Supply-side socialism

I rashly promised yesterday to suggest what some supply-side socialist policies might comprise. Here goes.

1.Invest in education, especially in the early years. The demand for unskilled labour has collapsed, and we shouldn't bet in on recovering. Instead, we should try to raise human capital. This requires pre-school interventions, improving the standards of schools in poor areas (pdf) and, perhaps, simply more intensive education. If inequalities of human capital can be reduced, so will one source of income inequality. 

2. Shift the tax base. Efforts to tax profits don't work. Better ways of taxing the rich, whilst preserving incentives to work and save would involve taxes on land, inheritances and a progressive consumption tax.

3. A state investment bank. Personally, I'm sceptical of the idea that banks systematically starve promising companies of funds; I suspect the bigger reason for low investment is the lack of innovation. Neverthless, we should ensure that the few good investment ideas there are get funded. And most of the arguments against a state bank are exaggerated.

4. A citizens' basic income. This is normally seen as a redistributive policy, a way of increasing workers' bargaining power. It might raise productivity through at least two routes. First, it would give workers the chance to reject bad jobs, and wait until a better match turns up. Second, the increased wages which would follow from this rise in bargaining power might compel firms to raise productivity in order to maintain profits.

5.Freer migration. In the short-run, immigration can raise growth by removing labour market bottlenecks. In the longer-run, it can increase innovation and productivity (pdf).

6. Coops.The financial crisis is, in many ways, a crisis of managerialism and ownership. Top-down bank CEOs got overconfident and made terrible decisions; failed to solve principal-agent problems that led to excessive risk-taking; and failed to adapt well to the new macroeconomics of the 2000s.Outside shareholders did nothing to prevent this. This suggests the need for new forms of ownership. The obvious (though not only) candidate is worker ownership. There's good evidence that this increases productivity, and it might have longer-term benefits for growth too, insofar as it helps encourage a culture of trust.

7. Shrink the state. It's possible - I put it no stronger - that a smaller state is conducive to faster economic growth in the long-run. Hopi's proposal for zero-base spending review might therefore make sense. But you cannot cut spending intelligently from the top down. A precondition for intelligent cuts is to empower public sector workers, who are better placed to identify genuine waste.

8. Macro markets. One role for government should be to encourage - perhaps via nationalized banks - markets for insurance in income risks, as Robert Shiller has proposed. Such moves might be egalitarian - insofar as such products are given freely to worse-off workers. But they might also help encourage real innovation by allowing entrepreneurs to insure against the background risks (eg of recession) which can undermine otherwise good investments.

This is not a complete list, and there are countless details to examine. This list should, however, remind us that supply-side economics needn't be the preserve of the right.

Another thing. Some of you might remember my book. Some chapters, however, were not published. This pdf is one of them.

Comments

[Luis Enrique]

I'd be interested to read your thoughts sometime on policies designed to eliminate large scale rent extraction by the financial sector (that is, if you haven't already written a post I am forgetting). I think that could be called supply side socialism, of a sort, at least productivity would rise if the real cost of financial services falls, plus there are obvious redistributive gains.

Could investment banks be forced to compete with a state-run IPO market, for example? Could fund managers either be replaced by various automated rules-based funds, or by crowd-sourced research into company "fundamentals"?

[Francis Sedgemore]

"I'm sceptical of the idea that banks systematically starve promising companies of funds; I suspect the bigger reason for low investment is the lack of innovation."

Innovation does seem to be a bit thin on the ground at present, but it could be both. However, unless we are prepared to cite data it is all conjecture, even if conjecture based on anecdotal evidence has some value. For example, I've lost count of the number of news stories of reportedly successful small business leaders frustrated by the unwillingness of banks to fund their supposedly well-grounded growth plans. Now why would the banks do this if the businesses in question were innovative and well managed?

"First, it would give workers the chance to reject bad jobs, and wait until a better match turns up."

Good luck in selling this in a time when public attitudes are hardening against welfare claimants, despite the fact that the number of so-called "deserving poor" are rising, and job security is declining. The general view these days seems to be something like: "If I'm miserable in my boring, dead-end job, you fucking well can be too!".

"Freer migration"

I take the view that all immigration controls should be scrapped, but try selling even Chris' comparative freedom over my absolutism when the entire political class is scared witless of UKIP.

Chris' other points I support strongly, apart from (8), about which I know too little to comment with confidence. As for (1), I would add re-education and continuing-education. This is one of the strengths of Scandinavian social market capitalism.

What Chris has outlined here seems to me like classic left-libertarianism, but the problem is that few seem to care about liberty, including their own.

