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Home Opinion Predistribution: A new governing prospectus for the centre left
The Predistribution Agenda

Predistribution: A new governing prospectus for the centre left

Claudia Chwalisz and Patrick Diamond - 17 November 2015

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In the introduction to their new book, The Predistribution Agenda, Claudia Chwalisz and Patrick Diamond outline how a predistributive strategy can achieve economic efficiency, social justice and sustainable, inclusive growth in the ‘new hard times’

‘Predistribution’ is a new label for an idea with a long pedigree in the radical political tradition, bridging the eighteenth century political philosopher Thomas Paine with the influential twentieth century economist James Meade: the objective of radically reforming markets and property relations to systematically empower the wage-earning classes, ‘treating the root causes of inequality rather than attending only to the symptoms’. [1] A predistributive strategy is prepared to explicitly challenge unequal concentrations of capital, wealth and power promoting the goal of a ‘property-owning democracy’ where every individual has a stake in the capitalist system by virtue of being a citizen. Three centuries after Paine published The Rights of Man, advanced Western economies are still characterised by deep and enduring inequalities that reappear across generations. As such, Paine’s words still carry enormous resonance:

For all men being originally equals, no one by birth could have the right to set up his own family in perpetual preference to all others forever, and tho’ himself might deserve some decent degree of honours of his contemporaries, yet his descendants might be far too unworthy to inherit them. [2]

This chapter provides a synoptic introduction to the burgeoning public policy literature on predistribution and the politics that animate the idea.

‘Social Democratic Strategy’: ‘Beveridge-Plus-Keynes’

Predistribution is focused above all on an age-old social democratic concern: how to reconcile productive efficiency with social justice in a market capitalist economy. The pursuit of social justice constituted the central thread running through European social democracy since Eduard Bernstein famously articulated the case for ‘reformist socialism’ at the end of the nineteenth century, breaking with Marxist orthodoxy. What followed was decades of continuous centre-left reinvention and reform across western Europe, culminating in the ‘golden age’ of postwar social democracy summarised by Gøsta Esping-Andersen (1995) as the era of ‘Beveridge-Plus-Keynes’ . Since then, the world in which social democratic politics operates has continued to change profoundly. Not only has the West experienced one of the most serious and destabilising financial crises of the modern era: capitalism itself is undergoing major structural transformation. The fiscal pressures unleashed by the crisis are placing unprecedented strain on the postwar welfare state. Meanwhile, the international context is being redefined by the growing power of emerging market economies, and the relative decline of the West. This is the time, more than ever, to construct a new strategy and governing prospectus for the centre-left in Europe.

The pivotal issue for social democracy is that while the world has been transformed, its political agenda has too often remained trapped in the doctrines and narratives of the post-1945 era. Centralising ‘statist’ social democracy remains ingrained in the ideological ‘DNA’ of most European parties. The assumption since World War II has been that a well-resourced Keynesian welfare state would achieve greater social equality, with government intervention ‘humanising’ capitalist markets. Between the 1940s and the 1970s, the corporatist social democratic model was largely successful in significantly improving life chances: narrowing the gap between rich and poor; undertaking transfers from the wealthy to the needy; insuring people against social ‘risks’ such as sickness, unemployment, and old age; and providing guaranteed access to high-quality public services, smoothing out inequalities across the life cycle.

The strategy in recent decades has, nonetheless, increasingly been found wanting: in most advanced economies, globalised markets have produced rising levels of inequality which the population finds intolerable, both economically and morally. Growing reliance on redistribution especially in countries with a high level of inequality in the primary income distribution has led to a severe backlash against the tax state, feeding resentment towards the poor, while appearing to justify the neoliberal critique of the role of government. States have sought to pursue a variety of distributive objectives, but they often spend more than they can conceivably raise in taxes given heightened ‘taxpayer resistance’, adding to the problem of rising public debt. [3] Government interventions such as ‘Quantitative Easing’ (QE) after the 2008 crisis have, in turn, further accentuated inequality, boosting relative asset values and the owners of capital as real household incomes have stagnated. [4]

It is clear there are growing limits to the redistributive capacities of the state given the likelihood of stagnant growth and severe fiscal constraint in the decade ahead. [5] We have to find new routes to social justice and a more equal society for the ‘new hard times’ through which we are living. [6] This is the context in which the debate about ‘predistribution’ has recently emerged, especially in the USA and the UK, as Yale professor Jacob Hacker coined the phrase, and renowned American economist Joseph Stiglitz has been using the term to describe his latest report, Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity. [7] Increasingly, the debate has spread to continental Europe, where the French Prime Minister Manuel Valls has embraced “prédistribution”. It is a concept which recommends that the state should seek to prevent inequalities from occurring at the outset, rather than relying on traditional mechanisms of ‘tax-and-spend’ redistribution to tackle inequalities after they have occurred. [8] This is a pressing issue, as the last 30 years have witnessed a dramatic rise in income inequality across the advanced capitalist democracies. [9]

