Where are the big, practical policies behind ‘pre-distribution?’


9:30 am - September 28th 2012

by Duncan Weldon    


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‘Predistribution’ and ‘Responsible Capitalism’, two concepts now associated with Ed Miliband, are starting to generate an interesting discussion about they actually mean in concrete policy terms.

I’d especially recommend recent articles from Sonia Sodha, Nick Pearce & Gavin Kelly, Paul Hackett and my colleague Tim Page. My own contributions (far less interesting) can be found here, here and here.

The two related ideas have generated much interest, but so far little in the way of ‘actionable proposals’. A point very well made by Paul Gregg, a man who knows a thing or two about the labour market, over at the LSE’s British Politics blog:

The key constraint is that they are indirect effects, and indirect interventions often lack the power to overturn the deeper processes already at work. Will a Living Wage campaign backed by public sector procurement achieve the scale to overturn the steady rise in wage inequality in the UK? Will shareholder activism combined with rules around binding votes for remuneration packages of top executives halt the rise in pay unrelated to firm performance?

As Gregg argues, there is a lot of good stuff in these concepts but more work is required

I think if these ideas are going to have the kind of impact on British public policy than their advocates support, they need to be fleshed out more fully – otherwise they run the risk of generating a lot of light but not much heat.

For example, one key component of ‘Responsible Capitalism’ is the reforming of corporate governance in order to involve more stakeholders than simply shareholders, empower workers and combat both extreme inequalities of pay and the short termism of corporate Britain which leads to a low level of investment.

Take this description in the Independent from Gavyn Davies:

In the US and the UK, the rights of the owners of the firm, the shareholders, are not only seen as sacrosanct, but company directors are required by law to protect them. This gives shareholders a primacy over other groups, such as employees, customers, or indeed the local community from which the firm derives its support services. Flowing from all this, it is claimed by the left, is the short- termism bred by Anglo-Saxon stockmarkets and the takeover culture. It is quite possible to imagine free market economies in which private firms do not operate in this way. In fact, Germany is one such example – a genuinely free market economy, but paradoxically one which requires directors on supervisory boards to represent all the interest groups that come together in a firm, not just the shareholders. The absence of any significant influence from the outside capital markets is said to have encouraged a long-term approach to investment decisions, employment practices, and customer relations. Many in the Labour Party want to see the next government take legislative action designed to import the German system of corporate governance into the UK.

There’s not much there I’d disagree with – involving stakeholders in governance, ending short-termism, etc. But that Gavyn Davies article dates from January 1996.

There is huge potential in the notion ‘Responsible Capitalism’, but for that potential to be realised the rhetoric needs to be transformed into practical policy solutions.

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About the author
Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Reader comments


1. brian strutton

I’ve done a short post on ‘classonline’ about the type of policies we could derive from the concept of pre-distribution, just to encourage debate.

that Gavyn Davies article dates from January 1996

Miiband needs to be convincing that he will do some of this stuff and not do what Blair & Brown did and fold their hand at the first huff and a puff from the City. 1997-2010: that’s quite a long time to do nothing.

Right idea. Wrong approach.

A better way is based on this

1. Companies should be run in the interests of their owners. Enlightened owners should, in my opinion, take proper account of the interests of other stakeholders but it is not my place to tell other ‘owners’ what is in their interests.

2. Neither however is it the place of anyone else to tell me what my interests as an owner are.

The problem I have as an owner is that my ownership is dispersed. I have neither the time nor the inclination to take an interest in every company in which I have a beneficial stake.

In common with many other people I have a small stake in many companies through my investments in pensions and ISAs. Also in common with many others I want those investments to provide a good rate of return but I don’t want to profit from the exploitation of those who work for me or from the destruction of the environment. I also don’t want to profit from unfair competition or from unduly favourable government regulations or from any other unethical behaviour.

What I want is a voice in the running of the companies that work for me. I don’t want regulators or courts telling my companies how to act in my interests. They are manifestly incapable of that. And anyway I can do that for myself.

What I want is to be able to nominate a ‘super-proxy’. Someone who can, on my behalf, nominate a proxy who can use my vote to influence the running of the companies I part-own.

I want all investment companies who operate in the UK to give me the opportunity to nominate a single person (e.g. Ed Milliband) and give him or her the power to vote, on my behalf, at company meetings in much the same way as I get to vote for an MP to vote on my behalf in parliament.

When this happens I, in concert with my fellow citizens, will have a corporate sector that act in the interests of their real owners. The ordinary men and women of this country.

@3

If you think about it you’ve actually just agreed with the thrust of the OP. Your only problem is your belief that regulators are incapable of taking a part in the process. Based on recent history I can see your point, but from the start UK bodies such as the FSA were under-resourced compared to, for example, their US counterparts. It was almost as though they were designed to fail…

@OP Duncan Wheldon: “Take this description in the Independent from Gavyn Davies:

‘In the US and the UK, the rights of the owners of the firm, the shareholders, are not only seen as sacrosanct, but company directors are required by law to protect them. This gives shareholders a primacy over other groups, such as employees, customers, or indeed the local community from which the firm derives its support services.'”

That is an incorrect description of UK practice: tax man always has first dibs.

6. So Much For Subtlety

Flowing from all this, it is claimed by the left, is the short- termism bred by Anglo-Saxon stockmarkets and the takeover culture. It is quite possible to imagine free market economies in which private firms do not operate in this way. In fact, Germany is one such example – a genuinely free market economy, but paradoxically one which requires directors on supervisory boards to represent all the interest groups that come together in a firm, not just the shareholders.

Sooo. The one idea the Left can come up with, to explain the Labour Party leader’s fatuous rhetoric, is basically an endorsement of the German Catholic Church’s policy on socially responsible capitalism dating back some 70 years in Germany and a century before that in Rome.

Which will only have one effect – giving Union leaders a chance to personally loot some small part of the British shareholders’ assets. And get them some Brazilian prostitutes.

Great.

As I have said before, the Left is intellectually bankrupt. This is a shame as we need a debate and a choice. But if this is the best they can come up with, we ain’t going to be getting either any time soon.

7. Luis Enrique

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  1. Jason Brickley

    Where are the big, practical policies behind ‘pre-distribution?’ http://t.co/qgXtAnsG

  2. leftlinks

    Liberal Conspiracy – Where are the big, practical policies behind ‘pre-distribution?’ http://t.co/aJ4Mr4jM





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