[chris]

@ Luis - I'm not sure there's anything wrong with simply nationalizing banks. Whilst there's much wrong with the rest of the financial services industry, I'm not sure that fixing it would do much to raise economic growth.
@ Francis - damn right. I'm not offering this as an immediate vote-winning agenda. The task for the left should be to try and change public opinion, not echo it; this is one reason why I'm not interested in Westminster politics.
There is, though, a hopeful precedent here. Back in the 60s and 70s, anyone proposing lower top taxes, union controls and privatization would have been met with precisely your response - "the voters won't have it." But they all happened quite soon afterwards.

[Luis Enrique]

Okay, but sometimes it is more useful to think of reforms that raise the level of income, not its growth rate. Having a financial sector do what it does at fraction of price would raise level of income for rest of us. Plus if you think inequality is barrier to growth, help too.

[oldcobbler]

Do you think a progressive consumption tax could realistically be implemented ?

[FromArseToElbow]

It's always worth noting that a CBI (#4) would be a massive aid to innovation and experimentation (or creative destruction, if you will), by de-risking startups and self-employment. In combination with #3 (investment capital), this could be the key to properly "rebalancing" the economy - i.e. let workers vote with their feet.

Education (#1) needs an even more radical rethink than you outline. We don't need to make it better, we need to make it different. The pace of technological change means that the instrumental approach (i.e. vocational skills) is increasingly ineffective.

Equally, we need to slough off the use of educational qualifications as a token for access to restricted professions (Latin for the judgin', etc). Paradoxically, life's lottery would benefit from being an actual lottery.

We need to teach kids to be inquistive and brave, as we simply do not know what specific skills they will require to be successful in the future; and we need to commit to true lifelong learning (another reason for a CBI).

[Francis Sedgemore]

Chris, "the left" effectively means the activist class, which is probably the least innovative sector of society at present. That goes for parish pump politics as well as Westminster. The ideas that you advocate here would find support from intelligent beings across the left-right spectrum. For them to be realised requires a cultural shift that will not come from the political class.

As for precedents, don't forget that the changes to which you refer were associated with specific social conditions, without which they may not have succeeded. Be very wary of generalising.

[Neil Wilson]

"A citizens' basic income. "

Basic income can't really work. The market has demonstrated it isn't capable of delivering sufficient income to everybody. To believe that it will deliver sufficient standard of living to everybody by magic is similarly deluded.

Plus people need something to do. That doesn't arise by magic either. The vast majority of the population need or like to be directed to do something - hence why there is never any shortage of people to join the military.

Unfortunately the state can't just guarantee a load of otherwise worthless numbers in a bank account and then step back. It's got to get its hands dirty and ensure that they have something to do as well. And by doing that it creates a price stabilisation anchor in the jobs market.

[Dave McCarthy]

Has any country with a market economy system introduced a citizens' basic income? It baffles me why it is not the method of choice for all governments who presumably want to protect their citizens from poverty, and at the same time avoid creating disincentives to work. Most of the unemployed people I have met would love to work, but are worried that if they come off welfare and lose their jobs, they will not be able to get back on welfare afterwards.

[fake]

1. Is there evidence the school system lacks funding (oh sure more is always better), what are the problems in schools (discipline, lazy pupils), and how does funding effect these?

2. Is there any government, anywhere, at all, that has not progressively tried to squeeze more and more tax out of people, this is why people fear land taxes etc. that cannot be avoided.

5. Fuck you, fuck you with a rusty pole. You can make logical arguments about immigration all you want, PEOPLE DO NOT WANT IT, why intellectuals try to keep ramming it down our throats JUST FUC< OFF.

7. Turkeys voting for Christmas, hmmm, I think not.

[FromArseToElbow]

@Dave McCarthy,
Small-scale CBI pilots have been run successfully over the years in many countries, but none has yet bitten the bullet and introduced a universal scheme. See http://en.wikipedia.org/wiki/Basic_income_guarantee

De facto, developed nations already have a CBI, in the sense that everyone can get access to sufficient funds to avoid starvation and involuntary homelessness - i.e. the "safety net". However, we waste a huge amount administering the associated bureaucracy, we demonise and demoralise recipients, and the funds are allocated inequitably, giving rise to fraud and disincentives to work.

An earlier post by Chris outlines some of the benefits and gives a rough estimate of affordability - http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2005/04/the_case_for_ba.html

The chief impediments to implementing a CBI appear to be the lack of public understanding (i.e. the hegemonic assumption that it is impossible/fanciful), and the fear of the consequences of unilateral action - e.g. that we'd be swamped by "CBI tourists" (despite the clue in the name that you'd need to be a citizen).

A government would probably best stand a chance of public support for a CBI if it simultaneously committed to a moratorium on immigration, even though this would quickly prove to be a drag on growth. This is paradoxically why a right-wing government might be the most likely to do it (just not the current one). NB: A CBI has traditionally had support on the libertarian right as well as the left.

[Bialik]

Thanks for PDF. All I need is a long journey to read it on and to forget my knitting.

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