The aim of predistributive policy is to promote market reforms that encourage a more equal distribution of economic power, assets and rewards even before government ‘collects taxes or pays out benefits’. [10] Predistribution seeks to restructure the market economy, ensuring fairer outcomes for all can be secured without sacrificing long-term growth and productivity. This is a strategy where, as Matzner and Streek attest, ‘equality, rather than being wrought from the economy at the expense of efficiency, is built into the organisation of the production process itself’. [11] Rather than wholly relying on the distributive sphere of social policy, the aim of predistribution is to address the structural context of contemporary capitalism: the quality of work and the satisfaction it generates; the allocation of ‘good’ and ‘lousy’ jobs; the prevailing framework of employment rights and market flexibilities; and the extent to which markets work in the public interest by treating all consumers, including the most vulnerable, equitably. The aim of predistributive market design is to eliminate biases that benefit privileged groups, promoting public interest objectives that reduce the need for post hoc government intervention. This chapter argues that in addition to ‘non-monetary’ interventions, strategies of social investment complement and reinforce predistribution, in turn upgrading the productive potential of the workforce and the economy.

Of course, predistribution is a governing prospectus, not an election-winning slogan. It carries important insights about social democratic policy in the post-crisis era. Today, the traditional redistributive model of the state is facing an unprecedented crisis. The equilibrium between markets and social justice that characterised the postwar age is breaking down. The West is experiencing ‘a crisis without end’: a slow, protracted recovery, interest rates at extraordinarily low levels, a major risk of deflation, and an ongoing process of fiscal adjustment and austerity. [12] Moreover, the increasing internationalisation of economic life implies that social inequalities are no longer reversible within any single nation state. The question is whether a model of predistribution can plausibly fill the strategic void opened up by the decay of the ‘Beveridge-Plus-Keynes’ formula. A new social and economic framework focused on predistribution addresses three overriding concerns: the promotion of economic efficiency; the realisation of social justice; and the search for a new growth model after the crisis.

First, economic efficiency: predistribution provides a cogent rationale for an active state in an era where public spending is severely constrained, where many governments are implementing tough fiscal consolidation programmes, and where austerity in the light of low growth and secular stagnation is likely to remain for the foreseeable future.

The predistribution agenda acknowledges that the welfare state’s redistributive capacity was receding prior to the crisis. In part, this reflects structural changes since the 1970s and 1980s, alongside neoliberal policy regimes that have weakened the egalitarian impact of welfare systems. Demographic change with increasing old-age dependency ratios has put increased pressure on health and social care spending, reducing the resources available for policies to boost opportunity through pre-school investment, education, training and re-skilling. Unsurprisingly, many European societies have witnessed declining rates of relative economic mobility since the 1960s and 1970s, with negative consequences for long-term productivity and economic growth.

Predistributive policies aim to raise the underlying growth rate of the economy, as well as advancing equality, integral to a new social contract for the knowledge economy. [13] The effort to widen social justice is not achieved at the expense of economic efficiency, but ought to be treated as complementary to it. Improving long-run economic performance in western Europe will be enhanced by greater equality of opportunities and outcomes. For example, constraining low-wage adjustment strategies should help to improve productivity and strengthen efficiency in labour and product markets. [14] The objective should be to break out of the low-wage, low productivity trajectory which has been especially prevalent in the ‘Anglo-liberal’ economies, improving skill-levels, productivity and living standards.

The second pillar of this framework is social justice: a predistributive policy agenda seeks to achieve more equal social and economic outcomes by reshaping markets, not only compensating the ‘losers’. Past decades have witnessed a dramatic rise in income and asset inequalities in advanced capitalist democracies, alongside stagnation in median incomes, growing job polarisation, as well as increasing levels of long-term unemployment. Markets are producing more inequalities than ever, as the share of growth absorbed by capital at the expense of labour has markedly increased. Moreover, as profitability in the corporate sector has declined, real wages have been severely squeezed. [15] Not only is the capacity of traditional welfare systems to ameliorate capitalism’s unequal character declining, social and economic inequalities are increasing in their intensity.

Third, predistribution addresses the need for a new growth model: a predistributive agenda strives for long-term, sustainable, inclusive growth. Rates of Western economic growth have recovered from the depths of the post-2008 recession, but growth remains anaemic and intermittent. There is no emerging ‘growth paradigm’ that appears capable of reviving Western prosperity; the impact of ‘digitisation’ in key sectors has so far been uneven; at the same time, lack of effective co-ordination and governance of the financial system hinders any sustained recovery in the world economy. [16] Some commentators have questioned whether a new concept of growth is required that better takes account of income inequality, environmental sustainability, and human well-being. [17] Moreover, low levels of income inequality are correlated with faster and more durable growth. [18]

In today’s economy, austerity programmes and the financial crisis are hitting those most in need hardest, together with the burden of rising youth unemployment and long-term joblessness in Europe. The emphasis on reducing inequalities by reforming systems of capitalist production rather than relying on post hoc intervention through the welfare state are ever more necessary. The overall aim is to redraw the framework in which capitalist markets operate, strengthening both equity and efficiency, rather than compensating the ‘losers’ for the adverse outcomes markets produce. Some key examples of predistributive policy reforms are given below:

Financial System Reform

Tougher financial market regulation to mitigate ‘moral hazard’ ensuring that taxpayers are not required to bail out failing banks and financial institutions;

  Limiting executive pay awards by giving shareholders and employees the right to veto excessive pay claims and bonuses.

