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Home Opinion James Meade and predistribution: 50 years before his time
Economics • Classics • Meade

James Meade and predistribution: 50 years before his time

Martin O’Neill - 28 May 2015

Meade’s forcefully prescient and extremely fertile short book, Efficiency, Equality and the Ownership of Property (1964), packs an incredible concentration of insightful analysis and provocative policy ideas in under 100 pages

Published in 1964, James Meade’s Efficiency, Equality and the Ownership of Property is a brilliant exploration of what a more egalitarian society might look like, and of what measures might help us to get there. As a book that went on to exert a deep influence on both the economists Thomas Piketty and Tony Atkinson, and the philosopher John Rawls, it does not merit the relative neglect in which it now rests. Time is ripe for its rediscovery.

James Meade (1907-1995) was one of the leading economists of the 20th century, whose work on international trade brought him the Nobel Memorial Prize in Economics in 1977. As a young postgraduate student at Cambridge he had been a member of a brilliant generation of young economists (‘the Cambridge circus’), including Pierro Sraffa and Joan Robinson, who were close to Keynes and who exerted some influence on the development of Keynes’s General Theory. He later spent time as an adviser to Hugh Dalton and contributed to the work of the Labour party’s research department. During the second world war Meade worked in the economic section of the war cabinet, rising to become its director, before pursuing an academic career that saw him move from a professorship at the London School of Economics to the chair in political economy at Cambridge. After his retirement from his university posts, he went on to chair the Meade Commission on the Structure and Reform of Direct Taxation, an attempt by the Institute for Fiscal Studies to propose a more rational reorganisation of the UK tax system.

What makes Efficiency, Equality and the Ownership of Property quite so impressive is its far-sighted prescience. Meade was writing at the very height of the postwar settlement, during the Trentes Glorieuses during which wages were relatively high and inequality low. Yet Meade was profoundly pessimistic about the long-run prospects for capitalism’s development, arguing that technological progress would inexorably increase returns to capital while depressing returns to labour. He thought that, in the absence of systematic reform of the economy, the good times for working people were unlikely to last.

Meade also reasoned that a further force creating greater future inequality was the divergent returns to capital of large and small investors, with the already-wealthy experiencing higher returns and the small investor seeing only meagre rewards. Painstaking empirical work by Thomas Piketty, Emmauel Saez, Tony Atkinson and their colleagues have since borne out the reality of Meade’s insightful economic hunches, with regard to both the shift in economic returns from labour towards capital and the trend towards divergent capital returns. Accordingly, we now find ourselves, half a century after Meade wrote his brilliant book, hurtling down a path much like the one that he foresaw.

Meade called the dystopian future that the unchecked forces of inequality would bring about ‘The Brave New Capitalists’ Paradise’. Its parallels with Piketty’s predictions of a new Belle Epoque are clear to see:

“But what of the future? …  There would be a limited number of exceedingly wealthy property owners; the proportion of the working population required to man the extremely profitable automated industries would be small; wage rates would thus be depressed; there would have to be a large expansion of the production of the labour-intensive goods and services which were in demand by the few multi-multi-multi-millionaires; we would be back in a super-world of an immiserized proletariat and of butlers, footmen, kitchen maids, and other hangers-on. Let us call this the Brave New Capitalists’ Paradise.

It is to me a hideous outlook. What could we do about it?” (EEOP, 33)

Meade’s book is an optimistic rather than a pessimistic one, and he had a range of ideas about what could be done to head-off the “hideous outlook” of the Brave New Capitalists’ Paradise. He canvassed four major possibilities:

(1)   a ‘trade union state’ that sought to drive up wages by enhancing the power of organised labour;

(2)   an extended welfare state that sought to do more to reduce income inequality through massive redistribution, taxing the incomes of the rich to benefit the less well-off both through funding public services and subsidising low wages;

(3)   a ‘property-owning democracy’, which involved the broad dispersal of wealth (including both human and non-human capital) to all sections of society, ensuring that all sections of society received income from capital as well as labour;

(4)   a ‘socialist state’, using the creation of public capital through a sovereign wealth fund or, as Meade called his version of it, a ‘national asset’, in order to build-up a significant stock of democratically-controlled public capital, which could then be used to fund a citizens’ basic income.

Writing at a time when unions were much more powerful than they are today, Meade was worried about the first of these strategies, given the possible problems that would be involved if the distributive role of wages came to undercut their role in setting an efficient price for labour. And, while he endorsed the existing welfare state institutions, he worried that the welfare state could never go far enough towards creating a tolerably egalitarian society, insofar as it does not do enough to attack inequalities in property. Meade emphasised the role of property-ownership in creating conditions for individual security, freedom and independence, and argued that it was precisely because property wealth was so important that we would need fundamentally to reform the distribution of stocks of wealth – and not just flows of income – within the economy.

Meade therefore came to endorse the extension of the traditional welfare state through the parallel pursuit of both the spread of private property-ownership across all members of society – his ‘property-owning democracy’, which would involve steep taxation of inheritance and capital transfers – and at the same time building up the state’s store of democratic, public capital. If the future were to bring a shift in the sources of prosperity from labour to capital, then we would need to construct an economy in which everyone could benefit from that shift, both as individuals and collectively as democratic citizens.

While Meade’s diagnosis of the central distributive problems of capitalism largely predicted Piketty’s, his proposals were in some ways rather more radical. Rather than the state having continually to keep running faster and faster to suppress growing inequality through more ambitious forms of redistributive taxation, Meade instead wanted to reform the rules of property-ownership so that trends in capitalism’s development could be made to work for all. Instead of accelerating redistribution, Meade’s proposal involved a radical form of predistribution – a reallocation of property-rights that would completely restructure each individual’s position and bargaining power within the market economy, through giving everyone both a capital stake and a non-labour source of income.

The left and centre left will for the foreseeable future be grappling with issues of growing inequality, the future of work in the face of technological change, and what Piketty calls capitalism’s “forces of divergence”. James Meade’s forcefully prescient and extremely fertile short book, which might seem to have been published 50 years before its time and which packs an incredible concentration of insightful analysis and provocative policy ideas in under 100 pages, provides an instructive guide to some of the possible paths ahead.

Martin O'Neill is a senior lecturer in political philosophy at the University of York

This essay is a contribution to Policy Network's series "The classics of social democratic thought"

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