Co-authored with Patrick Diamond, co-chair of Policy Network and lecturer at Queen Mary, University of London
In order to survive, the left can no longer rely on the forces of the big state to redistribute wealth
Jeremy Corbyn’s victory in the Labour leadership contest ignited interest in the debate about inequality while underlining growing disquiet about our capitalist system. Yet Corbyn cannot wish away the paradox facing all centre-left parties in the industrialised world: while the electorate is disconcerted by the growing disparity between rich and poor, they have less confidence in redistribution by government. Like it or not, attitudes in the last 20 years in all western countries have shifted markedly to the right.
To unrepentant leftists, this is perplexing. After all, the financial crash in 2008 was supposed to do the opposite. Growing antipathy towards financial capitalism would revive support for the state and with it, far-reaching redistribution. It has not turned out that way: since the second world war, voters’ support for redistribution had been greater the further they were down the income scale. After 2008, however, low, middle and high income earners have converged in their hostility to redistribution, as Stuart Soroka and Christopher Wlezien point out. It may be that low income voters fear they will be caught by punitive taxes; the state is seen as too incompetent to redistribute money efficiently. Electorates are without question concerned, even incensed, about the growth in rewards enjoyed by the super-rich and the sheer scale of inequality, but voters have never been less sympathetic to state interference in the distribution of incomes.
As a result, the political climate for Corbyn’s party and for the centre left across Europe has seldom looked less propitious. One response is simply to accept the inevitability of rising inequality and to tame its worst effects, alleviating poverty and providing better opportunities for children from poorer families. This was the 1990s third way strategy of Tony Blair and Bill Clinton. It was electorally successful as it did not threaten the material interests of the middle class; business was prepared to tolerate moderate social democracy. But it made the left appear increasingly expedient and unprincipled as inequality soared: precisely the circumstances that contributed to Corbyn’s ascendency. Labour parties have to find a new path to power.
Centre-left movements should aim to narrow the gap between rich and poor, identifying measures that do not rely simply on fiscal redistribution by the state. Governments redistribute incomes directly through taxes and social security; they spend on services that benefit poorer groups. Both remain vitally important; but in highly unequal economies, an unfeasible amount of redistribution is necessary to prevent the income gap growing uncontrollably. An overreliance on redistribution foments voters’ resentment against the ‘undeserving poor’, while governments in the post-crash era have constrained public finances. A new strategy is needed: let’s call it ‘socialism without the state’. This draws on a long-established political tradition bridging the 18th century radical Thomas Paine with the post war economist James Meade which strives to tackle the injustices arising from a market economy without relying wholly on fiscal instruments. Our recent book, The Predistribution Agenda, expands this policy territory.
First, it requires an industrial strategy to expand the supply of high-quality, high-wage jobs in the UK channelling public innovation and science investment to underperforming regions. It entails coordinated public and private investment to upgrade the stock of human capital through training and skills, rebalancing our economy away from its structural dependence on financial services.
More adept use of regulatory levers is required to increase pay in notoriously low wage sectors, notably social care and retail; the wages councils abolished by the Thatcher governments should be reinstated. Another tool is shaping moral norms to stamp out exploitative business practices, using consumer purchasing power to reward good behaviour. Firms who pay their employees fairly will perform better.
Finally, asset and ownership policies will increase access to wealth. Fiscal redistribution would be needed less if ownership of property and capital were more fairly dispersed. Taking steps to reduce the price of unused land will help to widen the base of home ownership. More companies should be incentivised to share profits with staff. The focus of tax policy ought to shift from earned income to taxing the unearned increment from capital, wealth, inheritance and land.
The state still plays an essential role, but this should not be limited primarily to redistributing incomes, which voters in industrialised countries resent. Of course, tax and spend policies to fund investments in education and to support decent welfare provision are vital to a well-functioning economy, alongside social justice. To gain the support of voters, however, social democrats need to find levers to narrow the gap between rich and poor that do not always rely on unleashing the traditional forces of the big state. In ‘the new hard times’, socialism can only survive if it abandons that fixation.
Note: This post was originally published on the Policy Network blog on 5 January 2016.
The article is based on the ideas presented in our new book, The Predistribution Agenda: Tackling Inequality and Supporting Sustainable Growth.