Predistribution – a bad idea whose time has come?

by Daniel on September 26, 2012

I foolishly promised a few people that I was going to write something about “Predistribution”, which would not normally have resulted in actually writing anything about it, except that Chris then wrote his piece and I felt I ought to enter into the lists on the somewhat more sceptical side. In as much as it isn’t just a bit of industrial policy combined with “all things bright and beautiful” (More education! More skills! But who will empty the bins in this hi-tech utopia[1] and how much will they be paid and why?), predistribution appears to be, as Chris says, an attempt to make all sorts of regulations and interventions in the economy do the work of a redistributive tax and benefit system. I don’t like this idea, basically for reasons to do with the fact that even after it all, I’m still an economist at heart. But the fact that I don’t like it doesn’t mean, in and of itself, that it might not be the best idea going in Britain today – after all, all the other politically live proposals might be worse. Read on, for a discussion of all these issues …

Of Dogs And Frisbees

To set out the skeleton of my argument here, my main point is that I don’t really agree that a robust and sensibly designed redistribution through taxation does constitute scrabbling around playing Robin Hood, and I think it’s an acceptable answer to the question “but why are they poor?” to say “they’re not really all that poor any more once you take into account the generous state benefits and public services provided to them”. I think that this is an intuition that’s pretty hard to argue for or against – I can see the other side of the argument but hold to my own. So I’m mainly going to be arguing in instrumental terms here; I don’t think this means I’m particularly at cross purposes to Chris, because most of the points he is making in his NLRP piece seem to me to also be basically instrumental and practical. But in so far as there’s a separate, ethical question of whether it’s better to have your money come to you from a social program or from some other arrangement[2] I doubt I’m going to be able to address that.

And chief among these instrumental issues is something similar to the point made by Andy Haldane of the Bank of England in a very good recent speech on financial regulation – that a complicated system for reaching some presumed desirable end has a significant disadvantage over a simpler system, simply because it is more complicated. Not only do complicated systems have more tendency to go wrong, they tend to offer much more opportunities for people to game the system if they are willing and able to devote time and resources to doing so. Since, in general, the initial allocation of time and resources is part of the problem here, it strikes me that “predistributive” systems are always in danger of either generating a load of unintended consequences, or piling up massive administrative overhead costs in an effort to avoid doing so.

One doesn’t have to be an out-and-out Hayekian to believe that some schemes are much, much more demanding in terms of information than others. Anything which is attempting to achieve some form of egalitarian outcome by tilting the regulatory playing field of a large and industrialised economy is going to be much more demanding than a scheme aimed at achieving a broadly similar outcome by simply taking from Peter and giving to Paul. In general, if you think that the scales are weighted against the worst-off in society, the solution is not to have a man in every shop, putting his thumb on the other side of the scales. Since one of the key proposals in the Miliband speech appears to be an aim to make banking policy do the work of industrial policy to do the work of regional policy to do the work of housing policy, I think I’m on firm ground in saying that there’s a real issue of complexity that needs to be addressed [4].

The Strange Death Of Tax-and-Spend Liberalism

The thing is that tax-and-spend redistribution is something that’s much more amenable to cost-benefit analysis. We know a lot about taxation, its incidence and the rough size of the inefficiencies and deadweight losses of a tax and it is correspondingly much harder for those affected by a tax to bullshit about its consequences than those affected by a regulation. Added to which, the world contains a number of really good, more or less unambiguous success stories for tax-redistributive societies (the Nordic countries), and many fewer of successful regulatory states. Why isn’t tax-and-spend more popular?

I think Chris’s piece is right on this; gradually over time and without always necessarily intending to, governments have built up a political coalition against redistributive taxation. The increased use of the means test has established a cultural assumption that tax-and-spend is always taking from one loosely identified group of “us” and giving to an equally loosely identified out-group of “them”. A number of policies have had this effect, but two of them really stand out to me. First, the sale of the council housing stock. This left the stocks depleted and in short supply, meaning that houses ended up needing to be allocated on a very strict needs-based means test in order to avoid humanitarian disasters, ensuring that social housing was unable to play its historical role and setting in place a lot of the problems clearly identified in those areas (particularly in the South) which have seen increases in support for the BNP.

The other big policy disaster was the introduction of student tuition fees and the abolition of the maintenance grants. It’s quite hard to remember, but up until the 1990s, nearly every university graduate started adult life with a great big present from the tax system in the form of three years’ subsidised independent living and cheap beer. Talk about how to build a coalition! One of the greatest mistakes of the last thirty years in my opinion has been the tendency to assume that measures which take money off the middle classes through taxes and recycle it to them via benefits are pure waste and regressivity. In fact, things like child benefit and student grants were one of the main ways in which the middle classes were bought into the system.
Conversely, if you want to undermine a program, start by means-testing it - one can see this at work in the USA, where a key plank of the program to destroy Social Security rests on the perceived unfairness of Warren Buffett receiving it. The public retirement systems of the UK and America were both set up as social insurance schemes rather than tax-transfer schemes at least partly for this reason. One might call the process of taxing higher earners in order to provide generous universal benefits, which are then themselves treated as taxable income by a name like “re-redistribution”, if one was on the lookout for a catchy title.

Spending a dollar-and-ten by trying to make 80 cents do the work of a dollar

So how did means testing get so popular, given that it’s so inimical to the goals of egalitarian politics? Well yes, that question kind of answers itself, but I think there was also a significant element of false economising involved. Means-tested programmes always score much cheaper than universal programmes in budget calculations, partly because they focus the benefit on those who need it, but also (and this is often surprisingly economically important), by making the benefit difficult or unpleasant to claim, a means-testing regime will create lower take-up of the benefit among those who are entitled to it.

