Thomas Piketty was in parliament yesterday to discuss his book Capital in the Twenty-First Century with Labour peer and Miliband strategist Stewart Wood. Shortly before the event, I spoke to Wood about Piketty's work and about how Labour would seek to reduce inequality.
Q: How do you think Labour’s existing policies respond to Piketty’s thesis?
A: What Thomas has provided is an intellectual foundation for a lot of the things we’ve been talking about, which is the sense that, particularly in the last 30 years, but more broadly, there has been detachment of wealth-earners and income-earners at the top end of the scale from the rest of the country - and this isn’t just a concern for people on the left who care about inequality, this is a concern for people who care about the health of the market economy, and what’s encouraging is that people on the right of the political spectrum share this worry as well.
What the book suggests is that you have to understand the nature of capital if you want to get the solutions right. We’ve talked about a mansion tax, we’ve been prepared to talk about the top rate of income tax going back to 50p.
We’ve also talked about this horrible word “predistribution”, which is getting at the heart of something that Thomas talks about in the book, which is that if we really think that the drivers of inequality rest with the distinction between capital returns being high and growth incomes being lower than you have to think about ways in the long-term that you can redistribute assets so that people can get access to greater income-earning potential beyond what they just earn in their jobs. That is the biggest challenge for us and that points you in areas to do with education but also areas to do with the workplace, and I think that Labour in the recent past hasn’t taken the idea of the workplace as seriously as I think we now need to.
Those are the areas of focus, and in a mansion tax and income tax we’ve got some response on the tax agenda. There are areas in education and human capital where we need to respond further.
Q: Beyond a mansion tax, what about wealth taxes more generally? Is that something you’ll be looking at for the manifesto?
A: I’m not sure the global wealth tax in the last section of Thomas’s book is going to be in the Labour manifesto, I suspect it won’t. But I think beneath that, in that section, there’s a lot of very interesting stuff about transparency of asset ownership and capital, about international cooperation, and that is in the grain of things we’ve been talking about.
Q: There’s obviously a national dimension to this, but there’s also an international one. In a globalised era, some question whether you can have social democracy in one country any more. What do you think are the changes needed to avoid a race to the bottom?
A: There are clearly forces, to use Thomas’s terminology, of divergence and convergence here. In some respects, you can’t have a structured approach to financial capital, for example, without taking international cooperation seriously, of course that’s right. Governments left and right have realised that, although progress internationally has been pretty slow so far, but you need to have a consistent approach across the continent and globally more generally.
In other respects, I think you can make progress as a nation-state. I passionately believe that if you take the idea of making our educational policy work for the benefit of those who don’t have access to inherited wealth and existing wealth, but you actually make the education system effective, in spreading the ability of people to earn greater money and to access capital, I think that gives us a massive productive advantage as a country, it goes with the grain of those who care about being competitive as an international economy as well as those who care about distribution and social justice, so there are things you can do at the national level.
Q: Does it worry you that the legitimacy of the EU, the institution that more any other has the ability to set cross-national standards, is being questioned as never before, and that the potential for it to go further is now so limited?
A: I think that you’re right that we live an era when people’s faith in the European Union, not just in Britain but elsewhere, as a body that can set standards across countries is weakening, there’s no doubt about that. Part of our job as a Labour Party that passionately believes in the European Union is to seek to be reformers of it, so that over time, I’m not saying you can do this overnight, but over time, you can get some more faith in a reformed EU’s ability to make those kind of decisions, so it’s a long-term challenge but it’s the right one for us to be taking on.
Q: Looking further ahead, do you have a sense of how much a future Labour government could reduce inequality by?
A: I worked in the New Labour government and we did a huge amount of redistribution and investment in public services that benefited the bottom 50 per cent and we still saw inequality creeping up, so I’m not underestimating the ability of one government in one period to reverse the trends that Professor Piketty’s book talks about across centuries.
But we do need to make the pursuit of a more equal Britain something that is fundamental to policy, from education, to Treasury policy, to industrial policy. I don’t think it’s the only thing that matters, but it’s a crucial thing that matters and it gets at the heart of something in our country that is not working at the moment, which is squeezed incomes in the middle that don’t have sufficient skill levels and where there’s a productivity problem. We need to address the problem of our national competitiveness at the same time that we address the pressures on people in the middle and the bottom of our income distribution.
Q: Do you think you could enshrine that focus on reducing inequality in law or through a particular institution?
A: I’m not sure that targets in this area are the way forward. The trends are so multiple and so difficult that I think just setting an arbitrary target is not the way to do this. What you need here, maybe it’s old fashioned, but you need a debate, you need resolve, you need it to be in the bloodstream across the political spectrum. I don’t think it should just be the ambition of the Labour Party, it should be the ambition of all politicians to seek to build a country where you don’t have this detachment of those at the top from the rest, I think that’s bad for a country whatever your politics.