Beyond Redistribution

What do the “pre” and “post” refer to? At any given point in time, we can represent a market economy as a set of agents and their relatively scarce endowments. Since the agents are assumed to have different preference orderings and intensities, they engage in transactions with one another — financing, producing, exchanging — that realize hitherto untapped gains from trade.

The realization of these gains transforms the original pattern of endowments into an entirely new distribution, which leaves some better off without anyone being made worse off than they were before. Redistribution, under this light, is relatively straightforward to understand. Unsatisfied with the end-state distribution brought about by market exchange, states can redistribute incomes after the fact by wielding their fiscal authority to tax some and transfer to others.

But we grasp intuitively that something critical is missing from this idealized picture of economic activity. Endowments neither fall from the sky nor are congenitally given. Preferences are by no means independent from endowments; what we want is almost always relative to what we have. And more confoundingly, what constitutes an endowment as well as an actionable preference is itself defined by a legal framework that apportions rights and obligations to the actors in the economy, a superstructure that is liable at least in theory to democratic contestation. This indeterminacy opens up the possibility that we could affect the outcomes of the trucking, bartering, and exchanging in the market before they take place and not after.

In practice, most, if not all, the income earned by people and firms in a capitalist economy comes from their willingness and ability to supply an input into one production process or another. For a tiny minority that input is either capital or non-reproducible natural resources. The rest supply the capacity to work with varying levels of skill, specialization, and level of wear and tear — the “doubly free” proletarian condition we are so familiar with.

Because markets reward relative scarcity, this creates a fundamental imbalance of power between the two groups. Even within the laboring group, the better-skilled and educated are typically positioned to hoard opportunities or even strike to strengthen their competitive position. Public policy that remediates this imbalance of power, which flows from highly unequal ownership, whether by modifying the relative scarcity of the endowments or the rights that adhere to them, is what economists have given the unwieldy title of predistribution.

Predistribution Is Worker Power

Here is the crux of the matter: whereas the political fight around redistribution is resolved through taxation, in predistribution the target is the bargaining chips, as well as the exit options, available to the parties that contract in our formerly idealized, now conflictual, civil society. And to this end, the tools available to socialists extend well beyond the public treasury’s.

The most obvious candidate is labor law. This is because, as alluded to already, the site in which the unequal distribution of economic assets is most acutely felt is the labor market. Statutes that facilitate forming a union and mandate first-contract bargaining in good faith once one is formed chip away at capital owners’ ability to divide and conquer. Favorability principles and universal extension clauses, which exist in most European countries and some Latin American ones, have the same effect; they make it mandatory that all employers in an industry accept the parameters of the collective bargaining agreements in force in the most organized sections.

Corporatist legislation, such as codetermination laws that partition management rights within the workplace or create tripartite boards that gather state agencies, employers, and employees at a common negotiating table, also have predistributionary effects. The same holds for minimum-wage laws. They raise compensation for the most unskilled portion of the labor force and, in so doing, increase incomes for the rest.

We can extend this logic to other scarce assets that we regard as necessary for human flourishing but whose unequal and private ownership works against the interests of the public. Housing and information are two particularly salient examples. For the former, rent control legislation coupled with public housing development dilute the bargaining power that landlords have by dint of their continuing stake in a housing stock that fails to grow in tandem with the population.

Other ways of strengthening the hand of renters include passing laws that limit landlords’ ability to evict tenants at will, or that allow tenants to deduct the cost of repairs from their monthly rent. Even outside the renter market, eliminating land-use regulations that unduly empower existing homeowners to veto construction at the expense of would-be first-time buyers is a predistributive policy that shouldn’t be ceded to the developer-friendly YIMBY crowd.

With regards to information, the challenge is to design intellectual property laws that restrict the right of private parties with proprietary knowledge to extort the rest of society and stifle innovation in the process. This means shortening the life of patents and increasing the requirements for awarding one. At least in certain critical fields of knowledge production, such as life-saving medicine, a strong case can even be made for scrapping patents altogether in favor of a fixed number of payments for inventors of new drugs and treatments. Financing open-source platforms, coding languages, and hardware is another avenue for democratizing control over information.

Under the umbrella of predistribution we can also place policies that significantly affect the broader economic environment. Antitrust laws are one example. By aggressively curtailing anticompetitive practices, regulators prevent the dominant firms in any given sector from calcifying their power on the market over sellers and buyers alike.

Another example of a predistributive policy is the much-debated national job guarantee. Such a policy would force the private sector to contract on terms that are at least as desirable as those found outside of it — or face a drying up of applicants.