Obviously that’s a pseudo-saving rather than a real one - saving money by not giving people money that they are entitled to is clearly not an efficiency gain, and can often be actively counterproductive since the unmet need of the discouraged claimants is very likely to show up as a social problem somewhere else in the system and to be more expensive to deal with when it does. But it shows up as a saving in the budget analysts’ costings of any specific plan, and the saving can often be more than enough to offset the overhead cost (which in turn, because it is a public sector administrative cost, is often underestimated).

And so there’s a tendency (very visible in the New Labour years) for modernising social-democratic governments who are operating under an aggregate spending constraint (or who have chosen, for political reasons, to act as if they are) to proliferate means-tested benefits. They look like they give you more bang for the buck, and they allow you to kick things off with a bout of cheap populism (like pretending, for example, that university education is a subsidy from the working class to the middle class). They also play into a particular pathology of the business-school and economics approach to government - to try to do analysis of individual projects at a granular level, rather than looking at the progressivity or regressivity of the system as a whole. Famously, the USA has one of the most progressive tax systems in the world (mainly because it doesn’t have a federal value-added tax). The greater progressivity and egalitarianism of, say, Sweden, is all on the spending side. And a granular, cost-oriented approach to redistributive projects is, at heart, a “lump of government revenue fallacy”, presuming that the opportunity cost of some spending program is some other spending program (in the UK, usually the NHS).

This gets the budgeting process backward in my opinion; rather than deciding what needs to be done and then deciding how to finance it, the government regards its revenues as fixed and then decides what to do. I think that this is what creates what Chris calls the “scrabbling around” effect, but it doesn’t seem to me that predistribution really mitigates this to any very great extent; to the extent that the regulatory manoeuvres embody stealth taxes and therefore disguise the extent to which resources are being transferred, it might make it possible to politically sustain a somewhat larger “lump of government”, but it doesn’t really get round the problem that a lump-of-government model is a bad way to run a social democratic state.

A bad idea whose time has come?

Something like this has, of course, been mostly visible in the European countries which were hardest hit by the banking crisis. In Ireland and Spain, the cost of financial bailouts have been almost entirely met by spending cuts rather than tax increases. Once more, this compares poorly to Sweden, which financed its massive bank bailout program by raising the top rate of income tax to 58% and introducing a 20% VAT. But Sweden in the 90s was the kind of society in which this was possible - because there was a general culture of social solidarity and tax compliance. People were used to the overall budget and the overall funding of that budget as something that the whole Swedish population was involved in; if they had been used to thinking of taxes as something taken from part of the population and given to another part, presumably they would have had just the same reluctance to pay them.

But we’re not Sweden. This kind of worries me, because the other end of the continuum is Greece, a society where tax compliance and consent to government has almost totally broken down, and the economic consequences of that are pretty obviously very bad. And although I’m not sure that there’s a slippery-slope self-reinforcing mechanism, it seems clear to me that in the last ten to twenty years, the UK has moved perceptibly in the direction away from the Swedish model of budget solidarity. The fact that predistribution is considered to be the best that we can do says something quite worrying about the state of British political institutions. But maybe predistribution is the best that we can do. And if it is, there’s not much point in pretending that it isn’t. It seems to me that it’s an inefficient, limited way to make the UK economy a bit more redistributive, within tightly constrained limits, but if there is no support for a Nordic redistributive state then so be it. I do not really have much feel for electoral politics at the moment, but maybe this really is a bad idea whose time has come.

[1] If your answer to this question is something along the lines of “foreigners”, then well, come on, seriously. More sinisterly, I think the actual response would be (to put it somewhat bluntly) that the bins will be emptied and arses wiped by “those members of the working class who, through indolence, fecklessness or simple lack of noble qualities, unaccountably failed to respond to the treatment of the dozens of Sure Start programs and parenting classes we lavished upon them in the name of predistribution; they had their chance and blew it”. Predistribution, for all the Rawlsian elements that people are trying to see in it, is a child of the meritocracy-in-the-pejorative-sense and does not seem to me to have escaped these roots.

[2] And if there is, then there’s a problem here which is much wider in scope than just social-democratic redistributive states – workers’ ownership of the means of production is fine enough for workers, but modern society contains more and more people who can’t work because they are old, young or disabled[3]. Chris pointed out to me on Twitter that there is quite a discussion of this issue in the Critique of the Gotha Program.

[3] And I would even argue that any progressive society ought to be regularly making positive progress in the standard of provision for those of its members who would simply like to make the free and autonomous choice to do something with their lives other than produce goods and services in the economy. Marx doesn’t have much time for this bunch, in the Critique of the Gotha Program or elsewhere.

[4] Of course, not all predistributive policies are subject to this objection on grounds of complexity, although I think it’s pretty indicative of the problems discussed in my piece, Chris’s and the links that basically all the practical proposals tend very think-tank-wonk. Two examples of simple and straightforward policies which would be aimed at altering the relationships in the economy in a predistributive manner would be the minimum wage, and strong trade union rights.

{ 55 comments }

1

Ebenezer Scrooge 09.26.12 at 9:48 pm

Pre-bubble Japan might have been an example of a successful predistributive society. Taxes and governmental spending were low (with much of the governmental spending corrupt), but burdens on employers were high.

2

Phil 09.26.12 at 10:03 pm

I don’t think “predistribution” is something we should entertain for a moment. The word’s nonsensical – anything any government does now will be acting on the distribution of resources they’ve inherited, and will by definition be redistributive. The only way the implicit contrast with redistributive tax-and-spend policies makes sense is on the assumption that tax-and-spend consists simply of robbing Peter to pay Paul (or “transfer payments” in Miliband’s words), which is both wrong and damaging (for reasons set out above). Even if we swallow all of that, there remains the fact that raising the banner of “predistribution” doesn’t seem to lead to any very specific or novel policy proposals – let alone anything very left-wing. The idea simply seems to be that a rising tide of training and bank loans will float all boats.

