Source: Tax Justice Network
In 1964 the British economist, James Meade, who went on to receive a Nobel prize, published a short book entitled Efficiency, Equality and the Ownership of Property. Meade had worked as an advisor to the 1945-50 Labour government and he was in later years to serve as an advisor to the SDP/Liberal Alliance. His ideas fit into a wider current of radical thinking about property which ran through the centre-left of British politics in the mid- to late-twentieth century. While this current has been somewhat eclipsed in recent years – barely visible in the Liberal Democrats – it is worth retrieving to consider what relevance it may have for the future.
Downward pressure on wages and the wage share?
Meade’s 1964 book was motivated immediately by a concern about future technological and economic development. The scenario he contemplated was one in which automation of production reduces the demand for labour: ‘This could happen if, in spite of the net accumulation of capital equipment, the new labour required with the new automated machines was actually less than the growth of the labour force plus the labour made redundant by the scrapping of physically worn-out old machinery’ (Meade 1964, pp.25-26). If the workers losing their jobs as a result of automation are to get jobs elsewhere this might well require ‘an absolute reduction in the real wage.’ Even if wage rates are not depressed in absolute terms, the automation process could lead at least to a shift in labour’s and capital’s shares of output, a higher share going to capital.
If this sounds familiar it is because in the last few years we have started to hear similar concerns voiced from a range of quarters. The radio show Novara has consistently explored, within a Marxist framework, the thesis of ‘surplus population’ related to a ‘secular crisis’ of capitalism. Paul Krugman and others have written about the possible ‘rise of the robots’ and the implications of this.
Just a few years ago, some economists were speculating about the possible impact on wages in countries like the UK of the integration of countries such as China and India into the global economy. As Andrew Glyn put it in his 2006 book, Capitalism Unleashed:
‘...there is the impact of surplus labour in China and elsewhere, significant segments of which will be highly educated but with much lower wages than in the North. Access to this cheap labour could encourage a much higher level of direct investment from the North, in effect an investment drain away from the rich countries. In effect the capital-labour ratio would decline on a world scale, by one-third or more according to one estimate, as the vast reserves of labour in those countries become inserted into the world economy. The result could be a major fall in the share of wages in the rich countries as workers find their bargaining position weakened’ (Glyn 2006, pp.153-154.)
These concerns and arguments have emerged, of course, against a backdrop of real wage stagnation. In the US, median household income barely increased 1979-2005, largely reflecting stagnation in employment income (Commission on Living Standards 2012, p.34). In the UK, real annual pay for those on median wages or below was flat or falling between 2003 and 2008, even though the economy as a whole was growing; and the annual pay of lower paid workers has fallen in real terms since 2008 (see Figure 5 in this report). A majority of UK workers saw hardly any improvement in annual real pay between 1999/2000 and 2010/11 (Whittaker and Hurrell 2013, p.9).
Meade’s liberal socialist response
Narratives of wage or wage-share depression due to ‘capital-biased technological change’ and/or a global increase in the effective supply of labour are of course contested. But for now let’s assume – for the sake of argument – that we do face a scenario of this kind in which there are systemic pressures working to depress wages and the wage share. How ought we to respond?
Meade’s 1964 book considers four possible responses: ‘the trade union state’; ‘the welfare state’; ‘property-owning democracy’; and ‘the socialist state’.
Under the first heading, Meade means any action, whether through collective bargaining or legislation, to maintain a ‘minimum real wage’. He is sceptical of this approach on the grounds that it will come at the expense of jobs.
Under the second heading, Meade has in mind tax-transfers which shift resources from the capital-holding rich to the wage-earning poor. Again, he is sceptical that this approach can go far by itself. The tax rates necessary, he thinks, could undermine economic incentives.
It is the latter two responses that Meade advocates. If the return to capital is rising relative to labour, then the way to prevent this leading to growing inequality of income is to democratise claims over wealth – over returns to capital. This can be done in two ways.