Now it is not my intent to offer a full-throated defense of these policies, some of which recommend themselves better than others. My aim is rather to draw attention to the thread that is common to all of them. By recognizing that the market rewards relative scarcity, predistribution acts to shift the power that accrues to asset holders in societies characterized by highly unequal ownership.

It draws out and seeks to tamp down the capacity to dominate others that this state of affairs gives to them. And while most of the examples just listed require the sometimes heavy hand of the state, there is plenty of room for nonstate actors to produce the same effects. Trade unions have the best track record, but we shouldn’t discount the role that tenants’ unions, consumer cooperatives, and other associations of the asset-poor could play in advancing a predistributive agenda.

More research into this area is needed. A systematic comparison between top-down and bottom-up predistribution, considering the relative blind spots of the institutions conducting each, is yet to be conducted. States may have built-in elite bias under capitalism, but trade unions and other groups may be unable to rise above a sectional interest when levels of organization across society are uneven.

Not Either-Or but Both

We finally return to the question of what socialists should make of the American Economic Journal’s counterintuitive finding. In the final analysis, predistributive policy — whether by direct state action or through the extension of union coverage and scope of collective bargaining — seems to be most responsible for the durable reductions in economic inequality that counteract capitalism’s drift toward oligarchy.

Moreover, what limited evidence we have so far regarding the relative popularity of predistribution versus redistribution suggests that working-class voters are more inclined toward the former. They perceive predistributory measures not as welfare, which they may or may not think its recipients deserve, but rather as equal-opportunity empowerment. Does this mean that we ought to ditch redistribution altogether and leave it to the well-intentioned policy wonks on the left edge of the liberal political spectrum to figure out the least wasteful recipe for taxes and transfers?

This would be too hasty. The reality that is frequently obscured in the newfangled debates over predistribution and redistribution is that far from being alternatives toward the same end, they in fact serve different purposes. As Matt Bruenig has been at pains to point out in these pages, most of the spending that falls under the rubric of redistribution constitutes a transfer of income from the economically active population to those outside of the world of work: children, the elderly, the disabled, the sick, and the unemployed (whether short- or long-term).

What redistribution aims to do, in other words, is to incorporate the preferences of people that the market simply can’t internalize because their endowments don’t allow them to back them up with purchasing power. Thus, the animating principle of the welfare state is and has always been social protection through public co-insurance. Indirectly, this consumption-smoothing function bolsters workers’ bargaining with their employers insofar as it makes the threat of firing weaker. But we shouldn’t be surprised that its contribution to overall inequality reduction is less than impressive.

In contrast, predistribution, at least when oriented in a progressive direction, aims to modify the terms of trade among the economically active population. This means that the bargains that predistributory measures strike shift income in aggregate from the better-endowed — and therefore more powerful in the market and workplace — to the worse-endowed. This can constitute a movement of what would have been profits to wages, but also of managerial to nonmanagerial labor income, the reductions of the premiums that more skilled workers enjoy in contrast to their unskilled peers.

We only need to look at what mid-century national bargaining systems in Scandinavia or Australia achieved through solidaristic wage policy to see the value of predistribution. This policy was motivated by the principle of equal pay for equal work, irrespective of the profit margins of any given firm. By leveling the incomes of workers, it forced unproductive employers, who would have otherwise scraped along by underpaying their employees, to keep up with their more productive competitors.

Social democrats in Scandinavia and Australia also prevented highly productive firms from poaching labor from elsewhere by offering them higher wages. Such instruments in the predistributive tool kit show how it would be possible to create a wage-led economy. This would be an economy in which the opportunities for profit-making were subordinated to public, and hence democratically contestable, standards of living.

What this means in practice is that socialists ought to reject an either-or choice between redistribution and predistribution. We ought instead to unreservedly strive for both. That being said, we benefit tremendously by clarifying to ourselves and our constituencies what each one can and, more importantly, cannot accomplish.

Insulating the vulnerable from the silent compulsion of the market is not intrinsically at odds with shifting the balance of power within it. But it is also not a substitute for addressing power imbalances, at least not entirely. Despite the fever dreams of right-wing organizations like the American Enterprise Institute, we won’t be able to grow the welfare state into socialism.

To truly confront the concentrated power of the investor class, we have to also directly delimit how they can use their resources — that is, their endowments. For that, predistributive policy, in a pincer movement that reaches from the top-down and from the bottom-up to encircle capital and its lieutenants, remains our best bet.