3

Daniel 09.26.12 at 10:06 pm

Pre-bubble Japan might have been an example of a successful predistributive society.

Yes I can buy that, good spot. Although not by any means an egalitarian one, or one that Rawlsians or social democrats could really sign up to.

4

Daniel 09.26.12 at 10:09 pm

the assumption that tax-and-spend consists simply of robbing Peter to pay Paul (or “transfer payments” in Miliband’s words), which is both wrong and damaging

Except that it isn’t, not really, because there’s nothing wrong with doing that if Peter can afford it and there is a baseline recognition that he and Paul are part of the same society and that they basically float and sink together. Robbing Sigurd to pay Sven is basically the Nordic model.

(joke considered but ommitted from the piece – to note that the old Republican applause-line that “he who robs Peter to pay Paul can always count on the vote of Paul” has turned out to be wrong, and that the demise of the tax and spend state is very largely due to the fact that Paul has a really crappy electoral turnout.)

5

Metatone 09.26.12 at 10:12 pm

@DD – for me this is one of the best and most lucid things you’ve written. (Not that anonymous praise may mean anything to you, but here it is anyway.)

I think you really hit the nail on the head with the “lump of government” fallacy. It illustrates how the arrival of extreme libertarian/drown the government in a bathtub factions pulls the Overton window in a way that changes the game.

One of the results is that what look like “motherhood and apple pie” infrastructure projects (e.g. national broadband fibre optic upgrade perhaps?) get lip service from all parties but never seem to get close to actually happening. For more contentious projects (transport infrastructure beyond the SE commuter belt) the situation seems even worse…

6

david 09.26.12 at 10:19 pm

The example of Japan highlights the problem of ‘predistribution’ more generally, in that insofar as welfare-state redistribution entrenches the existing system of pre-tax income distribution, ‘predistribution’ entrenches all that – after all, institutions still have to dig up that funds from somewhere, even if they face different marginal incentives when doing so – plus the existing arrangements of economically-entangled political power! Cue civil-service bureaucrats leaning on the Bank of Japan to support insolvent conglomerates who have to fund implicit promises to constituents who lean on local politicians who lean on chief executives in Tokyo who lean on civil-service bureaucrats… and a system which could barely tolerate, in the end, the death of a single conglomerate.

7

John Quiggin 09.26.12 at 10:25 pm

As someone else said in Chris’ thread, my immediate word association with “predistribution” is “unions”. Repealing the dozens of measures that have made union organization harder over the last few decades would be the biggest single step we could take in this direction. I’d follow that with Keynesian macro and reducing the size of the financial sector.

I haven’t read the links yet, but it seems as if the measures being discussed here are very much more ‘granular’.

8

John Quiggin 09.26.12 at 10:32 pm

Separately, I’m always struck by the cultural differences regarding means tests. In Australia, everyone sensible regards means test withdrawal rates as being exactly additional to marginal income taxes, and therefore providing a way of tailoring the progressivity of the tax-welfare system to households with different family circumstances.

The fact that it’s politically much easier to means test benefits at various levels of income than to raise marginal income tax rates is a bonus.

There don’t seem (to me) to be any of the negative political effects imputed by European critics of means tests. It’s true that Oz doesn’t have a large public sector share, but I don’t think that has much to do with means tests. And our combined tax-welfare system is highly redistributive, on some measures as much so as the Scandinavians

http://apo.org.au/commentary/pulling-our-welfare-weight

9

Kyle 09.26.12 at 10:45 pm

My understanding is that predistribution is a way for labour to have a critique of the economy which allows them to avoid opposing the coalitions fiscal management. The whole point is to have a political stratergy to avoid “Keynesian macro”.

10

William Timberman 09.26.12 at 10:53 pm

Tax-and-spend may be easier for the technocracy to administer, but it doesn’t do much for rates of participation in our supposedly democratic governance, something which U.S. conservatives say, but don’t mean, and U.S. liberals (from Walter Lippmann to Matt Yglesias) ignore not only because of the administrative convenience, but also because the alternative might upset all the indispensable applecarts and timetables they’ve so carefully nurtured all these decades.

That said, and for all the reasons you lay out here, I’d rather have tax-and-spend than go without anything at all. I wonder nevertheless how we could ever expect it to lead on to better things. 1945-1973 gave us some reason to hope, I suppose, but what about 1973-2012? As best I can judge at the moment, tax-and-spend is unlikely ever to be stable as a generally applicable solution to pverty, not so long as human beings have as much of the beast left in them as they appear to have at present. Then again, what awful plunge into the furnace and forge will we have to endure in order to arrive at a fundamentally just society. A right quandary that has always been, and no doubt will continue to be long after we’ve gone to our reward.

11

Lemmy Caution 09.26.12 at 10:56 pm

“those members of the working class who, through indolence, fecklessness or simple lack of noble qualities, unaccountably failed to respond to the treatment of the dozens of Sure Start programs and parenting classes we lavished upon them in the name of predistribution; they had their chance and blew it”.

That seems to be the idea behind education reform as well.

12

david 09.26.12 at 11:04 pm

1945-1973 was the era of the Galbraithian triumvirate of Big Government, Big Business and Big Labour, not Labour alone; to get predistribution, you need at least the tacit cooperation of the other elements of macroeconomic transfers.

13

gordon 09.26.12 at 11:35 pm

Robbing Peter to pay Paul reminds me of that part of Pareto optimality which says that if some proposal leaves Peter notably better off but Paul worse off, it’s still a good idea provided that Peter is still a bit better off after he compensates Paul.

The trouble is that after the proposal is implemented, Peter welches.