Corporate Governance Reform

Busting monopolies and cartels across product and capital markets supporting start-ups and small- and medium-sized business (SME) formation;

A corporate governance system for large companies that gives workers a genuine ‘voice’ in the management of the firm alongside the promotion of profit-sharing schemes.

Labour Market Reform

Measures to boost the National Minimum Wage (NMW) and ‘living wage’ to help the lowest paid strengthening the relative position of labour market ‘outsiders’ and encouraging unionisation in traditionally casualised sectors;

Labour market reforms that improve flexibility for workers as well as firms: the purpose is not to outlaw dismissal exacerbating ‘insider/outsider’ cleavages, but to ensure marginalised groups such as single parents and disabled people can have sustained contact with the labour market by offering greater employment flexibility;

Redesigning procurement rules to ensure fair employment throughout the public and private sectors that are delivering public goods and services;

Defining social norms and rules of the game that combat the culture of low pay in the corporate sector reinforcing legal regulations and rules.

Market Redesign

Regulatory interventions in markets that protect the rights of vulnerable consumers, especially in sectors such as energy, transport and food;

Another market reform would entail improving the accessibility of information about price and quality available to consumers, while removing privileges that reduce economic efficiency. Preferential taxation of ‘buy-to-let’ investments in the UK, for example, raises demand for housing assets, forcing up rents leading to higher housing benefit payments. The removal of tax breaks would reduce the need for retrospective intervention through the benefits system.

A Property-Owning Democracy

The overall aim ought to be forging a ‘property-owning democracy’ giving the majority a fair share in the wealth and capital of the nation while tackling inherited concentrations of wealth among the privileged. [19] This should include a proportion of wages being paid in shares or other forms of capital so that wage-earners can increase their independence, autonomy and ‘effective freedom’.

This is not to claim that social democrats ought to abandon the traditional welfare state, and its attendant mechanisms of egalitarian redistribution. On the contrary, markets produce inherently imperfect outcomes: there are citizens who are unable to participate in markets and who rely on state-funded ‘solidaristic’ provision to ensure opportunity and security throughout their lives. Moreover, greater equality of economic outcomes in the advanced industrialised democracies is necessary to ensure a more stable and cohesive society. The lesson of recent decades is surely that both predistributive and redistributive strategies are necessary to build a fairer, more equal society. As such, redistribution and predistribution ought to be viewed as two sides of the same coin. However, a greater focus on strategic predistributive interventions ought to mean that less redistribution is necessary later on.

Alongside measures to ensure that capitalist markets produce fairer outcomes in the distribution of primary incomes, predistribution should focus on how to improve equality of life chances through targeted early intervention: a complementary strategy of ‘social investment’ . Over the last fifteen years, many western European countries have sought to shift the focus of the welfare state, correcting inequalities a priori and investing in the earliest years of citizens’ lives. Nonetheless, more needs to be done to advance and embed a social investment state. There is a risk that in the light of the crisis and the imperative of fiscal consolidation, states focus on protecting traditional welfare transfers rather than underwriting ‘equality-boosting’ programmes: pre-school education, parenting and family support, high-quality childcare from nought to adolescence, extra tutorial provision for those from low income households, and asset policies (such as British Labour’s Child Trust Fund) that give the poorest children a capital stake for the future.

The Nature of Economic and Social Inequality

In the debate about what determines inequality in contemporary capitalist economies, various factors are invariably cited in a vast and growing literature. [20] Rising levels of immigration are one driver, combined with declining rates of unionisation. Both were believed to have weakened the bargaining power of low-skilled workers, accompanied by a fall in the relative value of the minimum wage. Another factor is the growth of international trade and the globalisation of labour, product and capital markets since the 1980s and 1990s. As the balance of economic advantage shifts to the east, industrial manufacturing and low-cost service sector jobs in Western economies become increasingly uncompetitive or even obsolete. [21] Each of these explanations has received considerable attention from politicians and policy-makers. There is evidence that such factors have each contributed to rising inequality of primary incomes in the USA and the UK, as well as countries as diverse as Germany, Japan, Spain and Portugal.

