Re: Milibean’s big ‘New’ idea ~ ‘Predistribution, Good, Bad and Unoriginal’ by Chris Dillow

How about THIS instead!

~ Black Triangle

Stumbling and Mumbling

Ed Miliband’s big idea of “predistribution” reminds me of a line attributed to Samuel Johnson:

“Your manuscript is both good and original. But the part that is good is not original, and the part that is original is not good.”

 

The idea, says George Eaton, is that:

The state, rather than merely ameliorating inequalities through the tax and benefits system, should act to ensure that they do not arise in the first place…To this end, it should legislate for policies such as a living wage and introduce curbs on predatory energy and rail companies.

Let’s take the original(ish) and bad part of this first – the idea of capping rail and utility prices. This runs into several problems:

It redistributes most to heavy users, who are not necessarily the poor. Commuters and people living in big houses gain more than poor people in small flats.

Lower prices encourage the use of scarce resources. High prices, remember, are signals to use the product sparingly.

Price caps tend to reduce profits. To offset this, companies will try to cut costs – for example by reducing maintenance spending. The upshot will be a worse service and job cuts.

For reasons such as these, economists have traditionally hated the idea of using the price mechanism to redistribute incomes – a dislike embodied in the second theorem of welfare economics. As Kenneth Arrow put it:

Problems of equity can be separated from those of efficiency; if the existing distribution of welfare is judged inequitable, rectification should proceed by redistributing endowments (“lump-sum transfers”) and then allowing the market to work unimpeded rather than by direct interference with the market in the form of, say, price controls (“Pareto Efficiency with Costly Transfers”, p290 in Collected Papers of Kenneth J. Arrow vol 2).

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.

The second part of predistribution is good, but not original.

Miliband says predistribution is about “making work pay” and creating “a higher skill, higher wage economy.”

Laudable aims – if tricky to achieve. But they were exactly New Labour’s ones. A high wage, high skills economy was exactly Gordon Brown’s objective. Hence such policies as the NMW, tax credits, Sure Start, EMAs and higher education spending. There’s nothing new here: a “living wage” – which Miliband does not seem to endorse – is just a higher minimum wage.

There is, however, a third category of predistributionist policies – those which increase workers’ power. These could include: increasing unions’ (pdf) – strength; encouraging the growth of worker co-ops; and a citizens basic income sufficiently high to allow people to reject low wages and poor working conditions.

Predistributionists, however, seem to be ignoring these options.

But then, social democracy has always been about accommodating capitalists’ power more than challenging it.

September 06, 2012 | Permalink

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Comments

aragon

This is what happens when people who don’t understand a concept, try to squeeze it into their preconceptions.

First category:

However high prices do not just exist to regulate demand but often indicate a monopoly rent seeking (as you acknowledged), in the railways and the other utilities.

Public transport is often regarded as a public good and should be provided as such. Other areas might include child care.

Reducing the basic cost of living is desirable, because just as lowering the cost of services are unequally distributed, inflation effects are not equally distributed, favoring asset owners as we have seen from the current Governments policies.

This is a major contributor to a fairer society in Scandinavia for instance.

You tweeted the following link.

https://theuxbridgegraduate.wordpress.com/2012/09/05/is-the-uks-welfare-state-to-blame/

Second category:

Yes, they lost the plot with standard aspirational nonsense worthy of Liz Truss et al.
The Minimum wage should be in category three.

Third category:

The third category is what is intended. Improvement in wages through a change in the balance of power in society and changes to the distribution of wealth. This is not at odds with redistribution, but redistribution is also required in the short term, although in work benefits like tax credits just subsidies employers.

A fairer more balanced and equal society, something the neoliberals have destroyed.

What can you do when the help isn’t up to the job ?

They don’t even understand the nature of money!

Posted by: aragon | September 06, 2012 at 03:16 PM

Luis Enrique

another thing a predistributionist might do is try to disrupt whatever it is that allows the finance sector to siphon off rents, and maybe go directly after high executive pay.