14

William Timberman 09.26.12 at 11:42 pm

david @ 12

Indeed you do, but it’s been damned hard to come by lately, for reasons which go well beyond what most American liberals — those with any skin in the game, at any rate — are even willing to discuss.

15

Daniel 09.26.12 at 11:48 pm

Robbing Peter to pay Paul reminds me of that part of Pareto optimality which says that if some proposal leaves Peter notably better off but Paul worse off, it’s still a good idea provided that Peter is still a bit better off after he compensates Paul.

pedantic note – that’s Hicks-Kaldor optimality, not Pareto.

16

gordon 09.27.12 at 12:03 am

Daniel (at 15): Thanks.

“The key difference is the question of compensation. Kaldor–Hicks does not require compensation [to] actually be paid, merely that the possibility for compensation exists, and thus does not necessarily make each party better off (or neutral). Thus, under Kaldor–Hicks efficiency, a more efficient outcome can in fact leave some people worse off. Pareto efficiency requires making every party involved better off (or at least no worse off).” (Wikipedia)

Maybe it should be called the Kaldor-Hicks-Peter criterion, since it makes welching respectable!

17

Brian Weatherson 09.27.12 at 1:40 am

I’ve never been as worried about means testing as Daniel is here. But I wonder if that’s because of the odd example of Australia. The political upside of means testing is that it makes it easier to introduce new benefits that would be a hard sell if introduced universally, but will be politically acceptable if they phase out before Warren Buffet levels. It’s crucial here that the phase-out be at relatively high levels; the maximum income to get the child care benefit for example is well over $100,000.

On the other hand, it’s hard to know what programs we lost that would have had better survival chances without means testing. We don’t have a great old age pension; but comparisons with other countries suggests that the way to build a political coalition there is to give *more* to the rich, as in the US, not merely to give the same amount.

So I think Australia has, on the whole, got the benefits of means tests without most of the costs. But that could just make Australia a weird outlier case; wouldn’t be the first time.

18

Omega Centauri 09.27.12 at 3:07 am

At the risk of sounding like Obama’s “All of the above” energy policy, I think its really not an either/or proposition. An optimal combination of pre and re -distributive should always be no worse than either alone. Of course there is a bit if here, can we actually get tolerably close to “optimal” for my argument to be valid?
Nevertheless I can think of many predistribution style programs, beyond simply education, and unions. In libertarian USA we’ve long had many of the following: state run employment agencies, job training, government subsidies to make hiring those who can’t seem to get hired otherwise attractive enough to potential employers, come to mind. Of course pro- rather than anti union government would be great to see. Subsidized means tested childcare, to make working pay for poor single moms, public transit options to expand the geographic employment opportunities of those too poor to afford cars. The list is actually quite long. None of these, even all of the above will eliminate the need for redistribution, but they ought to put a major dent in it.

19

Omega Centauri 09.27.12 at 3:23 am

big if, not bit if…

20

Peter T 09.27.12 at 3:58 am

As Omega notes, there’s a long list of predistributionist possibilities. On unions, one could note that some kinds of work are hard to unionise, but that those employed in these benefit from strong unions in more easily organised sectors. So one aim might be to encourage more employment in unionised sectors. Tariffs on industrial trade do this nicely, and are simple to administer and collect.

Other avenues might be protection from competition for smaller businesses (as in Japan), and farm support limited to smaller farms.

There is a wide possible menu, but we seem to have decided that most of the items on it should not be on offer.

21

Leinad 09.27.12 at 5:26 am

disagreeing with Brian at @17:

Australia’s heavily means tested income support payments fail in many of the same ways alluded to by D^2 above.

Case in point being the ludicrously stingy rate of unemployment benefits (which even hardened neoliberals are now in favour of bumping up) meeting this exact kind of ‘Army of Peter’ opposition thanks to the reduced social solidarity inherent in the stringent sequestration of social payments.

The 2009 rises in aged and disability support pensions were easy political points thanks to the universal recognition of the desert of both groups – the contrast with the gingerly pace of moves to raise identically-deficient unemployment benefit speaks volumes.

22

Alex Gregory 09.27.12 at 6:49 am

This is a really nice piece Daniel. But two points of dissent:

(1) “who will empty the bins in this hi-tech utopia and how much will they be paid and why?”
Isn’t the answer to this “the same people, but better paid, through means such as a higher minimum wage and stronger union rights”?

(2) “I don’t really agree that a robust and sensibly designed redistribution through taxation does constitute scrabbling around playing Robin Hood”
As I understand the point here, it’s that the intended results of redistribution and predistribution aren’t really all that different, and so the only difference between them that we should worry about is how easy they are to implement successfully. But even if it’s correct that there is a level of description where the intended results are the same, the social stigma of being a beneficiary is different under the two systems. And that matters, both for gaining electoral support for the programme, and also in its own right for the beneficiaries. What you say about the merits of non-means-tested redistributive schemes does something to address these worries, but I’m not sure it completely satisfies them. I mean, it is really true that no-one in Sweden sees the poor as scrounging from the state?

But to repeat, I did think this was a really great piece.

23

Chris Bertram 09.27.12 at 6:54 am

The trouble with a neologism like “predistribution” is that any disagreement about it is quite likely just to be a disagreement about words.

Anyway, a lot of the disagreement between Daniel and me is not substantive as regards Miliband’s proposals that sail under that label (as I say in my piece, in fact).

However …..

When Phil writes “I don’t think “predistribution” is something we should entertain for a moment.” I think he should step back a second.