First, the state can enact policies to encourage a wider dispersion of privately-held wealth. This is what Meade means by ‘property-owning democracy’. Meade himself puts a lot of emphasis on designing an inheritance or accessions tax in a way that will break down large concentrations of wealth and encourage people to give wealth to those who have yet to receive much from this source. One can readily imagine other, complementary policies to help with this goal. In one interesting response to Paul Krugman’s article on the ‘rise of the robots’, Noah Smith argues along Meade-type lines, suggesting the idea of a universal capital endowment as a right of citizenship. (Back to the Child Trust Fund?)
Second, the state can itself build up a stake in national wealth and distribute this as income to citizens. For much of his career Meade was an advocate of what he termed ‘Topsy Turvy Nationalization’. He was not supportive, in general, of the state buying up private sector firms and then trying to manage them. But he did strongly support the creation of a state investment fund. The state would own a portfolio of assets across the economy. The return on these assets could then be returned to the citizenry, e.g., as a uniform social dividend or basic income. One might call this a Citizens’ Trust.
Meade was ambitious for this idea. In his ideal scenario, he envisaged the community owning 50% of national assets as a Citizens’ Trust and using the return to provide a social dividend for all. In Meade’s utopia – or what he himself called his ‘agathatopia’ (a good, if not perfect, place) – a downward shift in the return to labour, e.g., due to automation, has a more limited impact on the overall distribution of incomes. If there is a change in the relative reward of labour and capital, then while one source of an individual’s income (wages) falls in relative terms, other sources of their income (the returns on more widely held private and shared public assets) will correspondingly rise.
Before we reject the very idea of a Citizens’ Trust as wholly utopian, however, it is worth pausing to note that there is at least one place where something like it exists. As Karl Widerquist has discussed, this is exactly what we see today in Alaska where the Alaska Permanent Fund provides every citizen with an annual payment currently of close to $1,000.
Widerquist also points out that:
‘Alaskans don’t have the dividend because they are resource-rich. They have it because some smart Alaskans took advantage of the opportunity. Common resources are being privatized all the time all over the planet. We could tax privatized resources, but the easiest place to start is at the moment of privatization. Every new well that’s drilled is an opportunity to assert community control of resources. So is every new mine that’s dug, every new reserve that’s discovered, every new smokestack that seeks to use the atmosphere as a garbage dump.’
The political context of Meade’s ideas
As noted above, Meade’s work fits into a wider current of thought on the centre-left of British politics. From the 1930s, the Liberals adopted the slogan of ‘Ownership for all’. Under this banner, they argued for things like profit-sharing, co-determination in firms, employee share ownership and reforms to inheritance tax.
As Ben Jackson has argued, ideas of a similar kind were also important to the thinking of the ‘revisionist’ wing of the Labour party in the post-war period (Jackson 2005). Labour considered the idea of a state investment fund seriously in the late 1950s. The policy discussion document, Towards Equality (1956), suggested allowing estate tax to be paid in assets thereby enabling the community as a whole to share in the capital gains from rising asset values. But the idea did not really get much traction, being seen as too capitalistic on the party’s left.
In the 1980s, in the milieu of the alliance between the Liberals and the Social Democratic Party (SDP), we see something of a fusion of traditional Liberal and Labour revisionist thinking in this area. Meade was at the centre of this. In 1985 a working group within the SDP set out a proposal to establish a Citizens’ Trust by means of capital dilution (requiring firms to issue new shares each year to a public fund as a fraction of their existing shares, e.g., at a rate of 1.5%, to issue 1.5 new shares to the fund for every 100 existing shares).
In 1986 the SDP became (to my knowledge) the first and only UK party ever to adopt the creation of Citizens’ Trust as official party policy. The party leadership strongly opposed the idea as ‘statist’, but the party’s ruling body between conferences, the Council for Social Democracy, adopted it over the leadership’s opposition.
The idea did not quite disappear when the Liberals and the SDP merged after the 1987 election. In 1989, Paddy Ashdown, leader of the new Liberal Democrat party published a book, Citizens’ Britain, intended to set out his view of the kind of social and political vision the new party ought to have. Ashdown argued that Thatcherism’s claims to be creating a ‘people’s capitalism’ rang hollow. He urged the Liberal Democrats to ‘be much more radical about popular share ownership - we could give every citizen a stake in our economy’ (Ashdown, 1989, p.129). To this end he advocated a proposal drawn up by Meade for a ‘Citizens’ Share Ownership Unit Trust’. The ambition was for the fund to hold 10% of the assets of ‘all private enterprises over a certain size’. This would make for ‘a real, rather than make-believe, citizens’ capitalism...’ (Ashdown, 1989, p.130).