Nonetheless, one of the most significant drivers of income inequality in the advanced economies remains ‘skill-biased’ technological change, [22] as Figure 1 below makes clear. Although the table dates from 1997, the same findings are confirmed in the 2015 presidential report. [23] Technology increases the proportion of relatively skilled jobs at the higher end of the labour market, while skewing the wage distribution towards those with the most ‘high-value’ human capital. There is considerable debate within the economics profession about the impact of technological change, but it appears to be a powerful driver of inequality mediated by the level of education and skills.

Figure 1 The Drivers of Economic Inequality.

 

Source: Federal Reserve Bank of New York, as cited in the Economic Report of the President (1997). [24]

The Organisation for Economic Co-operation and Development (OECD) has recently predicted that jobs requiring ‘highly-educated’ workers will rise by 20 per cent in the next decade; on the other hand, low-skilled jobs are likely to fall by more than 10 per cent in the advanced economies. [25]

Moreover, low-skilled workers are increasingly vulnerable to the threat of redundancy and unemployment in a period of intense economic restructuring. In the EU28 countries, 84 per cent of working-age adults with ‘higher’ (tertiary level) skills are currently working, compared to less than half of those with low level skills. Moreover, downward pressure on wages and fear of unemployment is leading to heightened economic insecurity for those on median incomes. Across the OECD, ‘middle income’ households have experienced a far sharper decline in incomes than was the case during the last economic crisis in the 1970s.

Nonetheless, the recent focus on income inequality and rising Gini co-efficients in the aftermath of the financial crisis and ‘great recession’ may have distracted attention from the central importance of equality of opportunity, in particular how far children and young people from low income households and disadvantaged neighbourhoods have opportunities to realise their potential. This question is ably addressed in Jeremy Fishkin’s recent book Bottlenecks, [26] which analyses how economic and educational structures often act surreptitiously to reduce the availability of opportunities for all. Fishkin insists that public policy should focus not on narrow goals such as pursuing a particular definition of academic excellence, but on how government interventions can maximise the ability of every individual to pursue a fulfilling and independent life where they can fully exercise their various capabilities. This insight is at the core of the predistributive agenda.

This Book

The contributors to this volume consider the predistribution agenda from a variety of comparative perspectives ranging across disciplines and countries. The focus throughout is on fashioning credible policy solutions, addressing the politics of predistribution. Forging a strategic ‘market-shaping’ state for the post-crisis era requires a model of progressive leadership that confronts ‘insider’ sectional interests, shifting resources across the income distribution, across generations, across localities, and across the life cycle. A concerted strategy of predistribution entails a new way of practicing social democratic politics – no longer promising fiscal rewards for every voter ‘interest group’ – but recognising that only a commitment to societal fairness predicated on ‘shared sacrifice’ will ensure our societies make the transition from the current crisis to a stable social and economic settlement beyond.

Navigating between politics and markets makes it necessary to identify the historical agents and institutions that will promote support for radical predistributive policies, forging new coalitions of mutual interest. Historically, welfare states have been the product of particular patterns of class affiliation, mediated by the property relations of modern capitalism. [27] Among the most significant challenges for social democratic parties since the 1960s and 1970s has been the secular decline of the manual working-class, combined with rising scepticism about what states can accomplish imposing fiscal limits alongside declining trust in the role of government. [28] This had led some to enthusiastically predict the end of egalitarian social democracy. [29]

Nonetheless, the centre-left should not be too pessimistic about its prospects. There are, of course, serious obstacles and constraints to the realisation of social justice and a more equal society, but there are still fresh strategic opportunities to be seized in fashioning new coalitions of political support. Anne Wren points to the growing importance of the service economy which provides significant opportunities for increasing women’s participation in the labour market: women have a comparative advantage in high-value services compared to sectors such as agriculture and industry. [30] Paid employment for women is increasingly necessary both because ‘dual earner’ households have a lower poverty risk, and to ensure the fiscal sustainability of the welfare state given rapid population ageing. Facilitating women’s inclusion in the labour market entails public subsidisation of care for children and older adults, as well as employment flexibility including the right to work part-time. As Wren attests: ‘In political terms, parties of the centre-left are well positioned to pursue this agenda: the demand for these types of policies amongst women in particular is well recognised, and is closely linked with their higher levels of support for the left.’ [31]

The remainder of this chapter addresses the framework of predistribution and its link to the development of the social investment state as envisaged by Wren. It is important to maintain a conceptual distinction between ‘predistribution’ and ‘social investment’: predistributive policies focus on regulatory interventions designed to transform the rules of the game in which markets operate; social investment is predominantly concerned with the optimal allocation of public spending in order to maximise equity and efficiency. [32] Nonetheless, both approaches focus on equipping individuals for change in dynamic, globalising market economies, rather than ‘repairing’ adverse outcomes that have already been inflicted. Predistribution and social investment are complementary strategies: predistribution relies on raising the underlying rate of productivity in the economy, changing the context in which markets operate in order to improve real wages and relative living standards. At the same time, improving productivity entails strategic ‘social investment’ throughout the life cycle, focused in particular on low-income households. Social investment policies, in turn, require faster growth and stronger government tax revenues through enhanced productivity and market efficiency.

