Predistribution, human capital & equality

Is Ed Miliband stuck in a 1990s timewarp? I ask because his idea that predistribution entails "a much higher skill, higher wage economy" seems too wedded to New Labour's excessive emphasis upon human capital as a force for inequality.

I mean this in separate ways.

First, take inequality at the top of the income distribution.90/10 inequality - the gap between the poorest 10% and the richest 10% - might be amenable to upskilling, in the sense that increasing the supply of skilled workers should reduce the price of them.This was New Labour's thinking in the 90s.

But today, I suspect that most people are worried not so much by the income of the 90th percentile - someone on just over £50,000pa - but those of the top 1%. And this inequality is unlikely to be reduced by human capital policies. At best, the hyper-rich owe their high incomes to winner-take-all effects (pdf) and marginal differences in skill - of the sort that can't be imparted by education. At worst, they are due to the use of power to extract rents from workers, shareholders or the state.

The answer to such inequality is not to increase skills.It's to empower shareholders or, better still workers, to restrain CEO pay, and to reform banking seriously. Aside from talk of "responsible capitalism" and "banks that serve the country", Miliband offered little hint of this.

Secondly, I'm not convinced by Miliband's thinking about the lower paid. He says:

Think about somebody working in a call centre, a supermarket, or in an old peoples’ home.
Redistribution offers a top-up to their wages.
Predistribution seeks to offer them more:
Higher skills.
With higher wages.

Isn't this the fallacy of composition? Sure, if a single supermarket worker has high skills, she might well be able to move up a career ladder and get out of poverty. But if everyone has high skills, there'll just be more people stuck in jobs for which they are overqualified. If wages and productivity are attached to jobs rather than people, mass upskilling isn't the route out of poverty.

Of course, one might argue that employers would respond to the higher supply of skills by creating jobs with higher skill requirements and wages. But there's little evidence that this anti-Bravermanian process is happening, and there are good reasons to think it won't.

I don't say all this to deny that a more skilled workforce might be good for growth - that's a different story (pdf). It's just that, as a force for reducing inequality it is, surely, limited. Shouldn't we have learned this since the 1990s?

Comments

[Anonymous]

Yes, I agree.

I suppose changes to the tax system could make a difference. For example, making only the first £50k of an individual's wage/salary deductible for corporation and income tax purposes. This might suppress wage growth at the top end.

Coupled with this, a negative income tax, administered through PAYE, could be introduced. Low wage earners would be the sole beneficiaries. However, I guess this qualifies as redistribution, not predistribution.

Perhaps it is a mixture of both predistribution and redistribution that is necessary.

[Tom P]

On the point about restraining CEO pay, one thing Labour is signed up to is employee representation on remuneration committees.

It's a small reform but a) has the potential to influence exec pay at source (rather than expecting dispersed shareholders to clear the mess up afterwards) and b) starts to blur line in UK Corp gov whereby management accountability is, in theory, solely to shareholders.

Many people are dismissive, but it's a step towards wider employee representation. After all the last time Labour was seriously entertaining ideas about employee involvement in corp gov was Bullock, right?

[Anonymous]

@Tom P

It would be good if such a reform could be enacted. Better still would be to have 50:50 employee:shareholder representation on remuneration boards, similar to the German model of corporate governance, with tie breaks left to the chairman via a casting vote.

If my memory serves me correctly, it was the Trades Unions who rejected Bullock's 2X + Y formula for employee representation on Boards. I just hope this time around they embrace employee board representation wholeheartedly.

[aragon]

Yes this is the same kind of Tosh advocated by the Conservatives, merit with the dice heavily loaded to favour the top one percent (or 0.1 percent).

Wage ratios are not in the tend but in the thousands.

Now amount of upskilling will offset outsourcing / immigration or the wage / income ratios.

Yes: Anonymous tax is tyhe only solution to income inequality, but we need to distribute more wealth to the lower paid through wages, as this is seen as more meritorious than through benefits including negative income tax.

The marginal tax rate of 100 per cent is the solution that dare not speak it's name. (All income earned or unearned).

No wonder I am ostracized by the Labour party.

[Anonymous]

@aragon

It is perfectly feasible to have an income tax that approaches 100% (but never quite gets there) as incomes get large.

There is a very interesting scheme currently being proposed as part of a PhD submission for a comprehensive income tax based on average lifetime income received to date, per hour worked. Such a system integrates benefits and income tax and taxes very high earners at close to 100%.

A further beauty of the scheme is that an individual's tax rates are lowered as more hours are worked - hence unearned income and legacies get taxed at 100% unless the beneficiaries have contributed their labour to society at some point during their lives.

Such a system rewards hours worked but also has flexibility to credit the disadvantaged with hours to compensate for reduced life chances caused by, say, disability etc. Those who award themselves very high incomes will suffer very high tax rates (approaching 100%) irrespective of the number of hours they work.

All this should appear in a book which I hope the author will get published soon.

I suspect this scheme will be superior to IDS's Universal Credit scheme which I suspect will fail.

[Tom P]

@anonymous

Yep, unions weren't big on employee directors in the past. Suspect it's a mixture of not wanting to be part of potentially negative decisions and also a fear of displacement. But times are much changed since them.

Interesting to read Tony Crosland on this actually. He said no point reforming corp gov in an employee-friendly direction as the TUs already had power and the notional accountability to shareholders didn't mean much in practice. Again, it's a different world now, so I personally think Labour should pursue this.

Employee reps on rem comms is a stepping stone. Agree something like co-determination is a much more meaningful goal.

[pablopatito]

"But if everyone has high skills, there'll just be more people stuck in jobs for which they are overqualified."

Not in a global economy, surely? Why can't low skill jobs be exported, or filled by low skilled immigrants, whilst high skill jobs are imported.

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