It’s great to see the debate on redistribution vs. altering market power and outcomes
rolling out here. I think there’s a great deal of sense in James Purnell’s basic assertion that New Labour’s “unwillingness to be more hands on with the market” had “required it to be too hands on with the state”.
There are several aspects to this debate that I’d like to expand on. But let me start with just one. It has to do with the primary (non?) strategy for dealing with low wages and their emergence from the restructuring/ post 1987 recession, the ECA and the hollowing out of labour markets/ growth of the low wage service sector.
It is possible, though by no means exhaustive of the possibilities, to call this strategy ’state subsidisation of low wages’. I’ll expand a little below, but a fuller/ complementary account of important aspects of this can be seen in Gerry Cotterell’s recent University of Auckland PhD comparing Making Work Pay policy in the UK and in NZ [not online].
Essentially, (in my words not Gerry’s) starting in 1996 under the Nats with the child tax credit, there have been moves back towards a kind of (unwittingly) social wage. These have almost entirely involved using fiscal measures/ tax credits/ variously redistributive policy to subsidise low wages for families (not for individuals, who have remained classic standalone/ exemplary liberal subjects: and paid the price for it!). Obviously, as David notes in his post, more of this happened via the In Work Tax Credit and restoration of family support levels under Working for Families.
But importantly it didn’t stop there. Another ’state subsidisation’ measure was the accommodation supplement, introduced again targetted at families as a way to smooth a move towards a wider market model for housing provision; and since ensconced as a key subsidiser of that vital engine of growth, the (rental) housing industry.
But wait, there’s more: subsidisation of costs of work for families through subsidised childcare, 20 hours ECE, and other active labour market inklings.
And still more: subsidisation of training costs for employers (new apprenticeships) and professionals (interest free student loans).
And, finally, massive subsidisation of (mainly middle class) savings through Kiwisaver, which did also move to obtain some support from employers.
Now, I don’t think for a minute this cumulative effect was what the architects of what John Kay in the FT called ‘redistributive market liberalism’ intended. But it accrued anyway, largely for reactive and political reasons: and largely driven by the state
through executive means. It was highly borrowed (from the UK, and the Greens pushed some of it) and I think largely incremental/ path-dependent (as opposed to consistently strategic), as surprising and incremental fiscal headroom emerged. It responded to, perhaps rather than harnessed, a kind of viscerally felt ‘enlightened reaction’ or pushback against to low wages and wider neoliberal/ marketised insecurities. Karl Polanyi (The Great Transformation) and his seminal notion of the ‘double movement’ should be wheeled in at this point to explain!
On the other hand, it could be argued, given that neoliberal reform here as elsewhere itself relied heavily on the executive to ram through and protect its reforms, maybe the reversal needed the same executive action.
But either way, the main political points relevant now are:
- It benefitted mainly people in families, though student loans and kiwisaver also ‘helped’ more widely. So single people fell behind: both workers, and, if you are really looking for victims, single beneficiaries, who went furthest backward of any group against the average wage under Labour.
- There was massive fiscal churn going on here, especially as WFF In Work Tax Credit got shunted up the income levels.
- There was ongoing undermining of the labour market relations themselves (and especially any duty on employers) as a mechanism having to bear the brunt of worker and family costs: these were sent back to the state, which dipped into its burgeoning fiscal pockets and paid.
- With tax cut enthusiasm, liberal fears over Leviathan in the Economist, rising questioning of even the most basic fiscal aspects of the welfare state (eg in the current Welfare Working Group), and the sense that for all Labour did, child poverty is still unfinished business, we are in for a scrap over the fiscal pie, that could see some real half-thought radicalism, and prompt some of the basic/ turbulent binarism we see in US politics over tax happening here.
But meantime the net effect, as David and James Purnell note, is dulling of pressure on employers in an industrial bargaining sense. The state subsidisies that away; or, a bit more helpfully, legislates that employers will pay more through minimum wage arrangements (but doesn’t put teeth back into the industrial relations legislation).
And, of course, all this did little or nothing to rein in the other great beneficiaries of unbridled market power in the distribution of assets and income, the rental properteers. Rather it started a pattern of subsidisation there that is only now starting to be reined in.
So, and not for lack of state effort, we are still stuck after 20 years of reform with this pattern of risen inequality. Inequalities now need to fall, and low incomes rise: but leviathan is running out of grunt.
Real equivalised household incomes (BHC): changes for top of deciles, 1988 to 2008
So, some propositions:
- We have nearly reached the limits of fiscal based subsidisation (though there is more room in supporting family work/ care costs: watch this fiscal space).
- We all want higher wages, but have taken away incentives and mechanisms to re-organise industrially for them.
- Employers have been somewhat left off the hook, and unions left impotent, but no-one is the long term winner.
- We need a return to a better relationship between the employers, workers and the state that doesn’t involve the state in large-scale palliation of workers demands through Fabian style executive order/ fiscal churn/ policy based expansion of subsidy.
- This might in time spill over into better / more demands for political representation, including from underpaid singles and the folk currently referred to as the enrolled non vote.
- We need to continue to reassess as a whole the state’s contribution to housing, and in particular to the rental housing industry, and see whether the tax payer is getting value for money, etc.
- Interest free student loans? Compulsory or subsidised Kiwisaver instead of a pay as we go pension? Hmm.
So the irony/ disappointment is that, for all the well intentioned interventions so far, it seems we haven’t seen the shifts in real market and political power that might sustain equity. The market and the middle classes still have it pretty much their way, albeit now via a churnier state and all the backlash that causes.
One thing seems clear: to quote David and Jordan Carter, and channel Purnell, if real policy progress is to happen, the state can’t be the one to be doing all the heavy lifting here! The beneficiaries of all this state subsidisation need to do their part too: and we know who you all are!!
But for this to happen (and to happen substantively and anytime soon), basic tripartite relations and powers — and political/ representational relations — may need to shift again. And, as on the ‘Nixon goes to China’ principle perhaps only a Tory government could do, someone needs to continue to take on the landlords, and incentivise returns to industries workers can be a part of.
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David Craig is senior lecturer in Sociology at the University of Auckland, where he teaches around the history and political economy/ sociology of liberalism; colonialism and development; and urban sociology.