Predistribution and the Social Investment State

A core theme of this volume is that rising inequality and lower earnings mobility in capitalist democracies are unlikely to be addressed without more effective strategic intervention by governments that improves the relative position of individuals from low-income households. In the burgeoning predistribution literature, government action is envisaged less as a mechanism for compensating individuals for disadvantage that has already occurred, but as a means of reducing the damage inflicted by markets, using instruments of anticipatory intervention that promote more equal opportunities. Predistribution, as its originator Jacob Hacker from Yale University attests, requires: ‘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’. [33]

As such, predistribution is not limited merely to reducing poverty and social disadvantage. The test for predistribution policies is whether they can help to reverse what the economist, Miles Corak, refers to as ‘The Great Gatsby curve’: [34] the tendency in industrialised societies for a child’s life chances to be increasingly determined by their parents’ material circumstances. Since the crisis, the incidence of poverty and unemployment has been distributed even more unevenly among social groups: children are at highest risk of poverty, especially those with a low-skilled parent in a ‘single earner’ household. This has given rise across Europe to a process of ‘dualisation’ where societies are increasingly divided between knowledge-rich ‘winners’ and knowledge-poor ‘losers’. [35] More unequal societies, according to Corak, are less likely to be characterised by higher rates of inter-generational mobility. Shifting the state’s role from ‘remedial’ compensatory approaches to a ‘pre-emptive’ strategy of investing in the human and social capital of disadvantaged groups is intended to get opportunity and economic mobility flowing again. That requires a fundamental shift, combining income redistribution with pro-active investment throughout the life cycle.

This approach further underlines the central importance of education policy, in particular measures that are designed to shift the balance of human capital acquisition towards children from disadvantaged households. Surprisingly perhaps, education policy appears to have slipped down the agenda in recent years in many countries. In Britain, the education reforms undertaken by the Blair and Brown governments were politically controversial as they gave a major role to private and third sector providers. This attenuated ideological divisions within the Labour Party. Moreover, the claim that education policy was the most effective instrument to offset the inequalities generated by globalisation, a hallmark of ‘third way’ ideas, was exposed as problematic. Rising public investment in education and skills had not stemmed the tide of social and economic inequality in the industrialised countries. As Busemeyer highlights in a subsequent chapter of this book, the quality of the vocational education and training system at the post-secondary education stage is strongly related to overall levels of socio-economic inequality.

Of course, securing political legitimacy for pro-active social investment in education, pre-school provision, family support, and adult skills is seldom straightforward. Increasingly, voters in developed state economies are less likely to have children given falling birth-rates, 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 UK households without children fared poorly in relation to poverty alleviation. Furthermore, in public attitude surveys, education, early intervention and childcare do not generally register as major issues of concern for voters. [36] Comparative data indicates that in many European countries, voters are more concerned about ‘old’ social risks, notably unemployment, pension adequacy, and fear of losing their home. Most welfare systems are characterised by a growing ‘elderly bias’, explicable given the ageing population. However, there is a constant danger of unbalanced welfare coverage further disadvantaging younger families with children. The risk is that governments will continue to support older citizens while neglecting the imperative of investing in the young.

Educational Performance

The economist Stephen Nickell argues that despite growing scepticism about the efficacy of education policy, human capital effects are vastly underestimated in the reproduction of inequality. [37] The recent OECD report comparing educational performance between countries has provided a ‘wake-up call’ for policy-makers. According to the OECD, ‘England is the only country in the world where the generation approaching retirement is more literate and numerate than the youngest’. [38] Out of 24 industrialised countries, English 16–24 year olds rank 22nd in literacy and 21st in numeracy. More worryingly, 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’. [39]

It is striking that the OECD report has largely been ignored by the major political parties. The Conservatives sought to blame the previous Labour government for the UK’s comparative weakness in educational achievement. Nonetheless, the post-2010 UK coalition government appeared to have no credible agenda for addressing the central drivers of low performance – in particular, that too many pupils from low income households are only able to access ‘low-performing’ schools. [40] Moreover, Labour has been reticent about the OECD’s findings, presumably because the report emphasises the need for bold but contentious reforms of the English school system.

Policy-makers have historically focused on the role that formal educational institutions, most prominently 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 crucially important. However, it ought to be remembered that most learning occurs outside the school day, particularly during the influential early years, developing the cognitive framework for subsequent human capital acquisition. Research by Dearden et al. shows that by the age of three years, a 23 per cent gap in cognitive outcomes has opened up between children from the richest and poorest households. [41] According to Anne West, a leading educational researcher, ‘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’. [42] 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 such cognitive differences. This poses a key challenge for policy-makers who want to make the initial distribution of endowments more equitable in accordance with the social investment and predistribution paradigms.

