A new buzzword is being whispered in the corridors of parliament and the inner sanctums of progressive think-tanks.
That word is ‘pre-distribution’, and those who utter it suggest it could not only win Labour the 2015 election, but build the elusive ‘moral capitalism’ that all parties seem to crave.
The idea behind ‘pre-distribution’ is that the government takes action to arrange how the market allocates its rewards. In essence, it simply relocates the focus of government intervention. Instead of redistributing the wealth of the economy after it has been generated, governments would act to channel it in a more equitable way in the first place.
According to the Smith Institute, ‘pre-distribution’ has a proud history. In the post-war period, trade unions, collective bargaining, and corporate governance arrangements all acted as agencies of ‘pre-distribution’, ensuring that the wealth of the free market was fairly shared out.
These agencies died out in the wake of deregulation and legislation that robbed unions of their economic power. Today, ‘pre-distribution’ is seen as something that the government should take responsibility for, through effective law-making and the careful regulation of business.
The Policy Network describes “policies governing financial markets, the rights of unions and the pay of top executives” as areas in which a ‘pre-distributive’ approach could reap dividends.
Abolishing banker’s bonus and linking the salaries paid to executives to those paid to the lowest earners within companies are two simple ways in which the wealth generated by the market can be channelled away from the pockets of the already super-rich and spread more fairly across the labour force.
A radical overhaul of banking regulation based on ‘pre-distributive’ principles could also have a long-term impact on how the financial powerhouses allocate their capital. Current proposals recommend that the ‘big four’ banks in the UK separate their high-street retail banking services from their investment banking activities. However, these reforms do not incentivise banks to invest in small and medium-sized enterprises (SMEs), or into those struggling areas of the economy- like the green sector- that desperately need a boost of finance capital to capture market share.
This could be remedied if banks were mandated to use a percentage of their profits to create regional ‘mini-investment banks’ to furnish struggling local businesses with the loans they need to tackle the current economic turbulence. Such services could be set up very quickly- each bank could choose to convert a single high-street branch in each town it has a presence into a ‘mini-investment bank’ for one weekend a month, until more permanent arrangements can be made.
The virtue of ‘pre-distribution’ is that it does not rely on unpopular policy devices like taxation and benefit provision, the standard tools of ‘redistribution’. Yes, Labour has to continue to work to change the culture of resentment that prohibits governments from making the case for higher taxation and an equitable welfare system. Yet at the same time this does not prevent the party from tackling the inherent inequalities of capitalism from a different angle.
A word of caution, however. ‘Pre-distribution’ cannot be held up as the holy grail that modern social democrats have been searching for. Some may believe that championing pre-distributive methods to reallocate wealth is enough to satisfy the short and long-term goals of the Left. However, it cannot distract from the fundamental aim of progressives throughout history- to engineer the transfer of economic and social power from entrenched elites to the public at large.
Louie Woodall is Assistant Editor of the Young Fabians Blog