Eight reasons why Labour should think twice about predistribution

Like many, I read Ed Miliband’s New Statesman interview with interest. Some parts of it pleased me greatly, like the seeming acceptance of not having money to spend. And the corollary to that, which is that we could not redistribute wealth which, well, we didn’t have.

A sigh of relief was breathed, and I thought, “hey, this predistribution sounds like it could be interesting”. For a little, if slightly skeptical, while, I gave strong proponent, Labour Left’s Eoin Clarke, the benefit of the doubt.

So, leaving on one side for a minute the churlish thought, articulated by the good Stefan Stern, that it sounded a bit, well, wonkish – the philistine! – I set to reading. Now, a number of critics, such as Labour Uncut’s Atul Hatwal, have criticised it for its lack of definition, but I disagree: it was in defining it, for me, that it all went wrong.

And it was because it seemed to me that, in making the supposition that it was not vague think-tank stuff, predistribution demonstrated the opposite of what I had thought: a complete lack of acceptance that there is no money to spend. And what was worrying was not just the idea itself, but the thought process which Labour seems to be following.

Option one: assume there is no money as a given. Whatever we do needs to be at zero net cost to the Exchequer, or thereabouts. It’s not impossible to make eye-catching policy with this, but it’s hard, agreed.

Option two: ooh, that other one looks hard, let’s find a softer option. We assume there is money, but we just have to look for it. How about…hey!…if we had a way of getting money to “our” people (i.e. low-to-middle-income earners), which someone else would stump up for? I quote my learned colleague Hopi Sen on the subject of polling questions:

…a fine example of what I like to call “would you like a pony” polling, where the questions effectively amount to: 

1. Would you like a pony?
2. Would you like someone else to pay for your pony?

It is not hard to get an impressively high level of assent to pony polling.

Indeed it is not. But we can get a nice approximation to pony polling internally, within the Labour commentariat, if we so choose. It is not difficult to get support for an idea when you say that the downside will fall on people we don’t like (i.e. corporations).

Okay, so how about this, in a more concrete form: we get the money from companies by limiting their profits, and by forcing wages up. Which seems to be the gist of what “predistribution” is all about, or as Ian Martin wryly observed, what we used to call a prices and incomes policy.

Hmm. When did we last have a prices and incomes policy? I’ll give you a clue: disco was in the charts, Jim Callaghan was Prime Minster, and the must-see film of the year was Grease. It was 1979.

Now, whenever you tinker with the market, you have to be very sure what you are doing. That’s not to say you shouldn’t regulate prices or incomes at all: the minimum wage is a prime example of a partial incomes policy, and something I heavily supported in 1997.

Why? Because I knew it was safe (indeed, the year before, I did my Masters’ dissertation on a seminal text about it, by the academic who went on to advise Labour on how to do it successfully). And because it was, frankly, an embarrassment that Britain was the only major developed country not to have protection for workers at the bottom end of the wage scale. Indeed, the fact that even that evil empire of unfettered capitalism, the United States, had had one since the 1930s, made the argument against indefensible.

Now, what are the downsides to a full prices and incomes policy?

One. It’s big. It goes much, much further than the minimum wage. In principle, you’re tinkering with the whole of the economy, not just at the margins. You need to be really, really sure what you’re doing. All sorts of things can happen: inflation, disinvestment, standard incentives twisted beyond recognition, and ultimately a potential falloff in growth and tax receipts from those incentive tweaks and resulting inefficiencies.

The removal of prices and incomes policies during the Thatcher years was also a brutal shock to Britain. In reverse, that is the scale of the change being proposed – revolution not evolution. Assuming the electorate ever allow you to try it, you get no second chances if it doesn’t work, and the impact of it not working, it goes without saying, could be a decade or two out of office.

In short, is it not a rather ambitious policy for any government to get to from where we are? Miliband wants nothing short of “to change the way the economy works”. It’s like taking a car engine apart to see how it works, and most likely finding the pieces don’t fit back together very well. Oops.

Two. It didn’t work very well last time it was done in Britain (Winter of Discontent, anyone?) which led to its being abolished and not reintroduced (apart from a brief flirtation during the Darling years, as a one-off to deal with the economic crisis). And further, the whole world is moving away from this model, not towards it. Continental Europe and Japan are pretty much the last places in the world you’ll find it. Much as you’ll find me pro-European on welfare and health services, its sclerotic employment practices are driving business eastwards at a rate of knots. And Japan, lest we forget, suffered a decade of stagnation in the 1990s from which it is still barely recovering.

Three. Economists, as the excellent Chris Dillow points out, “have traditionally hated the idea” of interfering with prices and incomes in this context, because it’s such a blunt instrument with nasty side-effects. As he says:

“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.”

Four. This is Robin Hood politics, pure and simple. Labour needs to decide whether it is for equality of opportunity, with a sufficient safety net so that those at the bottom do not get trapped there, or for overall equality of outcome. Mostly, for the last twenty years at least, it has been the first. If we want to go with the second, fine, but we need to accept the result: we will ultimately need to try and get the British public used to borrowing more or paying more taxes as a long-term thing (i.e. not balancing the budget over the economic cycle), and that didn’t work out too well for Gordon Brown, did it?

Five. Is it implementable? The private sector usually find ways round these things. I suspect that, in practice, it would mostly only be practical to implement in the public sector, therefore making it even more expensive to employ there than in the private sector. It might even incentivise more privatisation, rather than less.

Six. Historically, a government’s political investment in an incomes policy makes it more likely they will be dragged into major wage disputes, something which hasn’t really been a feature of UK government for years. Oh, good.

Seven. The skills and productivity argument, ably summarised by Daniel Sage, here. Predistribution only works in a high-skill, high-productivity economy. First, you have to get there.

Eight. There is a final possibility: that the idea is merely a pre-conference sop to the unions and/or other supporters on the left, who may not accept that we cannot find the money, and therefore still want to spend it. That we have no intention of implementing this in more than a symbolic way, so it won’t hurt.

Aside from its inherent dishonesty, there is a practical danger with this approach, of promising things you know you cannot deliver – just ask François Hollande. You then find yourself in government, and are forced to disappoint everyone to whom you have sold a pony. Your popularity tanks. No, the only known way to create a sustainable, popular government programme is by the simple expedient of not promising things that you know you cannot deliver. Dull, I know.

To sum up: we should perhaps hope that predistribution is really just an anodyne buzzword. Because if it is not, in fact, and this is to be the cornerstone of our economic policy, then that is very worrying indeed. The comfortable poll lead we have built up looks suddenly rather precarious, because early indications are that we are headed for an economic manifesto from the last days of disco.