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Pre-distribution • Education • Human Capital

Pre-distribution, education and human capital

Patrick Diamond - 24 February 2014

Rising inequality and lower earnings mobility are unlikely to be addressed without more effective intervention that boosts the relative position of children and young people from low income households

The evolving body of work around the concept of ‘pre-distribution’ has framed an important debate about the strategic role of government in promoting social justice. In the literature on pre-distribution, the state is envisaged less as a mechanism for compensating individuals for disadvantage that has already occurred, and more as a means of limiting the damage inflicted by markets using instruments of anticipatory intervention. Pre-distribution, as its originator Professor Jacob Hacker from Yale University attests, involves: ‘A focus on market outcomes that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits’.

But the pre-distribution agenda is not limited merely to reducing poverty and social disadvantage: the test for a pre-distribution strategy is whether it can reverse what the Canadian economist, Miles Corak, refers to as ‘The Great Gatsby curve’ (2013): the tendency in industrialised societies for a child’s life-chances to be determined by their parents’ material  circumstances. More unequal societies, according to Corak, are less likely to be characterised by high levels of inter-generational mobility. The purpose of adapting the role of the state from ‘remedial’ compensatory approaches to a pre-emptive strategy of social investment in the human capital of disadvantaged groups is to get social mobility flowing again. This necessitates a fundamental shift combining income redistribution with pro-active investment in human and social capital throughout the life-course.   

Moreover, such strategies underline the vital importance of education policy, in particular measures that are designed to shift the balance of human capital acquisition towards children from the most disadvantaged households. It is extraordinary that education policy appears to have slipped down the UK political agenda in recent years. In Britain, the education reforms undertaken by the Blair and Brown governments were politically controversial, leading to internal divisions within the Labour party. Moreover, the simplistic claim that education policy was the only effective lever available to off-set the inequalities generated by globalisation was increasingly problematic. Rising public investment in education and skills had not stemmed the tide of social and economic inequality in industrialised countries. Tony Blair’s declaration in the 1990s that his three priorities for government would be ‘education, education, education’ is not matched today by any of the major political parties today.

Of course, the politics of ‘pro-social’ investment in education, pre-school care, family support, and adult skills is seldom straightforward. Many voters do not have children, and might resent extra support being given to families in an era of belt-tightening and austerity. In the New Labour years, low income adults in households without children fared poorly in relation to poverty alleviation. Furthermore, in public attitude surveys, education, early intervention and childcare do not register as major issues of concern for most voters; comparative data suggests that in many European countries, voters are more concerned about ‘old’ social risks such as unemployment, pension adequacy, and fear of losing their home. Many welfare systems are characterised by a growing ‘elderly bias’ given the ageing population in most western societies. However, there is a danger of unbalanced welfare coverage further disadvantaging younger families with children: governments will continue to support older citizens while neglecting the imperative of investing in the young.       

The nature of inequality

In the debate about what determines economic inequality, various factors are invariably cited in a burgeoning literature. Rising immigration is one driver. Declining rates of unionisation is another. Both are believed to have weakened the bargaining power of lower skilled workers, alongside the fall in the relative value of the national minimum wage. Another factor is the growth of international trade and the globalisation of labour, product and capital markets since the 1980s: as the balance of economic advantage shifts to the east, many jobs in the west become uncompetitive or obsolete. Each of these explanations has received considerable attention from politicians and policymakers. This is hardly surprising since there is evidence that these factors have each contributed to rising inequality of primary incomes in countries such as the United States and the United Kingdom.

According to research presented by Professor Alan Krueger, one of President Obama’s economic advisers, the most important driver of economic inequality is still ‘skill-biased’ technological change, as table 1 below makes clear. This increases the number of relatively skilled jobs at the top of the labour market, while skewing the wage distribution towards those with the highest levels of human capital. There is considerable debate within the economics profession about the impact of technological change, but it is unquestionably a potent driver of inequality mediated by education and skills. The OECD have recently predicted that jobs requiring ‘highly educated workers’ will rise by 20 per cent in the next decade, whereas low skilled jobs are likely to fall more than 10 per cent.

Moreover, low skilled workers are increasingly vulnerable from the threat of redundancy and unemployment in a period of ongoing economic restructuring. In the EU28 countries, 84% of working age adults with ‘higher’ (tertiary level) skills are currently working compared to less than half of those with low skills. Downward pressure on wages and fear of unemployment is leading to heightened economic insecurity for those on lower and middle incomes. Across the OECD, median income households have experienced a much sharper decline in incomes  than was the case thirty years ago.    

