Pre-distribution: Bad word, good idea
Some practical policies for implementing Ed Miliband's newest concept
(Luke Hildyard writes for the Shifting Grounds website)
The concept of ‘pre-distribution’ has grown increasingly popular with Labour Party policymakers, as witnessed by Ed Miliband’s use of the term at a Policy Network conference in London last week.
Very simplistically, the term suggests that, rather than the traditional left-leaning model of taxing the rich and spending the proceeds on the poor (wealth re-distribution), policies are put in place to prevent an excessive gap between rich and poor from emerging in the first place.
It’s a clunky word that’s unlikely to enter common parlance beyond the world of politics, but as an explicit philosophy for tackling the UK’s social problems, such an approach is long overdue. Income inequality is growing faster in the UK than any other developed country according to a report last year by the OECD.
This has all manner of terrible consequences, and one of the first challenges for Labour in pushing the pre-distribution agenda will be in thinking of how to get the message across to the electorate. One way might be to emphasise the effective consequences of inequality – we have loads more poor people than countries with the same amount of money. The fact that an increasing number of British families are depending on food parcels from Save the Children ought to be repeatedly and forcefully compared to more equal societies like Germany or France
In terms of specific policies much of the work by the High Pay Centre and its predecessor, the High Pay Commission, has already identified some immediate priorities for implementing pre-distribution. For example, the final report of the Commission argued for employee representation on the remuneration committees of large businesses, or even on the full board, as is the case in Germany.
Remuneration committees are currently made up of executives (or recently retired executives) from other companies who depend (or depended) on remuneration committees at their own firms and are therefore unwilling to set an example of pay restraint. By contrast, employee representatives would confront executives on outlandish pay packages – such as the £3.2 million ‘golden hello’ recently awarded to RBS’s head of Retail Banking, Ross McEwan –and relate them to their own comparatively meagre awards. Last year FTSE 100 CEOs were paid 185 times the average national salary. It is not an attack on wealth creators to suggest that some of this money could be used in a way that better reflects their skills, judgement and performance, while still enabling executives to enjoy a very comfortable lifestyle in comparison with the norm.
Similarly, remuneration committees are usually advised by consultants who are quite removed from the working lives of lower paid workers, and could carry out a myriad of other services for the company in question. Therefore, they have little incentive to antagonise the executives who send a considerable volume of profitable business their way by restricting the growth in their salary. As a first step towards counteracting any potential cross-selling, a ‘pre-distributive’ Government should order companies to publish the extent and nature of services provided by their remuneration consultants, with further action possible if cross-selling is perceived.
Of course these ideas are just a start, and more radical means of introducing pre-distribution will also be necessary. Unpaid internships – and how they are accessed – are an issue requiring urgent attention. Runaway pay packages at large companies, particularly in the financial services sector, have played a huge role in the growth in inequality since the 1980s. If businesses were forced to disclose a pay multiple, relating the pay of their lead executive or highest paid employee to the median or lowest salary at the company, or the median UK-wide, executives and remuneration committees might be shamed into moderating their unreasonable awards.
These kind of measures would not solve all the problems facing the UK that progressives might wish to tackle. For example, pre-distribution is not directly related to the challenges associated with unemployment or the housing crisis. Nonetheless, it would represent a good start towards tackling the divisive effects of inequality on society and indeed on businesses, through factors such as increased staff turnover or weaker employee engagement.
Crucially, the spirit of pre-distribution is also in tune with public attitudes to inequality. While 74% of respondents to the British Social Attitudes survey believe the gap between rich and poor is too large, just 34% support the idea of taxing the rich to help the less well off. So policies that shame the super- rich into eschewing pay packages far in excess of what is good for the economy, or what any reasonable household might need, present the best option for tackling runaway pay. If Gordon Gekko’s mantra of ‘greed is good’ came to epitomise the cowboy capitalism of the 1980s, then a ‘guilt is good’ culture might be more appropriate to the current era. It is encouraging to hear leading politicians talk in general terms about an approach that would support this – now we need to hear some specific policies too