The point I took from Marx (and from Rawls and from James Meade …) is that the distribution of consumption ultimately derives from the distribution of ownership. So, to be Rawlsian about it, “predistribution” could mean that we attend as a matter of policy to the structure of capital ownership, try to make sure that capital is more widely dispersed, try to encourage different forms of ownership (co-ops, Mondragon, John Lewis), introduce baby-bonds but fund them properly this time, finance a basic income from a dividend on commonly-owned natural resources etc etc. (All _for example_)

If you don’t want to use the label “predistribution” for measures of that character, fine (I’ve no personal investment in the word). But the relevant contrast is with the “left” neoliberal model where we simply combine private ownership of capital and deregulated “free markets” with ex post facto redistributive taxation. (The Yglesias model for “helping the poor” if you like.) I’m not _against_ redistributive taxation but I do think it is vulnerable to the perception that Sigurd is being robbed to fund Sven even when perfectly good arguments exist to the contrary, as they do. (After all, Sigurd will be in a good position to fund think tanks and media talking-points!). As well as redistribution, then, then left needs to be doing stuff to _inter alia_ disperse capital ownership. Unfortunately, the Miliband proposals don’t even begin on that stuff.

24

Chris Bertram 09.27.12 at 6:58 am

Oh and, whilst I’m about it:

_But who will empty the bins in this hi-tech utopia[1] and how much will they be paid and why?_

Well, if, (again) for example, you had a UBI funded by dividends on commonly-owned natural resources, everyone would be deriving an income from that. Since the cost of not working at all would therefore be less than it is at present, people would have to be paid more than they are now to do shitty unpleasant jobs, or they wouldn’t do them. There’s the beggining of a stab at a reply on that one.

25

Pieter Pekelharing 09.27.12 at 7:29 am

It all depends on timing. What’s the benchmark for predistribuiton? What about the predistribution that went on before the predistribution? After all, there was a lot of predistribuition going on in the US during the 80′s and 90′s, and it wasn’t particularly advantageous to the middle classes and below. Often it’s predistribuiton rather than distribution where the action is. So what’s wrong with looking at market reforms that encourage a more equal distribution of economic power and rewards before government collects taxes or pays out benefits?

Is it really only a matter of going for more or less complexity? As Hacker and Pierson point out in their Winner take all Politics book, it’s precisely because market inequality has become so high in the US that there is now less support for government action and redistributive politicies.

There are vicious circles here and it is difficult to break through them. It’s in soceties with high market inequality that creating common support for government action is often most difficult. In such conditions, pleading for market reform might be more effective than after-the-fact mopping up.

26

derrida derider 09.27.12 at 8:00 am

Unusually, I find myself disagreeing with John Quiggin @8.

The downward pressure on the Australian welfare state is very much a self-reinforcing product of our obsession with means testing; as Peter Whiteford never tires of pointing out, we have the most tightly targeted welfare state in the OECD by some margin. Daniel’s points about the political economy of this sort of thing and how it plays out in the minds of government budget makers ring very true to this welfare bureaucrat.

And yes, Daniel, what Metatone @5 said about your post.

27

Tim Worstall 09.27.12 at 8:10 am

“Robbing Sigurd to pay Sven is basically the Nordic model.”

As you point out, with the VAT, the tax system is regressive compared to the US. The Nordic model is closer to robbing Sven at one point in his life to pay Sven at another point in it.

This isn’t entirely true but it is at least partially: redistribution across time rather than between people.

Other bits of the Nordic model that could be usefully adopted…..relatively low capital and corporate taxation, high consumption. A lot of localism, counties and communes responsible for much of the tax raising and spending. Low job protection (in terms of firing) and high unemployment and training benefits. And none of the EU ones have a national minimum wage….

28

jonathan hopkin 09.27.12 at 8:50 am

The Nordic model manages to rob Sigurd to pay Sven, whilst convincing him that he’s actually taking out insurance against social risk (robbing Sigurd to pay Sigurd later). The insurance part makes redistribution easier, just as in US Social Security – it is redistributive but most people experience it as a form of insurance, which protects it from the usual tax revolt stuff we see in Anglo countries. Even though the Nordic arrangements lead to huge difference between pre- and post-tax income, even right-wing governments have found it impossible to undermine their welfare state which remain hugely popular.

Trouble is, it’s difficult to get from Anglo levels of tax to Nordic levels, especially now. How do you set about explaining to people that what we need at the moment is a bigger welfare state? All the welfare states literature points towards countries being locked in to more or less egalitarian arrangements by about 1980.

29

jonathan hopkin 09.27.12 at 8:53 am

Having said that, one thing you can do which would be popular is attack rent-seeking. Here the predistribution concept has something to offer – if you read Dean Baker’s various diatribes you see that in the US powerful interests use their political influence to subvert markets to their benefit (Hacker and Pierson also talk about this). Anti-monopolistic regulation, and sometimes deregulation, would be redistributive and probably economically more efficient.
And why not start with the banks while everybody still hates them? And big energy companies need a good kicking too.

30

Sam Dodsworth 09.27.12 at 8:57 am

Chris@23: try to make sure that capital is more widely dispersed

I’m not sure it’s fair, but this makes me think of Thatcher’s doomed experiments in popular capitalism and the mass sell-off of public assets. The dispersal didn’t last long, largely because (if I’m getting my terminology right) the marginal utility of a big mass of capital is much greater than a little parcel.

31

jonathan hopkin 09.27.12 at 9:01 am

For Tim
Some Nordic countries don’t have a legally mandated minimum wage, but that’s because union bargaining delivers a de facto minimum wage. One that is usually much higher than legal requirements in countries like the UK.

32

Chris Bertram 09.27.12 at 9:17 am

Sam: yes, a dispersal of capital in the form of alienable private shares would not work, so other forms would have to be used or devised.

33

Chris Bertram 09.27.12 at 9:21 am

The book everyone should be reading on this, btw, is Martin O’Neill and Thad Williamson, eds, Property-Owning Democracy: Rawls and Beyond.