Educational performance in the UK

The recent OECD report comparing educational performance between countries ought to have been a wake-up call for UK policymakers. According to the organisation: ‘England is the only country in the world where the generation approaching retirement is more literate and numerate than the youngest’ (OECD, 2013). Out of 24 industrialised countries, English 16-24 year olds rank 22nd in literacy and 21st in numeracy.  More worryingly still, young people in England have among the lowest levels of proficiency in Information and Communications Technology (ICT). As a consequence, ‘The talent pool of highly skilled adults in England and Northern Ireland is likely to shrink relative to other countries’ (OECD, 2013).  

It is striking that the report has been largely ignored by each of the political parties. The Conservatives sought to blame the previous Labour administration for the UK’s comparative weakness in school attainment, but the Coalition government appears to have no credible agenda for addressing the central driver of low performance – too many pupils from low income households are only able to access  ‘low-performing’ schools (Allen & Burgess, 2011). Moreover, Labour has been oddly reticent about the OECD’s findings, presumably because the report emphasises the need for further bold reforms of the English school system.  

Table 1: Causes of earnings inequality

SOURCE: Economic Report of the President, 1997

The pre-distribution agenda

Policymakers have understandably focused on the role that formal educational institutions, most importantly schools, play in addressing the educational challenge underlined by the OECD report. The debate about how schools are organised so as to maximise the potential for continuous educational improvement remains important. However, it ought to be remembered that most learning occurs outside school, particularly the crucial first four years of life which set the framework for later human capital acquisition. Research by Dearden et. al. (2009) shows that by the age of three, a 23 per cent gap in cognitive outcomes has opened up between children from the richest and poorest households.

According to Professor Anne West (2009) of the LSE, ‘There is an achievement gap between children from poor family backgrounds and others. This is not unique to the UK, but found in all countries of the OECD’. A combination of ‘monetary’ and ‘non-monetary’ variables – the quality of the home-learning environment, family background, parental education, resources within the household – are all crucial factors in explaining these differences. This poses a key challenge for policymakers who want to make the initial distribution of endowments fairer in accordance with the key tenets of pre-distribution theory.

Capability and character

The research underlines that parental ‘confidence’ and peer effects have a crucial impact on children’s life-chances. Traditionally, policy has tended to emphasise the importance of formal institutions, understating the role paid by informal networks, including family and friends, on children’s outcomes. Predistribution is not only concerned with economic reforms alongside investment in the education and skills system, but with reinforcing the capabilities, resilience, and well-being of individuals, especially the most disadvantaged giving  them more power in relation to the market (Ussher, 2012).  It is essential to focus support on the most deprived households where parents are more likely to be ‘disengaged’: the impact of child poverty is mediated by the reduced availability of parental resources.

Low aspirations are a further critical factor in structural disadvantage: there is evidence that parents in low income households have lower ‘self-efficacy’ – in other words, less self-confidence and belief in their own capabilities. Recent research has focused on the importance of ‘character’ in shaping cognitive outcomes: character alludes to the individual’s ability to exhibit drive, agency and determination, all attributes of later success in life (Lexmond & Reeves, 2009).

Policy implications

As such, this article makes the argument that a credible pre-distribution strategy should focus on boosting the education, skills and human capital of the entire population, especially the most disadvantaged groups. The key insight for policymakers is that what occurs outside formal institutions through the home environment, with parents, and among peers is as significant as what takes place in schools and learning institutions, although the two are often self-reinforcing. In that context, the following policy measures ought to be pursued:

  • Refocus early intervention strategies
    Additional interventions in the early years have been a priority for policymakers across the political spectrum, although there is some evidence that investment in Sure Start has been cut back since 2010-11. Although the previous Labour administration invested heavily in nursery provision, the early years never received the concerted attention given to schools and the NHS. Childcare is now more expensive in the UK than most comparable economies; there are growing concerns about the adequacy of coverage, ‘postcode lotteries’, and lower quality. As a consequence, the UK has a relatively low rate of female employment, ranking 15th in the OECD. There are two crucial aspects of the policy that should not be allowed to slip off the agenda. The first is to ensure that resources and infrastructure are weighted towards the most disadvantaged groups within a universal model. Second, at its inception Sure Start was strongly orientated towards parental involvement, not only in the settings themselves, but in the management and governance of Sure Start centres. This dimension of parental empowerment has been weakened, and ought to be re-activated.

  • Boost parenting support
    In a challenging economic environment with a number of pervasive social stress factors, parents need effective support. Mentoring has proven beneficial effects, where more experienced parents support those facing difficulties. Formal parenting programmes can be useful, but often more informal support built around Sure Start, early years’ provision, and schools and youth centres is necessary. Initiatives such as Nurse-Family Partnerships where nurses support parents in disadvantaged households from the pre-natal stage through to early childhood are crucial too.

