About us

Leading international thinktank and political network


Register for all the latest updates in our regular newsletter

Home Opinion Labour and the Unions: Towards a new settlement
Labour • Trades Unions • Predistribution

Labour and the Unions: Towards a new settlement

David Coats - 28 August 2013

The ‘predistribution’ agenda taking shape within the Labour party rests on trades unions adapting to new forms of workplace collectivism. But there is a growing coolness between the party and the unions that must be overcome

Jacob Hacker introduced the notion of predistribution to the European left at a Policy Network conference in Oslo in 2011.  Central to his argument is the belief that the more egalitarian the initial distribution of incomes (before the intervention of the tax and benefit system) the easier it becomes for government to undertake redistribution. In part this is because there is less heavy lifting to be done by the state, but it is also because labour market institutions designed to promote solidarity create an environment where redistribution is legitimised.

This agenda should be attractive to social democrats struggling to develop a progressive project at a time of austerity.  For those with a background in the trade union movement it writes organised labour back into the script as the only actors with the power to persuade employers to share the fruits of growth with their employees. For communitarians and pluralists it emphasises the importance of civil society alongside the state, recognising that there are limits to public action. And for Labour’s electoral strategists it offers the prospect of rebutting the Conservative critique that social democracy inevitably requires “big government”.

Unfortunately, the recent events at Falkirk and the apparent resistance of some unions to Ed Miliband’s proposals for the reform of the political levy have made it more difficult for Labour to articulate a positive agenda for the world of work.  Any attempt to make the case for labour market reform could be seen as either a “favour” to the unions or as concession to make organised labour speak with a softer voice in the pre-election period.  Some nimble footwork will be required if the case for predistribution is to achieve serious political traction and avoid the elephant traps set by the coalition.  What matters more than anything else perhaps, is that Labour’s approach emphasises the benefits to workers (whether union members or not) and argues confidently for a process of institutional reform as a necessary condition of sustainable growth.
The case for predistribution is not entirely new and it is implicit in Hacker’s approach that the good social outcomes of the thirty years after 1945 depended on full employment, a redistributive welfare state and predistribution. Amongst the institutions taken for granted across much of Western Europe by the end of the period were worker representation at board level and workplace codetermination, high levels of union membership and collective bargaining coverage, the extension of collective bargaining to employers not originally involved in the agreement and “fair wages” policies in public procurement.  While never having the full array of institutions described here, effective predistribution arrangements were a prominent feature of the UK’s labour market landscape until the middle 1980s.  Now these measures are conspicuous by their absence.  The rise in income inequality correlates quite precisely to the moment when public policy began deliberately to undermine trade unions, collective bargaining and mandatory wage floors.

Recent international evidence suggests that the effectiveness of predistribution continues to explain some of the cross-country differences in initial income inequality for citizens of working age; those countries with the strongest institutions achieve the most egalitarian results. A rudimentary index of predistribution ranks the Nordic countries and the Netherlands as having the narrowest initial distribution of incomes. Once taxes and transfers are taken into account the Nordic countries and Austria achieve the fairest outcomes.  It would be wrong to believe that these countries are as close as we might get to Utopia – witness, for example, the recent riots in Sweden and the rise of right-wing populism in the Netherlands - but they are a practical demonstration that different choices are available to policymakers.  It is equally absurd to suggest that a labour market regime can be transplanted from one country to another, but the simple fact that the UK abandoned arrangements that remain well established in more egalitarian societies points to the possibility of progressive change.

Part of the story of the financial crisis is that rising income inequality helped to create the circumstances that led to the catastrophe of 2008. From 2004 households in the UK on low to middle incomes saw their wages either fall or stagnate. A similar and much deeper experience of the same phenomenon began in the USA in the 1980s. Policymakers in both countries sought to maintain the level of aggregate demand through what Colin Crouch has described as “privatised Keynesianism”.  Households were encouraged to live beyond their means through excessive borrowing, the financial system hedged these risks through the creation of exotic derivative instruments and the whole edifice collapsed when interest rates rose, property values fell and the economy slowed down.  It is this analysis which has led some IMF officials to argue that wage growth and productivity growth have become disconnected, that robust economic growth requires the sustainable generation of demand and that this objective can only be achieved if the bargaining power of those on low to middle incomes is improved.

In other words, rising income inequality demands urgent policy attention because it is an economic as well as a social problem.  The difficulty of course is that predistribution is generally a result of action taken by civil society.  The lesson to be drawn from elsewhere is that power in the labour market matters and that trade unions are indispensable institutions in guaranteeing that wages are related directly to productivity growth.  This creates a dilemma for the British left. As a practical matter it is not immediately clear that a revival of trade unionism is in prospect.  Nor is it clear that the unions have a menu of policy proposals that will enable them to build new institutions of predistribution relevant to the problems of income inequality, low pay and in-work poverty.