34

Metatone 09.27.12 at 9:40 am

@sam dodsworth

I think that’s an important point that is often neglected.

It plays in two arenas – one, the rich underestimate how hard it is to save when you’re not rich, because they have to actually try hard to consume all their income (the inverse of life at the other end.) This distorts discourse about self-reliance etc.

The second is that the practical effects of (for example) 200 BT shares (about £400) are not nothing, but they are not as flexible as larger amounts. The small number gives you no influence on corporate governance. The small number could in theory be borrowed against, but in practice there aren’t many avenues for this. Not to mention that £400 loans might be useful but they seem unlikely to be life changing in the UK. The dividend is about 3.5% – so again if you’re poor enough it’s something, but at the same time it’s hard to see how it changes life circumstances. Of course you could sell them, but then that’s much more like a one off payment than “capital provision.”

200 was just my memory of the kind of amounts that people got out of the Thatcher experiment. Higher numbers may chance the calculus a little, but not by a huge amount.

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Metatone 09.27.12 at 9:45 am

I think it’s worth considering what volume of capital actually makes a step-change difference. (If you’re poor enough anything makes an improvement… but does that change the dynamic of our society?)

Could it be on the order of one year’s minimum wage? If you had some idea (either for yourself or your community) that’s the kind of monetary value that would represent an ability to really make something happen – either by giving you time, or access to labour. I guess I’m drawing on the notion of capital as a force multiplier. Not sure if it makes sense… anyone have other thoughts?

36

Metatone 09.27.12 at 9:46 am

Of course, my posts above sort of lead us back towards Citizen’s Basic Income… which seems to happen to a lot of my thoughts recently.

37

Alex 09.27.12 at 10:49 am

As far as I can see, this debate so far consists of a gruelling assault on a succession of strawmen. I therefore suggest that we substitute my own strawman for those used so far.

Phil reads “predistribution” to be “a rising tide floats all boats”, which I thought was the opposite of any concern with distribution, and which Ed Miliband specifically disclaims in his speech. D^2 reads it to be…something to do with means testing?…in pursuit of general support for redistribution and for universal benefits. Chris Bertram reads it to be ANOTHER BETRAYAL BY THE SOCIAL-FASCIST FORCES OF REACTION, and minute that will you, now shall we move on to the state of faculty car-park E? Metatone, Sam, and others read it to be something to do with BT privatisation. John Quiggin reads predistribution and thinks unions, which makes sense to me at least.

Could we possibly try to converge on “trying to reduce income inequality pre-transfers” as a definition? It may be a strawman, but at least it’s a strawman dressed in the right uniform.

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Alex 09.27.12 at 10:54 am

I also think it’s a pity that your joke didn’t make the cut:

the old Republican applause-line that “he who robs Peter to pay Paul can always count on the vote of Paul” has turned out to be wrong, and that the demise of the tax and spend state is very largely due to the fact that Paul has a really crappy electoral turnout.

Indeed. “Welfare recipients” aren’t a meaningful electoral block, but “trade union members” are much more so, and moving Paul from category b) to category a) has not necessarily developed to our advantage, or Paul’s.

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Chris Bertram 09.27.12 at 11:01 am

Funny that, Alex, I thought we were talking about how to reduce income inequality pre-transfers all along. But if you want to say that very loudly and fling gratuitous insults at the same time, go ahead. [Comment edited for taste and decency]

40

Stuart 09.27.12 at 11:29 am

The problem with predistribution is that it is falsely being presented as dichotamous with redistribution.

I take the primary moral concern of predistributionists as building a society where the fundamental stucture tends towards equality of life chances and condition. So far so Rawls. There has crept in a secondary claim that the best way to achieve this is not through redistributive policy but in using regulation to change the balance of power in society.

Now, this might make sense with say, low wages, where a higher minimum wage as a base for powerful collective bargaining might be a more efficent and democraticly sellable proposal than Working Tax Credits (Which are income top ups from general taxation) However, there are clearly as many situations where, achieving the fundamental moral aim is going to require clearly redistributive policy. Take the cost gaining social capital discussed in the link provided by Chris:

“Those with accumulated assets can easily pay for college or professioanl training, make down payments on homes, invest in risky enterprises, e.t.c.Those who do not enjoy these endowments of wealth must borrow money to do these things (if they can do them at all)”

Now we might be able to get to a state where each individual is endowed with a personal wealth fund that allows independent decision making to be combined with radical equality of opportunity. Or we might not. Even if we do I imagine it will take really quite a long time. Baby bonds don’t mature over night. There are however policies that we have tried before that mitigate such inequalities and have proven to have some form of success. It is called the collective ownership of resources, particuarly those vital to life chances. Like universities, transport and housing and stuff. All of which, if to have the intended effect, require being paid for out of a progressively collected public purse. They are fudnamentally redistributive.

The moment redistribution is presented as in opposition to predistribution you cut off many of its most realisable applications. Miliband might know this and simply attempting to alter the rhetoric in which arguments about the instruments of social democracy are conducted. Or he could be grasping at a fantasy silver bullet that allows him to keept whatever tax cuts the Tories introduce before the election and not harm egaliarian politics in the process. New Labour politicians are not exactly unprone to such delusions.

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Phil 09.27.12 at 11:41 am

“predistribution” could mean that we attend as a matter of policy to the structure of capital ownership, try to make sure that capital is more widely dispersed, try to encourage different forms of ownership (co-ops, Mondragon, John Lewis), introduce baby-bonds but fund them properly this time, finance a basic income from a dividend on commonly-owned natural resources etc etc. (All _for example_)

All excellent redistributive measures. …but OK, fine, I’ll stop going on about the semantics.

the relevant contrast is with the “left” neoliberal model where we simply combine private ownership of capital and deregulated “free markets” with ex post facto redistributive taxation.