  • Improve the quality of parenting
    There is an extensive public policy literature on the potential of behavioural change strategies to improve outcomes. How parents interact with their children can have a significant impact on later achievement. For example, parents who regularly read to their children significantly improve their cognitive outcomes; responding appropriately to misbehaviour can also help to prevent later conduct disorders (Dearden et. al, 2009). It is important to remember that parenting is not always provided by biological parents, but a range of care-givers, including grandparents and family friends.

  • Parental responsibilities
    Parents have the right to support and to be able to access state-funded services, but parents also have reciprocal obligations including ensuring good school attendance and behaviour. Where responsibilities are breached, mechanisms such as home-school contracts and parenting orders might be necessary to ensure that the underlying causes of negative behaviour are addressed.

  • Extend the ‘pupil premium’ and reform the system of school choice
    The pupil premium in England has provided schools who accept pupils from disadvantaged households with an additional £900 per child in 2013-14. Nonetheless, the evidence is that children from low income households continue to access the most poorly performing schools (Allen & Burgess, 2011). This needs to be addressed by boosting the premium available for pupils from disadvantaged backgrounds, while opening up the school selection process to avoid residential segregation. At the same time, highly performing schools need additional incentives to expand.

  • Promote multi-agency working across public services
    Improving the situation facing the most disadvantaged children and young people requires not only input from schools and Sure Start centres, but all public services locally and nationally. The impact of health inequalities on human capital acquisition and relative social mobility, for example, is now well documented. In New York, a hub ‘children’s zone’ model has been used to provide intensive support to disadvantaged families in low income neighbourhoods.

Moreover, expanding social investment to focus on pupils from income households will reap long-term rewards. For example, the Institute for Public Policy Research (IPPR) estimate that universal, affordable childcare will boost the female employment rate and government tax revenues: an initial, up-front investment achieves average returns of £20,050 over four years. Future governments will, nevertheless, have to demonstrate how this is to be paid for. IPPR propose to rationalise tax credits and childcare subsidies into increased supply-side funding for early years’ provision. Alternative options include rationalising benefits to relatively well-off pensioners such as free travel and the Winter Fuel Allowance, as well as taxing capital, property, wealth and inheritance more efficiently: for example, a lifetime gifts tax could raise £1 billion; abolishing higher rate tax relief on pensions would generate a further £7 billion; a property-based ‘mansion tax’ could raise a further £3 billion for the UK Exchequer.

Raising the burden of taxation is never popular, but two principles ought to be enunciated in the ensuing public debate. Firstly, additional ‘wealth’ taxes ought to be ‘hypothecated’: pooled into a specific fund designed to off-set adverse ‘social inheritance’, boosting opportunities for those from disadvantaged backgrounds. Secondly, the better-off older generations acknowledge that younger people and families increasingly need support: modest tax rises and benefit rationalisation is necessary to ensure inter-generational reciprocity.      

Improving pre-distributive outcomes

Early intervention, family support and education are not a solution to every social and economic problem. Nonetheless, it is difficult to imagine that rising inequality and lower earnings mobility can be addressed without more effective intervention that boosts the relative position of children and young people from low income households. Until recently, this dimension has been missing from much of the literature on ‘pre-distribution’. It is vital to fully integrate the social investment approach into future strategies designed to improve pre-distributive outcomes in the UK and beyond.   

Patrick Diamond is vice-chair of Policy Network and lecturer in public policy at Queen Mary, University of London

This is article is a contribution to the Policy Network, University of Central Lancashire (UClan) and Samuel Lindow Foundation work programme on “Pre-distribution, education and human capital”

Allen, R. and Burgess, S. (2011) 'Can school league tables help parents choose schools?', Fiscal Studies. Vol. 32, 2, pp. 245-261.
Corak, M. (2013) ‘Income Inequality, Equality of Opportunity, and Intergenerational Mobility’, Journal of Economic Perspectives, 27(3): 79-102.
Dearden, L., Machin, S. and Vignoles, A. (2009) 'Economics of Education Research: A review and future prospects', Oxford Review of Education. Vol. 35, 5, pp. 617 - 632.
Lexmond, J. & Reeves, R. ‘Building Character’, London: Demos, 2009.
OECD Centre for Educational Research and Innovation, ‘Education at a glance’, Paris: OECD, 9 September 2013.    
Ussher, K. ‘What is pre-distribution?’, London: Policy Network, 22 October 2012.
West, A., (2009) ‘Poverty and educational achievement: why do children from low-income families tend to do less well at school?’, Bristol: The Policy Press.

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

Tags: Patrick Diamond , Opinion , Pre-distribution , Predistribution , Welfare State , Labour Party , Social Justice , Redistribution , Education , Academies , Teach First , Sure Start , Literacy , Numeracy , Free Schools ,

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