Capability and Character

Indeed, research consistently underlines that parental ‘confidence’ and ‘peer effects’ have a crucial impact on children’s life chances alongside formal schooling. Traditionally, policy has tended to emphasise the importance of institutions, understating the role played by informal networks, including family, friends and peers, on children’s outcomes. Predistribution is not only concerned with market reforms alongside sustained 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 markets. [43] It is essential to focus support on the most deprived households, as the impact of child poverty is mediated by the reduced availability of parental resources. [44]

The perpetuation of low aspirations are a further critical factor in structural disadvantage: there is evidence that parents in low income households have lower levels of ‘self-efficacy’ – less self-confidence and belief in their own capabilities. Recent research in the social sciences has focused on the importance of ‘character’ in shaping cognitive outcomes and its inculcation in children through their parents: ‘character’ alludes to the individual’s ability to exhibit drive, agency and determination, all of which are attributes of later success in life. [45]

Social Investment: Policy Implications

As such, this chapter makes the argument that an effective predistribution strategy needs to challenge and reshape markets, while at the same time boosting productivity and growth by investing in the education, skills and human capital of the entire population, particularly the most disadvantaged, through a social investment state. The key insight for policy-makers is to focus on what occurs outside formal institutions through the home environment, with parents, and among peers. Their influence is, in many ways, as significant as what takes place in schools and learning institutions, although the two are often self-reinforcing. In addition to the ‘non-monetary’ regulatory interventions outlined in a previous section of this chapter, the following social investment policy measures ought to be prioritised by future governments.

Refocus Early Intervention Strategies

Additional interventions in the early years have been a priority for policy-makers across the political spectrum, especially in the Nordic countries in the postwar era. Although the previous UK Labour administration invested heavily in nursery provision, the early years have never received the concerted attention given to schools and the National Health Service (NHS). As a result, childcare is now more expensive in the UK than in most comparable economies. There are growing concerns about the adequacy of coverage, the emergence of ‘postcode lotteries’, and lower levels of quality in childcare settings. As a consequence, the UK has a relatively low rate of female employment and a large gender pay gap, ranking 15th in the OECD league table. There are three vital dimensions of policy that should be addressed. First, ensure that resources and infrastructure are weighted towards the most disadvantaged groups within a universal childcare system. Second, give priority to parental involvement, not only in childcare settings themselves, but in the management and governance of ‘Sure Start’ children’s centres. This dimension of parental empowerment has recently been neglected, and ought to be strengthened. Finally, additional measures are necessary to promote female employment, including increased availability of family leave shared between mothers and fathers.

Boost Parenting Support

In an increasingly disruptive, insecure economic environment characterised by a number of pervasive social stress factors, parents need more effective support. Mentoring has proven beneficial effects, where more experienced parents support those facing difficulties. Formal parenting programmes can also be productive, 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’ originally pioneered in the USA where nurses support parents in disadvantaged households from the pre-natal stage through to early childhood are also vital.

Improve the Quality of Parenting

There is an extensive and wide-ranging public policy literature on the potential of behavioural change strategies to significantly improve parenting outcomes. How parents interact with their children can have a crucial impact on later achievement. For example, parents who regularly read to their children significantly improve cognitive outcomes; responding appropriately to misbehaviour can also help to prevent later conduct disorders and cognitive impairments. [46] 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 have reciprocal duties and obligations too, including ensuring their children’s school attendance and good behaviour. Where responsibilities are not met, mechanisms such as ‘home-school contracts’ and parenting orders are necessary to ensure that the underlying causes of negative behaviour are adequately addressed.

Extend the ‘Pupil Premium’ and Reform the System of School Choice

The pupil premium in England has provided schools who admit 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 those schools that are consistently poor performers. [47] 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 provision.

Reform teacher credentials and standardised student qualifications to make teaching a prestigious profession

Improving teacher quality by making teaching a prestigious profession can help balance inequalities between poorly and highly performing schools. Ensuring all teachers are required to attain a competitive teaching master’s degree with an emphasis on pedagogy would level the playing field. If only the best students are able to become teachers in the first place, the disparity between ‘good’ and ‘bad’ schools narrows as only the brightest and most creative minds are teaching at all schools. Countries like Finland, which is consistently at the top of the OECD’s Programme for International Student Assessment (PISA), demonstrate how this does not need to be achieved through financial incentives, as Finnish teachers are paid roughly the same amount as teachers in the UK. Rather, what attracts individuals to the position is the freedom afforded to them when it comes to developing the curriculum and teaching it in innovative ways. The lack of standardised exams and rigorous testing permit this flexibility. While this proposal would be difficult to implement politically, the leading countries in educational attainment show the potential of such policies to mitigate inequality.