Essentially we’re talking about distributing capital & opportunity more equally rather than using the welfare system to patch up the results of deregulation. At least, that’s what we’re talking about; what Ed M is talking about I’m not sure.

I’m not _against_ redistributive taxation but I do think it is vulnerable to the perception that Sigurd is being robbed to fund Sven even when perfectly good arguments exist to the contrary, as they do.

I think it’s far more important to combat the perception that money is just being shifted from group 1 to group 2: it’s empirically falsifiable (everyone benefits from publicly-funded healthcare, education, libraries, theatres, armed forces…) and it gives anti-taxation and anti-poor biases an intellectual respectability that they didn’t have thirty years ago (and still don’t deserve). Perhaps social solidarity can’t be rebuilt in our lifetimes, but I’d rather not give up on talking about it just yet.

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Brian Weatherson 09.27.12 at 2:12 pm

Good points Leinad @21 and Derrida Derider @26. I was overstating things a fair bit. The unemployment benefits in Australia are horribly low.

But actually that one is something that I don’t think abolishing certain forms of means testing will help with. By definition, unemployed have no wage income, so anyone unemployed will pass a wage income based means test. They might have other income (interest, dividends etc), and maybe it would be best if we didn’t take that into account. And they may well have assets, and I think it’s a good thing to not take that into account. That’s not so much because I’m moved by these dynamic arguments, as I’m moved by Daniel’s arguments about complexity and game-ability of the system.

It’s a very good thing, I think, that the child care benefit I mentioned has only an income based test – the phasing out of this really just is a marginal tax rate.

But I overstated things, and I’m glad to see the record corrected. Thank you.

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Alex 09.27.12 at 2:14 pm

Meanwhile, Krugman: http://krugman.blogs.nytimes.com/2012/09/21/notes-on-the-political-economy-of-redistribution/

Argues that models of political choice suggest an inverse relationship between pre-transfer inequality, and redistribution, but in practice, it’s the opposite, i.e. predistribution and redistribution are complementary.

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Dan Kervick 09.27.12 at 2:39 pm

It seems to me that the best predistributionist policy would be to institute a a public employment program that targets full employment (actual full employment, not the bogus NAIRU-based substitute), while raising the minimum wage to at least double its current level. This minimum wage would be at the same time the floor wage for the public employment program. One might look at this as establishing a minimal framework for a “national” labor union. It’s necessary to compel the universe of private firms to devote a larger share of their revenue to the compensation of their employees. If some small businesses need subsidies to meet these targets, that can be administered through the tax-and-spend system.

Nationalizing health care in the US would also help.

One has to break out of the idea that these policies introduce “distortions” in an economic process that is on the whole rational, efficient and socially . The default system of autonomous, firm-driven employee compensation decisions yields results that might be locally rational for the profitability of the individual firms but are globally disastrous for the economy as a whole. The default system of a fluctuating work force also leads to financial and other kinds of economic instability, and intensifies the swings in the business cycle.

There is always way more useful work to be done than there are people to do it. Fluctuations in private sector activity should be stabilized by flows of well-paid labor moving back and forth between public employment and private employment.

Public employment should also encompass education programs so that, as needed in response to social and economic change, we are sometimes paying people to learn.

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gordon 09.27.12 at 11:35 pm

Chris Bertram (at 23): “…“predistribution” could mean that we attend as a matter of policy to the structure of capital ownership, try to make sure that capital is more widely dispersed, try to encourage different forms of ownership…”.

In Australia, we have compulsory superannuation contributions. That means that a proportion of earned income is diverted into a superannuation fund which invests it to fund a retirement income. Those investments mean that superannuation fund contributors (basically everybody who is working) are part owners of a whole raft of businesses. The funds are big, and are major players in the Australian investment scene. That seems to me to represent a big-time restructure of capital ownership, yet inequality in Australia shows no sign of improvement because of it.

If we are going to restructure capital ownership, I would go for State ownership in preference to this kind of widespread share ownership, which so far as I can see has done nothing to arrest Australia’s decline from a relatively egalitarian place to a distinctly oligarchic one. In fact, the older I get the more Stalinist I become in this respect.

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William Timberman 09.27.12 at 11:57 pm

Alex @ 43

I love the part where Krugman points out that the more inequality there is in a given society, the less redistributive its tax policies are. Then he says:

I don’t think we have a full explanation of these awkward facts.

He doesn’t, but I think we do. Enough of one, anyway, not to ever be invited to write for the NYT. Which is not a knock on Krugman specifically — he’d go there if he thought it was the right thing to do, I think, no matter what he thought it might cost him in terms of compensation or reputation. On the other hand, it’s distressing to see a case of Gramscian reticence in someone who, when it comes to economic issues, is as clear-eyed as a national figure as we’re gonna get.

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Watson Ladd 09.28.12 at 1:13 am

As a Yank let me point out that states and municipalities have their own tax systems, many of which are quite regressive.

OTOH, Marx has a deeper point than you credit him for. The Republicans are right that not working and living on the dole makes you not a member of a society, and no amount of politics will get around the fact that participation in a capitalist society means labor. Marx argues that we should universalize the labor relation, and furthermore the working class pursues the necessity of bourgeois revolution beyond the time of its ending.

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Charles Peterson 09.28.12 at 3:05 am

Second DK #44! Employment for all is the best predistribution. (I hate the word predistribution.) Many reasons for this. A job is more than an income stream. It’s an entry into society. It’s self-justifying, not merely a handout.

But how to make this work…not easy in any dimension. Yes, doubling the min wage, and make that the floor, good place to start. It increases government deficits now…but if everyone is employed into the infinite future the social benefit of that is huge. And even huger if we can actually get useful stuff done, stuff that actually promotes the common good.

