Most of the economic-reform proposals you hear these days focus on redistribution, which mostly means taxing the rich and providing benefits to the poor. Redistribution is the traditional approach to redressing the ills of a market economy. It exists in some measure in every advanced nation. Liberals and conservatives argue over how extensive it should be.
These debates need to happen, and right now the fledgling Democratic candidates are leading them. But no one should underestimate either their contentiousness or their complexity.
The rich, for example, do not want to be taxed any more than they are. (Some have found ways around existing taxes.) They and their allies in Congress will fight bloody battles against increases. They will also raise legitimate and difficult questions. What about capital gains taxes? The carried interest loophole? Estate taxes? What about the proverbial family farm, which is a stand-in for successful small businesses? Would stiff taxation discourage entrepreneurship? What would keep wealthy individuals from turning themselves into corporations, as many did in the past?
Benefits for the poor bring their own complexities. Programs like Medicaid and food stamps are means-tested: you’re eligible only if your income falls below a certain line. This fact always presents what policy wonks call a cliff issue. If the benefits fall to zero above that line, the policy engenders fierce resentment from those just above the line (“Why should those people get stuff for free when we don’t get a dime?”). The abrupt cutoff also seems to discourage poor people from working to raise their income, lest they lose their benefits. Legislators can mitigate these objections by phasing out benefits stepwise as people go up the income scale. But then the policies turn out to be inordinately expensive.
Right now, it’s hard to imagine our divided Congress implementing any serious changes on either the taxation or the benefits end of redistribution. That shouldn’t discourage reformers from trying. But neither should they expect quick results.
The alternative, says political scientist Jacob Hacker of Yale University, is to “focus on market reforms that encourage a more equal distribution of economic power and rewards even before government collects taxes or pays out benefits.” Hacker coined the term predistribution to describe such reforms.
What might they be? So far, advocates of predistribution have dealt more in generalities than specifics. Hacker himself emphasizes public investment, full employment, and labor-market reforms. Political scientist Steven K. Vogel, writing in the New York Times, mentions Elizabeth Warren’s Accountable Capitalism Act, financial regulation, and antitrust. Others focus on minimum wage laws.
Unions, of course, represent a prime example of predistribution: when unions were strong, they forced wages up for large numbers of blue-collar employees. That contributed to the relatively low inequality of the postwar decades. Some progressives want to strengthen unions by introducing industry-level collective bargaining and national wage boards on the European model. Like the more radical taxation-and-benefits proposals, this too has a long way to go before a US Congress would even entertain the idea.
Meanwhile, there is a powerful, bipartisan path to predistribution waiting in the wings: employee ownership. Ownership puts more money into the hands of workers. It allows employees to build wealth. It creates companies that consider employees’ interests on a par with the interests of shareholders, because they are one and the same. It has traditionally had widespread support on both sides of the aisle.
Employee ownership can’t take the place of redistribution, because it does nothing for people who don’t have a job. It’s a complement, not a substitute. But it’s surely one of the most powerful vehicles we can think of to make our economy more inclusive than it is now. And it requires no great expense on the part of the government.