What is Predistribution?

In a previous blog I set out the methods of taming capitalism. One approach has a new name, but is based upon some longstanding proposals. This is the idea that government should intervene in the economy not in order to redistribute from relatively free-market outcomes, but rather to pre-distribute.

The most obvious way to pre-distribute is to set a very high minimum wage. Another (independent) method would be to bolster the power of trades unions, perhaps by insisting that employers only employ those who are part of a trade union. A close alternative to the previous approach is to compel employers to bargain with their staff as a whole over the wage rate they pay.

These approaches clearly differ from my hourly average subsidy proposal, which is a form of earning subsidy. My approach allows employers to compete with one another and to make agreements with their employees. If people are low-paid as a result of this process the hourly subsidy will make up the difference.

There may be further aspects of Predistribution which are compatible with other proposals including my own; for example government provision of training. Improving the skills of the workforce may mean that workers can earn more than they would otherwise. I advocate training schemes as part of the guaranteed work/training programme that I consider an integral part of hourly averaging. The aim of the scheme I advocate is not to increase gross pay, however, but rather to increase the chances that people will be able to find useful employment. It may have the same outcome but the aim is not primarily about predistribution.

The advantage of Predistribution over earning subsidy proposals such as mine is that it requires significantly less government spending. The primary Government spending commitment is the increased amount that government must pay its employees more as a result of the policies. Advocates of Predistribution are attracted to the proposal either because it would enable governments to reduce taxes throughout society, or (much more likely) because it would leave more tax revenues to be spent on other things.

So why bother with earning subsidies if Predistribution is a much cheaper and more effective option? I advocate earnings subsidies as the interference in the market should be much less damaging and more effective than “predistributive” interventions. I will make this argument in my next blog.