I agree with your point about price – suppose energy and rail companies are “predatory” – that can only mean they are making excess profits. But even if you were able to, say, halve their operating margins, that would only reduce their prices by a small amount, because operating margins are small – First Group makes 6.5% according to a quick google, Centrica 7%. So for a £50 train ticket, ending “predatory” behaviour by say halving margins would reduce the ticket to £48.25 or thereabouts. Very back of fag packet. Anyway, big whoop.

If you really wanted to reduce inequality by reducing priced, you’d be talking about using tax revenues to subsidize energy and transport, which has nowt to do with ending “predatory” behaviour. And as you say, ain’t obviously a smart idea on egalitarian grounds. Better to issue the poor with energy and transport vouchers, otherwise known as money.

Posted by: Luis Enrique | September 06, 2012 at 03:19 PM

Diarmid Weir

‘There is, however, a third category of predistributionist policies – those which increase workers’ power.’

Indeed. And not just workers’ power, but that of consumers and communities too.

See http://www.futureeconomics.org/2010/10/towards-clever-capitalism

Posted by: Diarmid Weir | September 06, 2012 at 03:26 PM

aragon

The economic debate is framed by the right and too many people on the left accept this framing.

They do not consider or are unaware of the alternatives and support myths like the scarceness of money or that all that is required is more effort by the people at the bottom of society.

It’s obviously the fault of the worker if they are unemployed in an unemployment blackspot.

http://www.telegraph.co.uk/finance/jobs/9524855/UK-areas-with-the-most-workless-households-in-pictures.html

Wasn’t full employment the responsibility of Governments now economists give us NAIRU.

The ‘natural rate’ of unemployment.

Posted by: aragon | September 06, 2012 at 03:44 PM

aragon

Luis: Subsidies to the railways have doubled since privatization, something the government has tried to offset with higher fairs.

Everyone has their snout in the trough through inflated costs and monopoly rents.

Including the banks that lease out the rolling stock. Compare UK costs and prices to that of other European railways there are substantial saving to be made.

Hollywood makes lots of money, yet many films never make a profits ! It’s called creative accounting and tax management.

Posted by: aragon | September 06, 2012 at 03:55 PM

Anonymous

Yes, spot on.

The labour markets appear to me to be rigged by employer groups to keep wages low. Their business models depend on low wages. Rather than allow wages to rise when labour shortages occur, employers and governments prefer to use immigration to keep wages low. The result? Large dole queues, very low wages, and food banks.

It seems as if immigration is being permitted to sustain employer business models, and is not motivated out of humanitarian ideals as is often presented by such enthusiasts for it as the Adam Smith Institute and others.

To make the labour markets function properly and equitably, worker power in labour markets needs to be increased along the lines suggested by Chris. Immigration can still be permitted but not as a means to keep wages low or non-existent (eg the dole) for indigenous workers.

I sincerely hope that the two Eds go with Chris’s 3rd option and eschew the first two.

Posted by: Anonymous | September 06, 2012 at 04:01 PM

guthrie

What, ask new labour to foster alternative power centres and structures, when their exact method of operation was to continue the destruction of any alternatives that had been done by Thatcher and her pals?

Don’t be silly.

Posted by: guthrie | September 06, 2012 at 05:14 PM

Comments
  • Humanity2012 September 7, 2012 at 10:33 am

    Railfares should and MUST be Capped and Prices in Rip Off Britain Need to be
    Reduced

    Down with Neoliberalism and Slave Labour Capitalism

  • kevin leonard (@tarc September 7, 2012 at 11:52 am

    How about we merge old thoughts with new and bring back British rail and the utilities via a new company within each group set up as a not for profit quango if you like to call it that with strict regulation of the wage structure at the top of the food chain but designed to attract those who have managed to “turn around” these failing public bodies to make a profit?

    For any who care to look into the last “statement” you will find it is we the tax payers who in the majority of cases have “turned around” the companies by the means of subsidies since privatisation. time to put a stop to the outflow of profits and start to return them to the public.

    The same goes without saying for the NHS which despite its claim this current coalition of bastards is privatising at pace.

    If Labour are truly wishing to have power they must also stop believing their own hyped up misguided views which sound just as arrogant and elitist as the conservatives and start to listen AND ACT on the wishes of the people.

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