silly.

[john b]

aragon: erm, no. Luis is absolutely right about the low margins being made by the TOCs. The ROSCO shareholders made out like bandits after privatisation (they were sold for about a billion quid less than they were worth), but now achieve a reasonable regulated return.

The main reason fares in the UK are much higher than in mainland Europe is that mainland Europe follows the kind of policies discussed in Miliband's first idea - the % of total rail revenue derived from fare income is much lower than in the UK, whilst the % derived from subsidies is much higher.

Costs in the UK are a bit higher, which is due to a combination of continued catch-up from the complete lack of investment during BR and Railtrack days (which is also why comparing the subsidy between today and BR is meaningless), the fact that we have an older network with a smaller loading gauge and hence required small-ish batches of custom-made stock rather than off-the-shelf European kit, our reliance on less reliable, more expensive diesel trains for most non-London services, and our tendency towards regulatory gold-plating.

But even if all those were eradicated, a higher % of revenue from the farebox compared to mainland European railways has been deliberate government policy for decades, and is the main reason why fares are higher than mainland Europe now, just as they were in BR days.

[Johnnydub]

Well the anti-capatalists are out in force I see.

But seriously, there's a fundamental point that doesn't get enough attention, and yet it's mentioned a number of times in the article.

If you riase the price of somehting it's a signal to use less of it. Well that applies in spades to employing people. Let me put that another way, raising the minimum wage will increase unemployment as companies will look at the value add of an individual role and then assess the cost in terms of salary, pension etc. and as the cvosts rise, jobs that previosuly were a benerfit to the company, suddenly are not positive contributions.

This is not a political point. The political point is that the left focus on intentions, and then ignore outcomes. For example, the more money that Labour spent to trying to address inequality, and inequality went up.

I'll give you another observation that the tories havewn't learnt yet: You can't fund social programs if you tax and spoend the economy into a downturn.

If you want more jobs and expansion, lower the price of it, don't increase it.

[gastro george]

Only idiots think price is the only determinant of demand.

"This is not a political point. The political point is that the left focus on intentions, and then ignore outcomes."

You mean like sacking lots of people and reducing expenditure, and then expecting the economy to boom and the deficit to decrease?

[Mike Davies]

The idea that govt will spend money efficiently, pick winners and create a fairer society is true only in that those with the real money who can create jobs and wealth will flee.

[gastro george]

The more Randians leave, the better.

[Anonymous]

@johnnydub

"If you riase the price of somehting it's a signal to use less of it."

A price rise may be a signal to demand less but it is the price elasticity of demand that actually determines how much of a commodity is demanded.

Directors' salaries, for example. They have risen n-fold in real terms but I am not sure the quantity of directors demanded has fallen.

Do you have any peer reviewed documentary evidence for your assertion that increasing the minimum wage rate will reduce the demand for labour?

[aragon]

John B

Money leaks out of the railways at every seam and there are lots of seams in this botched privatization.

See McNulty report on Dept of Transport Website. Realising the potential of GB rail.

Exec Summary point 6.
Both subsidies and fares 30% in excess of European equivalents.

[sandy winder]

Predistribution n.

A term used to try to make gullible people believe that Labour are not returning to their old nasty ways of destroying British industry again in order to appease their paymaster bosses, UNITE,etc. by making businesses (large and small) pay workers more money so the companies they work for can’t compete with foreign competition and so go bust.

The elephant in the room of left-wing thinking is their complete lack of any consideration of having to compete with foreign competition. Why would any foreigner buy British goods when they can get the same (or better) quality for the same goods from other countries? And what happens to those jobs in businesses that can't compete, do you think?

[gastro george]

... because that's such a problem for economies like Germany ...

The perennial problem for UK industry has actually been investment. Where companies have high investment - think Dyson, Rolls Royce (a good example of government choosing a winner) - UK companies prosper.

[Rich Tee]

"Rolls Royce (a good example of government choosing a winner)"

Just had a quick look at the history of Rolls Royce and its nationalisation was in 1971 because it had run into financial problems. The government did not "choose a winner", it bailed out a loser.

In any case, for every winner there are many more losers - British Leyland, ICL...

[games]

Hi to all, how is all, I think every one is getting more from this web
page, and your views are fastidious designed for new visitors.

[gastro george]

"The government did not "choose a winner", it bailed out a loser."

... because Rolls Royce is just such a loser company now, eh?

The company bankrupted itself developing the RB211. It was nationalised (by a Tory!) in order to save the company - the government recognised that it was a strategic industry with a good product. By picking a winner, we still have a world class company around today.

Governments don't always choose winners. But then private enterprise doesn't either. The point is to have a strategy and support it.

[George Carty]

"The elephant in the room of left-wing thinking is their complete lack of any consideration of having to compete with foreign competition."

In other words we (and other Western countries) need to abandon unilateral free trade and fight back against Chinese mercantilism...

[Jehu]

@Johnnydub: September 06, 2012 at 11:17 PM stated:

"If you raise the price of somehting it's a signal to use less of it. Well that applies in spades to employing people. Let me put that another way, raising the minimum wage will increase unemployment as companies will look at the value add of an individual role and then assess the cost in terms of salary, pension etc. and as the cvosts rise, jobs that previosuly were a benerfit to the company, suddenly are not positive contributions."

Oddly, raising the cost of employing labor is precisely the direction toward which you should be thinking: by forcing wages to rise, you force the introduction of methods and means that aim to reduce the employment of labor overall.

Why is this important? Because the aim is to improve the productivity of labor, not stifle it.

Your thinking on this issue is entirely backward and only flies on this blog because no one here seems to understand that getting rid of labor is the entire point of socialism. Socialism has elevated labor to the status of a religious icon, when it should actually be trying to abolish it and creating a society found on free activity.

If the aim is to end unemployment, it is senseless to focus on "demand"; it is far easier and to focus on reducing hours of labor until none are unemployed.