I think OWS was wrong to focus on debt this year. Many poor people still resonate with the false moral dimension of debt. But jobs…nobody will argue that there is any good reason for unemployment. But where do such jobs come from if predatory opportunities are drying up? Likely we are still talking about nation states, not the Great Anarchist.

But what people can and already do is argue there is no such thing as unemployment. There are jobs on offer, why aren’t those being filled, they say? And there is a lot of difficulty here. If I have PhD in nuclear physics, I’m going to hold out for a suitable job, even if it means a few years of unemployment. So it becomes a test of who can hold out the longest…a means test in reverse. As Jamie Galbraith says in Predator State, this gives more egalitarian societies a huge advantage–in job flexibility. But that’s exactly what the master predators don’t want… If there’s any choice, nobody wants their lousy jobs.

Healthcare for all! (Free) Education for all! Those are really good too.

49

Actio 09.28.12 at 6:09 am

A self-explanatory quote on terminology.

From the Erik Olin Wright’s introduction to Ackerman & Alstott & van Parijs 2003 Redesigning Distribution:
“The conference of The Real Utopias Project that generated the original papers in this book was called “Rethinking Redistribution.” One of the interesting issues raised in the conference concerned the use of the term “redistribution” in this title. The expression redistribution suggests that there is something called “distribution” which exists prior to political interventions and is then transformed by deliberate political action. This corresponds to the conventional rhetoric of economists and politicians: the income distribution generated by markets is the result of voluntary exchanges by freely acting individuals; this spontaneous distribution is then altered by acts of states which coercively take resources away from some people through taxes and transfer them to others. Redistribution reflects coercion; market-generated distribution reflects voluntary activity. This easily slides into the libertarian view that all redistribution is a violation of fundamental freedoms: taxation is theft; people have an absolute moral claim that whatever it is they can obtain from “voluntary exchange” in markets. There are several things wrong with this image. First of all, there is plenty of coercion within markets themselves, ranging from the near monopoly power of many large corporations, to the coercion embedded in inequalities of information of different actors in markets, to the coercion that comes from some people facing very limited alternatives in their market choices. Secondly, the state plays a pivotal role in establishing the very possibility of markets through the coercive enforcement of property rights that directly impact on the nature of market-generated distributions. And third, in all sorts of ways the state is involved in regulating aspects of market exchanges and production – from health and safety rules, to credentialing requirements in many labor markets, to labor laws – which impact on the income distribution process. It is therefore misleading to talk about a clear distinction between some pure “distribution” of income and a process of politically-shaped “redistribution”. We have thus decided to change the title of the book from the original “Rethinking Redistribution” to “Redesigning Distribution.” Income and wealth distributions are the result of the simultaneous, joint operation of voluntary choices of interacting individuals and authoritative rule-making and enforcement by states. The problem is to figure what combination of voluntary choice and authoritative allocation generates the most desirable outcomes, both in terms of efficiency considerations and moral concerns.”

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Alex 09.28.12 at 8:41 am

49 is good.

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Sam Dodsworth 09.28.12 at 10:25 am

Chris@32 While I’m asking stupid questions… how would “dispersal of capital” happen without redistribution when almost all the capital is in private hands now? If appropriation is off the agenda then all I can see is a rather sad process of creating “capital” by converting existing public goods into property.

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Watson Ladd 09.28.12 at 10:36 am

49 is very, very wrong. The political sphere is no more the realm of freedom then the economic. Attempting to argue that society is just the state in various guises, and we shouldn’t be worried about freedom has a long and ignoble history. If you made this argument about free speech or religion we would laugh you out. Why then do you make it for all of human activity?

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Chris Bertram 09.28.12 at 11:27 am

Sam @51 > I think your referencing of privatization schemes is a bit weird really, since they didn’t disperse capital but rather put ownership that was shared into fewer private hands. There’s some discussion of transition in O’Neill and Williamson ch 11 (by Williamson) “Realizing Property-Owning Democracy: A 20-Year Strategy to Create and Egalitarian Distribution of Assets in the United States”. But you point is absolutely correct: in order to get to a functioning society that “predistributes”, some rather aggressive redistribution is needed first! I tried to address that issue in my “problems of Rawlsian transition” post

http://crookedtimber.org/2012/08/07/the-problem-of-rawlsian-transition/

(not that I succeeded in getting myself understood).

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Sam Dodsworth 09.28.12 at 1:11 pm

Chris@53 Hm. Perhaps I have an unnecessarily narrow definition of ownership? I was thinking of public infrastructure as capital owned by the state and managed on behalf of citizens, and the sell-off as the distribution of that capital. At the very least, there’s no legal principle of “public ownership” that requires citizens to be compensated for the sale of state assets.

Thanks for reminding me of your post on Rawlsian transition – I’d forgotten it, and it makes things much clearer. Sadly, I think it also makes it clear that Ed Miliband’s “predistribution” is just another attempt to put a patch on neoliberalism and isn’t really going to fix the unequal distribution of capital and the power-imbalance that causes. (Which is not to say that it wouldn’t be better than what we have now… but see Dsquared on choosing the lesser evil.)

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Fu Ko 10.02.12 at 11:03 am

Brian Weatherson writes, “By definition, unemployed have no wage income, so anyone unemployed will pass a wage income based means test.”

You forget that the means-test may well be applied to the “household” (parents, spouse, etc.) of the unemployed person. I know nothing of Australia’s means-tests, but this is how it goes in the USA (for Food Stamps, Welfare, Medicaid, Pell grants, student loans, etc.).

(Thus reinforcing powers of private domination within the family structure — a little “democratic feudalism” for the patriarchs — or matriarchs.)

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