Pre-distribution may be a new word but it is a route into exploring some far older ideas that lie at the heart of progressive debate.
Jacob Hacker, the US academic credited with inventing the concept of pre-distribution, says it is “to focus on market reforms that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits”.
There are two possible interpretations of this: one is important but limiting, the other has far more potential. Important but limiting is using pre-distribution to soften the collateral damage from the worst excesses of markets through regulation before the event, rather than taxation or transfers after. Examples are introducing a minimum wage to prevent exploitation without raising unemployment, raising capital requirements on banks to make it harder to lend to those who can’t pay back, and setting quotas for the amount of electricity your distributor has to purchase that is generated from renewable sources.
To a degree it looks as if this is what Professor Hacker is primarily referring to, albeit in a US context: he berates the lack of restrictions on high pay, explains how the mainstream middle classes lack political organisation to shift regulation their way and champions the need for a new political economy organisational model of “democratic capitalism”. The connection made by Ed Miliband, speaking at a Policy Network event at the London Stock Exchange on 6th September 2012, between pre-distribution and living wage campaigns also lies in the same space.
All this is worth exploring, and there is certainly more work to be done to understand whether some sections of the economy can support a minimum wage nearer to that espoused by the living wage campaigns, without raising unemployment. But it is the second interpretation of the pre-distribution neologism that has greater potential to achieve lasting change. This is what I am calling the empowerment interpretation, which focuses on what is needed to ensure that an individual can respond to the uncertainties of a global economy in a positive and confident way.
The role of government:
In an earlier essay in this series, the academics Martin O’Neill and Thad Williamson rightly link the concept of pre-distribution to John Rawls’ work on equality of opportunity. By approaching it in this fashion, the role of government is widened beyond regulation and the technical curbing of the worst excesses of market power (or, in Treasury-speak, the correction of market failures), towards a more people-centred approach. It is about striving to endow everyone – regardless of circumstances of birth – with sufficient weapons in their own personal armoury that they can achieve their ambitions and hopes even in the face of strong economic forces that seem daunting.
From income to assets:
The policy implications of this approach are deep. For a start, they add to any discussion of income levels, the crucial consideration of assets, both hard and soft. It has always seemed to me unusual that somebody who owns property but has a low income can be viewed in the same way by the state as somebody who does not. Certainly in the British context, any discussion of economic power has to address the issue of property head-on: Rawls sets us on the path to a more asset-based welfare policy with his nod to the aspirations of a “property owning democracy”; which Margaret Thatcher then exploited to her political advantage.
Pre-distribution needs a clear and radical plan to spread housing wealth more widely and – unlike the one-off gains from selling council homes – in a self-renewing way. That’s first base in the action to protect individuals against economic instability.
The next step in a pre-distribution hierarchy of needs is to take a firmly asset-based approach to the whole of welfare policy. Of course people need insurance – whether provided by the state or an efficient private sector – so that a temporary setback in their lives won’t lead to permanent damage. But, as I argued in a recent Fabian pamphlet, in the longer term we should build on the policy experience we gained through reforming pensions, and through the introduction of child trust funds (now abandoned), to also help people build the financial resources they need to cope with different stages of life in ways of their own choosing. Government could work with industry to design specific savings schemes designed to pay out in either cash or vouchers for a particular purpose. Examples could be making provision for future training, childcare, or age-related care needs. This is not so much taming or even reforming markets, but confidently shaping the markets that we need to achieve the goals we desire.
Human capital is the most important asset:
Next, a pre-distribution agenda must focus ruthlessly on skills. Human capital is the most important asset an individual can possess. Ed Miliband has made this link, stating explicitly that pre-distribution seeks to offer lower paid workers higher skills. After all it is an economic truism that the factor that most determines pay rates is training. But we can move this on further. There is no getting away from the fact that pay rates in professional services are rising, as the size of the sector grows, whilst clerical and skilled manual jobs are seeing rewards and opportunities fall. The key to this is not to try and equalise the two; I do not think that would be possible. But it should be realistic, in an economy where lifelong learning is the norm, to avoid any individual feeling trapped in a sector with limited potential. On the doorstep in a manufacturing area a voter once said to me “we’re very grateful for the minimum wage, but we don’t want minimum wage jobs”. I conclude from this that we need more routes out. Focussing on the individual journey rather than looking at sectoral trends is the key to solving the squeezed middle question.
Capability and character:
Finally, pre-distribution must not only address economic questions but also move into areas of capability, mental health and character: disciplines where there is extensive specialist academic literature but little policy debate. Similarly, network theory shows our behaviour is heavily influenced by those around us; financial considerations affect what we do, but so do many other things. Any discussion of individual empowerment in a mixed economy must be grounded in a solid psychological understanding of motivation.
What these empowerment strands have in common is that they focus ruthlessly on the supply side, and so have the potential to raise the country’s economic potential, whereas the traditional redistributive approach – and indeed the more narrow interpretation of pre-distribution – is more about how to slice the same cake in a fairer way. Both are important but the reason the empowerment approach is more exciting is that its potential to achieve change is far greater, because it harnesses the power of human nature (even if that also means a little coaxing is sometimes required).
The problem of course is that talking about supply-side pre-distribution is not exactly a vote winner. But a language that, as well as talking about fairness and safety nets, also talks about human potential; about ensuring that nobody is barred from achieving what they want; about exciting opportunities not just for all youngsters, but for people at all stages of life; about the confidence that comes from having savings and assets and a plan for a rainy day – regardless of who you are or where you come from; about a society that can spot when people need support and takes action before it all gets too hard… well, it feels like there might be some mileage in that.
This column was first published by Policy Network