Predistribution offers Labour a new and radical way forward
The fast track to jobs and growth is by boosting incomes through higher wages.
Ed Miliband may have at last found his intellectual mojo in the American "predistribution theory", which talks about fair wages, trade unions and the power balance at the workplace. Whilist it might be hard to imagine Labour supporters chanting ….."what do we want – more predistribution! And, when do we want it? – well, preferably a decade ago when real wages started to fall", the speech Miliband gave to the Policy Network conference could mark the start of something new and radical. At the very least, a speech by a Labour leader about social justice at the workplace and the need to address in-work poverty through wage bargaining, rather than relying on hand-outs from the state, brings joy to those think-tankers on the centre-left who have been pointing out for sometime that the way forward must be to put more money in people’s pockets.
The fast track to jobs and growth is by boosting real incomes through higher wages, with wealth distribution recalibrated away from the top 1% who have secured more than their fair share of productivity gains. The Smith Institute’s evaluation of anti-poverty policies shows that efforts by all governments since 1980 (including New Labour) to reduce poverty and inequality were undermined by deregulation of the labour market.
Successive Conservative governments transformed the world of work through the erosion of employment protection rights, tight restrictions on trade unions, the abolition of wage floors (like the Fair Wages Resolution and wages councils), lower taxes for the better off, a deliberate effort to shift the balance of power at work in favour of employers and abandoning the commitment to full employment. All of which had a disastrous impact on those on low and middle incomes.
Apart from the significant achievement of the National Minimum Wage, New Labour left much of the post-Thatcher settlement on the workplace intact. Miliband is right to say that there was too much reliance on tax credits to tackle inequality. The history of New Labour’s efforts to reduce poverty and increase pay show that wages stagnated for the "squeezed middle" even at a time of economic growth, rising tax credits and near full employment.
Whilst all the talk has been about falling real wages and outrageous executive pay, little attention has been given to what we are going to do about it. Beecroft and ever more deregulation is the Tory response. Labour has opposed this, but without really setting out its own prescription. Part of the solution has to be reconnecting social and labour market policies. What we know is that policies that ensure a more equal distribution of rewards are most effective when they work in parallel with labour market institutions (notably, trade unions) that achieve a fairer distribution of incomes before the intervention of the tax and benefit system.
There’s unlikely to be a sudden increase in welfare payments, even under Labour. All political parties agree that the resources available for redistribution will be limited in the immediate future in order to tackle the deficit. Redistribution remains essential if we are to narrow the wealth divide, but it is only possible now with a shift towards a fairer wage distribution - and that entails a new contract between employees, unions and employers. Predistribution is about pay, but it is also about Miliband's concept of responsible capitalism.
The solutions are in, many ways, not new but need to be recast for today’s economy. There has to be more transparency in executive pay with an explicit obligation to publish the details of all directors pay packages in the annual reports of listed companies. Listed companies should also record the ratio of high pay to low pay, the distribution of pay across different levels of earnings and the number of workers in receipt of the minimum wage.
Whilst the minimum wage has made a difference for millions, unscrupulous employers continue to short change their staff. Ensuring that the minimum wage is effectively enforced and is fixed at the highest possible level before any negative employment effects appear should also be part of the solution.
Any future Labour government should also seek to reintroduce labour clauses in public contracts. This will not only increase the pay of those working in the public sector (or "para-state") but also set a benchmark for pay in the private sector. There may also be role for wages councils, which set wage floors, and place peer pressure on employers to act fairly. The development, in partnership with employers, of programmes focused on raising skill levels, boosting productivity and improving the overall quality of employment at the bottom of the labour market will also help those on lower income.
And last (and not least) as we approach the TUC’s conference, any programme to ensure fair initial distribution of rewards most seriously look at collective bargaining and how workers can have greater power at the workplace. For too long there has been an imbalance of power in favour of owners over workers. This is not a small challenge given low levels of union membership density in the private sector, but there are other models including European Works Councils which can act as bulwark against excessive executive pay.
The challenge for Miliband and the Labour movement must be to turn predistribution theory into predistribution practice, which will inevitably mean new popular workplace policies and facing down the vested interests of big business, the right-wing media, and the Tory neo-liberals. There are obvious political risks with this sort agenda, but the prize of a more equal society is never going to handed to Labour on a plate.