Promote Multi-Agency Working Across Public Services

Improving the situation that faces the most disadvantaged children and young people requires not only input from schools and Sure Start centres, but 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 ‘children’s zone’ model has been established to provide intensive support to disadvantaged families in low-income neighbourhoods. Moreover, expanding social investment to focus on pupils from low-income households will reap long-term benefits. For example, the Institute for Public Policy Research (IPPR) has estimated that provision of universal affordable childcare across the UK will significantly boost the female employment rate and government tax revenues: an initial, up-front investment achieves average returns of £20,050 over four years. In the long term, predistributive policies have the potential to pay for themselves: engaging women in the labour market more effectively through maternity benefits and childcare provision has been among the most successful social policy interventions of the last 30 years. [48]

Future governments will, nevertheless, have to demonstrate how this is to be funded. Various thinktanks have proposed to rationalise tax credits and childcare subsidies into increased supply-side funding for early years’ provision. Alternative options include withdrawing benefits for 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 tax could raise a further £3 billion for the UK Exchequer; a further crackdown on tax avoidance could raise substantial sums: in the UK, approximately £35 billion a year is lost due to tax evasion. [49] Raising the burden of taxation is never popular. This challenges the claim that predistribution does not necessitate hard choices, making it attractive to ‘preference-accommodating’ politicians. It is more necessary than ever to explicitly challenge unjustified concentrations of capital ownership and wealth inequality. According to the political scientist Lucy Barnes, support for progressive taxation has risen markedly since the crisis, but while many voters do not believe that the rich pay enough tax, there is little appetite for a return to ‘big’ government. [50] Two principles ought to be enunciated in the public debate about social investment and taxation. Firstly, additional wealth taxes ought to be ‘hypothecated’: pooled into a specific investment fund designed to offset adverse ‘social inheritance’, boosting opportunities for those from disadvantaged backgrounds. Secondly, the ‘better-off’ older generations must acknowledge that younger people and families increasingly need support: modest tax rises and benefit rationalisation is necessary to ensure inter-generational reciprocity. The American political scientist Harold Lasswell famously argued that politics is about ‘who gets what, when and how’; it is vital to bridge the inter-generational gap.

Conclusion

However well-targeted and resourced, early intervention programmes, family support, and education are not the solution to every social and economic problem. Nonetheless, it is difficult to envisage 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, alongside sustained predistributive reforms of capitalist markets. This chapter has argued that strategies of social investment and predistribution are inherently interconnected and mutually reinforcing. There is little purpose in improving the relative position of the most disadvantaged groups early in the life cycle if they then confront highly inegalitarian labour, capital and product markets which foster permanent reliance on the traditional welfare state.

Moreover, preventing the inter-generational transmission of disadvantage is an urgent moral and political imperative. As support for the welfare state has declined among high-skilled workers in service-orientated knowledge economies, [51] a predistribution agenda provides a fresh rationale for public investment which also benefits higher income groups through universal childcare, education, family support, and so on. The expansion of service employment among highly skilled women is a major political opportunity for the centre-left, forging a progressive alliance for a ‘new welfare state’ , providing further opportunities to bridge the ‘winners’ and the ‘losers’ of economic and social change. Until recently, the political dimension of how actors and institutions influence policy formation and resource allocation has been underplayed in much of the literature on predistribution. The chapters in this collection aim to remedy that gap. They make clear that the strategic aim of predistribution should be to ensure a decent minimum income for all, to provide access to social investment and services, alongside a fair distribution of assets, capital and wealth as Thomas Paine envisaged, identifying new means to provide collective security – the sine qua non of social democracy. As such, it is vital to integrate predistribution with social investment, developing future strategies that can achieve economic efficiency, social justice and sustainable growth in the ‘new hard times’ that are reshaping our world.

Claudia Chwalisz is a senior policy researcher at Policy Network and public service fellow at the Crick Centre, University of Sheffield

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

This article is an extract from Claudia and Patrick's new book, The Predistribution Agenda: Tackling Inequality and Supporting Sustainable Growth

The Predistribution Agenda will be launched at an event in Westminster on 9 December 2015

 

Notes

1. Martin O’Neill and Thad Williamson, ‘The Promise of Predistribution’ (London: Policy Network, 2012). Available at http://www.policy-network.net/pno_detail.aspx?ID=4262&title=The-promise-of-predistribution (accessed 21 March 2015).

2. Thomas Paine, Common Sense (Philadelphia, 1776). Available at http://www.gutenberg.org (accessed 18 May 2015).

3. Wolfgang Streek, ‘How will capitalism end?’, New Left Review 87 (2014), pp. 35–64; Tony Atkinson, Public Economics in an Age of Austerity (New York: Routledge, 2014).

4. Andrew Gamble, Crisis Without End (Basingstoke: Palgrave Macmillan, 2014).

5. Andrew Gamble, The Spectre at the Feast: Capitalist Crisis and the Politics of Recession (Basingstoke: Palgrave Macmillian, 2009).

6. Miles Kahler and David A. Lake, Politics in the New Hard Times (New York: Cornell University Press, 2013).

7. Stiglitz, Joseph. 2015. Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity. New York: Roosevelt Institute.

8. Jacob Hacker, ‘The institutional foundations of middle class democracy’ (London: Policy Network, 2011). Available at http://www.policy-network.net/pno_detail.aspx?ID=3998&title=The+institutional+foundations+of+middle-class+democracy (accessed 21 March 2015).