And yet, it is hard to contemplate the possibility of strong workplace collectivism without trade unions. Certainly, works councils in the EU15 are designed to give all workers a voice, whether they happen to be union members or not.  But works councils in all these countries, where they are effective, depend on the enthusiastic participation of the trade unions.  

Politicians across the spectrum have expressed strong support for the community based Living Wage campaigns, which have a self-evident impact on the incomes of the poorest households and help to build social capital.  But such arrangements leave the core of the employment relationship relatively untouched and fall short of the ambitions of collective bargaining.  Perhaps there are possibilities for a new collectivism here, but the relationships require nurturing and must eventually look beyond pay to a wider range of workplace problems.  

Public policy in the UK can play a supporting role in rebuilding (and sustaining) workplace collectivism, just as it does in other countries.  To begin with, government could make clear that it believes collective bargaining to be a collective good for both employers and employees, preventing a race to bargain basement conditions of employment and helping to create the high trust relationships that are essential for high productivity.  “Fair Wages” policies consistent with Convention No. 94 of the International Labour Organisation would be a big step in the right direction, as would the introduction of a fully fledged works council system – British workplaces have the second lowest level of employee participation in the EU 27; only Lithuania has fewer opportunities for workers to influence critical employer decisions.  Another important measure would be to reinstate the promotion of collective bargaining as a core objective of the Advisory, Conciliation and Arbitration Service (ACAS).

More than anything else, however, the policy mix demands modern trade unions in touch with their members’ aspirations, with the capability to represent workers across the labour market, whether high skilled or low skilled, and able to forge constructive relationships with good employers. The cultural challenge is immense, not least because trade unions today are so distant from the experience of the majority of workers in the private sector. Union modernisation is essential if organised labour is to secure the confidence of the majority of workers and the support of progressive employers.

A significant ideological reorientation is therefore required, embracing a stakeholder model of corporate governance (with workers on the board) and revived arrangements for workplace information and consultation on the Northern European model.  Unions have to recognise that there is little value in pursuing a strategy within the Labour Party demanding a repeal of the anti-union laws, “no cuts” and an end to “privatisation”.

There must be a transformation of union organising strategy too; in the private sector the focus must shift from organising for union recognition and collective bargaining to organising members of works councils.  By demonstrating their relevance to workers (by offering advice, training and support to union-backed works council members) unions can build their credibility with employers, which may lead in turn to a constructive dialogue about productivity, pay and the fairness of rewards for senior executives.  This is a long-term programme, requiring patience and dedication.  Just as Thatcherism took two decades to reach its full flourishing so the same might be said of these policies for a fairer labour market.

The case for predistribution as an essential element of a sustainable growth model also gives Labour a clear line of attack against the coalition.  An economic recovery may be taking place in the UK, but it is fuelled by increases in household borrowing (or at least a reduction in household savings) and the creation of a housing bubble.  Far from rebalancing the economy, the coalition’s Plan B looks a great deal like a return to the “privatised Keynesianism” of the pre-crisis period.  Nothing is being done to reconnect wage growth with productivity growth, income inequality is unlikely to fall and in-work poverty will almost certainly rise. Stagnant wages are inevitably associated with sluggish growth and disappointing economic performance.  Ed Miliband is right to say that living standards matter but only a bold policy prospectus can tackle the UK’s deep structural problems.

It is rare for Labour politicians today to talk about the two wings of the labour movement – the industrial and the political.   But the case for predistribution rests on a partnership between government and civil society, with voluntary action (by unions and employers) and public policy pulling in a more egalitarian direction. Unless Labour, the unions and employers can forge a new relationship with these ends in mind then the achievement of a fairer, sustainable and more inclusive economy may be postponed indefinitely.

David Coats is the director of WorkMatters Consulting and a research fellow at the Smith Institute.  He is the author of Just Deserts?

This is a contribution to Policy Network's work on Progressive Capitalism.

Tags: Labour , Trades Unions , Predistribution , Pre-distribution , Reform , David Coats , Opinion , U.K. , UK , Britain , Growth , Employment , Middle Class , Ed Miliband , UK Labour Party , Labour Party , Labour , Lab , Jacob Hacker , Living Standards , Living Wage , EU , European Union , EU15 , EU27 , Conservative Party , Conservatives , Cons , Tory , Tories , Austria , Norway , Sweden , Denmark , Nordic Model , Fairness , Keynesianism , Keynes , Tax , Equality , Advisory Conciliation and Arbitration Service , ACAS , ILO , International Labour Organisation ,

Add comment


Enter the code shown:

The Policy Network Observatory promotes critical debate and reflection on progressive politics. It is centre-left orientated but determinedly challenges social democracy. It is pro-European but restlessly questions EU institutions and practices.

Most read this month

Search Posts

search form
  • Keyword
  • Title
  • Author
  • Date posted