In the following decade, Gerald Holtham argued that social democrats should seek to establish a ‘community fund’ based on public investments as a means of creating an extra source of revenue (Holtham 1999).
A lost perspective?
Looking at British politics today, what has happened to this current of thought?
The Liberal Democrats do not seem to be interested in the kind of systematic thinking offered by Meade. When the previous Labour government introduced the Child Trust Fund, a policy with a clear link to Meade’s notion of property-owning democracy, the Liberal Democrats immediately opposed it without ever proposing an alternative.
Today, Labour arguably has moved some way onto Meade’s terrain. It accepts that there is a significant problem with wages. Like Meade, it is sceptical that this can be redressed simply through tax-transfers. This is why Labour is now focused on ‘predistribution’: on approaches that will promote greater equality in pre-tax incomes.
On the other hand, Labour seems currently committed to a model of predistribution that is largely employment- and wage-centred rather than, as with Meade, focused on changing the ownership of capital. Consider, for example, the emphasis in Ed Miliband’s speech this week on living standards:
‘...markets always have rules. The question is: what do those rules allow? And what do they encourage? Do they encourage companies to create high-skill, high-wage jobs, as part of a race to the top? And provide the support they need to do so? Or do they encourage a race to the bottom of low wages and low skills?’
The emphasis is clear, too, in Duncan Weldon’s recent summary of Labour’s emerging economic approach: ‘While there is much that can be done through the existing minimum wage, the extension of the living wage, pushing up employment, and (crucially) extending collective bargaining coverage to support living standards, in the longer term the challenge is creating more higher skill, higher wage jobs in the first place...’ (For some sceptical remarks on aspects of this kind of policy thinking, see this and this piece by Chris Dillow.)
Of course, there could be much more scope today than in Meade’s scenario for policies of this sort. Perhaps the depression of wages is not as inevitable as the ‘rise of the robots’ and globalization narratives suggest, and there are things that can be done, such as Living Wage initiatives, to restore inclusive real wage growth and the wage share.
But even if there is scope for this sort of strategy, there is surely also reason to look at assets and capital. Widening citizens’ claims over returns to capital will at least complement a strategy focused on increasing wages, and promises gains to individual freedom and economic fairness in its own right. In this respect I echo Martin O’Neill who has argued that predistribution should constructively be linked to Meade’s notion of property-owning democracy. There is also a link with emerging interest in the nations of the UK in setting up a Sovereign Wealth Fund, as discussed by Angela Cummine.
So, what would a contemporary and egalitarian property-owning democracy agenda look like?
And, in particular, what about the idea of developing a Citizens’ Trust? Is this a good idea? If so, how might we do it?
Paddy Ashdown, Citizens’ Britain: A Radical Agenda for the 1990s (London, Fourth Estate).
Commission on Living Standards, Gaining from Growth: The Final Report of the Commission on Living Standards (London, Resolution Foundation, 2012), available at: http://www.resolutionfoundation.org/media/media/downloads/Gaining_from_growth_-_The_final_report_of_the_Commission_on_Living_Standards.pdf
Gerald Holtham, ‘Ownership and Social Democracy’, in Andrew Gamble and Tony Wright, eds., The New Social Democracy (Oxford, Blackwell, 1999), pp.53-68.
Ben Jackson, ‘Revisionism reconsidered: ‘Property-owning democracy’ and egalitarian strategy in post-war Britain’, Twentieth Century British History 16 (4), pp.416-440.
James Meade, Efficiency, Equality and the Ownership of Property (London, Allen and Unwin, 1964).
Matthew Whittaker and Alex Hurrell, Low Pay Britain 2013 (London, Resolution Foundation, 2013).
I am grateful to Angela Cummine, Joe Guinan, Olly Huitson, Mathew Lawrence, and Martin O’Neill for helpful comments and/or discussion of the themes of this article.