9. OECD. 2011. Divided We Stand: Why Inequality Keeps Rising. OECD Publishing. http://dx.doi.org/10.1787/9789264119536-en.

10. Ibid.

11. Egon Matzner and Wolfgang Streek, Beyond Keynesianism: The Socio-economics of Production and Full Employment (Brookfield: Elgar, 1991), p. 16.

12. Gamble, Crisis Without End.

13. See concluding chapter in this volume.

14. Matzner and Streek, Beyond Keynesianism.

15. Wendy Carlin, ‘A Progressive Economic Strategy’ (London: Policy Network, 2012). Available at http://www.policy-network.net/publications_detail.aspx?ID=4269 (accessed 21 March 2015).

16. Gamble, Crisis Without End.

17. See Andrew Gamble’s contribution in this volume.

18. Jonathan Ostry, Andrew Berg and Charalambos Tsangarides, ‘Redistribution, Inequality, and Growth’, IMF Staff Discussion Note (2014), pp. 2–3. Available at http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf (accessed 21 March 2015).

19. O’Neill and Williamson, ‘The Promise of Predistribution’.

20. OECD. 2011. Divided We Stand: Why Inequality Keeps Rising. OECD Publishing. http://dx.doi.org/10.1787/9789264119536-en.

21. Anne Wren, The Political Economy of the Service Transition (Oxford: Oxford University Press, 2014).

22. David Autor, Lawrence Katz and Alan Krueger, ‘Computing inequality: Have computers changed the labor market?’ Quarterly Journal of Economics 113/4 (1998), pp. 1169–1212. Autor et al. ’s analysis is based on data from the 1990s, but the broad picture of the key drivers of inequality in the advanced economies still holds true.

23. Economic Report of the President (Washington: United States Government Printing Office, 2015), pp. 146, 309. Available at https://www.whitehouse.gov/sites/default/files/docs/cea_2015_erp.pdf (accessed 18 May 2015).

24. OECD Centre for Educational Research and Innovation, ‘Education at a Glance’ (Paris: OECD, 2013).

25. Economic Report of the President (Washington: United States Government Printing Office, 1997), available at http://www.presidency.ucsb.edu/economic_reports/1997.pdf (accessed 18 May 2015).

26. Joseph Fishkin, Bottlenecks: A New Theory of Equal Opportunity (Oxford: Oxford University Press, 2014).

27. Gøsta Esping-Andersen, Social Foundations of Postindustrial Economies (Oxford: Oxford University Press, 1999).

28. See concluding chapter in this volume.

29. See John Gray, The End of Social Democracy (London: Demos, 1996).

30. Wren, The Political Economy of the Service Transition.

31. Ibid.

32. Ibid.

33. Hacker, ‘The institutional foundations of middle class democracy’.

34. Michael Corak, ‘Income inequality, equality of opportunity, and intergenerational mobility’, Journal of Economic Perspectives 27/3 (2013), pp. 79–102.

35. Patrick Emmenegger, Silja Häusermann, Bruno Palier and Martin Seeleib-Kaiser (eds), The Age of Dualization: The Changing Face of Inequality in Deindustrializing Societies (New York: Oxford University Press, 2012).

36. British Social Attitudes Survey (2014).

37. Stephen Nickell, ‘Poverty and worklessness in Britain’, The Economic Journal, 114/494 (2004), pp. C1–C25.

38. OECD Centre for Educational Research and Innovation, ‘Education at a Glance’ (Paris: OECD, 2013).

39. Ibid.

40. Rebecca Allen and Simon Burgess, ‘Can school league tables help parents choose schools?’, Fiscal Studies 32/2 (2011), pp. 245–61.

41. Lorraine Dearden, Stephen Machin and Anna Vignoles, ‘Economics of education research: a review and future prospects’, Oxford Review of Education 35/5 (2009), pp. 617–32.

42. Anne West, ‘Poverty and educational achievement: why do children from low-income families tend to do less well at school?’, Journal of Poverty and Social Justice 15/3 (2007), pp. 283–97.

43. Kitty Ussher, ‘What is predistribution?’ (London: Policy Network, 2012).

44. Gøsta Esping-Andersen, Social Foundations of Postindustrial Economies (Oxford: Oxford University Press, 1999).

45. Jen Lexmond and Richard Reeves, Building Character (London: Demos, 2009).

46. Dearden et al., ‘Economics of education research’.

47. Allen and Burgess, ‘Can school league tables help parents choose schools?’.

48. See Chapters 12 and 13 in this volume.

49. HM Revenue and Customs, ‘Measuring Tax Gaps’ (London: Gov.uk, 2013).

50. See Chapter 1 in this volume.

51. Wren, The Political Economy of the Service Transition.

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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.

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