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On
Citizen's Income and related topics
A
compilation of writings by James Meade
(23rd June 1907 to 22nd December 1995)
It
is ten years since the death of the Nobel Laureate (1) James
Meade, undoubtedly one of the twentieth century's most distinguished
supporters of a Citizen's Income. Many of the issues which
he tackled during his lifetime remain issues today, and
his voice deserves to be heard more than ever.
This
brief compilation, published on the occasion of the centenary
of his death, will be of interest to all those interested
in seeking solutions to some of the perennial issues facing
economics and social policy, and particularly the issues
of income maintenance, equality, and labour market efficiency.
James
Meade was one of the circle of young economists surrounding
John Maynard Keynes during the 1930s. In 1937 be became
editor of the World Economic Survey of the League of Nations;
during the Second World War he joined the Economic Section
of the Cabinet Office and became its Director at the age
of 39; he was responsible for the 1944 White Paper on Employment
Policy and the GATT negotiations; in 1947 he returned to
academic life, first at the London School of Economics and
then as Professor of Political Economy at Cambridge from
1957 to 1967. In retirement he chaired the Meade Committee
on the structure of direct taxation.
For
60 years, from the early 1930s to his death in 1995, James
Meade studied the economy: the whole of the economy. He
studied production, distribution, money, tax and benefits,
the welfare state, and the economy's international dimensions;
his interests spanned economics, history, social policy
and politics; and although his thought developed in line
with a changing political consensus, he consistently pursued
themes established early on in his career: the need to stimulate
demand in the economy in order to reduce unemployment; administrative
and economic efficiency; the market as the efficient way
to produce and distribute goods and services; the reduction
of economic inequality; and (particularly latterly) the
importance of individual freedom.
Whether
our interest is the development of his thought or the substantial
consistencies across 60 years, we shall find the 'social
dividend' idea occurring over and over again, and occurring
in relation to every one of Meade's major interests.
In
1935, Meade wrote a paper for the Labour Party, Outline
of Economic Policy for a Labour Government. In it he
outlined four elements of the economic policy which he believed
a future Labour government should pursue:
- the
abolition of unemployment;
- a
tariff policy to promote the abolition of unemployment;
- the
socialisation (nationalisation) of certain industries;
and
- an
'increase [in] the equality of distribution of the national
income.' (2)
State-owned
enterprise would, he believed, generate profits, and the
government would,
by
paying a smaller or larger part of this sum as a social
dividend to the members of the community, be able to control
the amount of the national income spent on consumption
and the amount allocated to capital development. When
even at very low interest rates very little development
is profitable, a large proportion can be paid out as a
social dividend; whereas if new and profitable fields
of development appear a much larger part can be apportioned
to the capital budget for this capital development. (3)
Thus
right from the beginning Meade envisaged a 'social dividend'
being precisely that: a distribution of corporate profits;
but in his 1936 book, An Introduction to Economic Analysis
and Policy, he suggested that a social dividend could
be funded either by the profits of publicly-owned corporations
or by income tax. (4)
One
of Meade's abiding concerns was the efficiency of a system,
and the economic efficiency of an equal social dividend
for every citizen made the concept particularly attractive.
In a review of Abba P. Lerner's The Economics of Control,
(5) Meade wrote:
Mr.
Lerner argues … that the total satisfaction achieved
from any given income will be maximised if that income
is so divided among individuals that its marginal utility
is the same for everyone; but he adds an interesting and
elegant proof of the proposition that (on the assumption
that the marginal utility of income declines in the case
of each individual) the maximisation of probable total
satisfaction is attained by an equal division of income,
even though we cannot directly compare the satisfactions
of different individuals. (6)
But
however important such efficiency might be, the maintenance
of demand in the cause of reducing unemployment is a social
dividend's major attraction. (7)
In
1948 we find Meade's concerns for a free society, a free
market, administrative efficiency, the maintenance of demand,
the reduction of unemployment and a more equal division
of income and property - all in a single book, Planning
and the Price Mechanism, the thesis of which is
that
a large measure of state foresight and intervention is
required to guide the economy from war to peace, to prevent
inflationary and deflationary pressures, to ensure a tolerably
equitable distribution of income and property, and to
prevent or to control the anti-social rigging of the market
by private interests, but that these objectives can be
achieved in an efficient and a free society only if an
extensive use is made of the mechanisms of competition,
free enterprise and free market determination of prices
and output. (8)
It
is surely no accident that, in the context of this combination
of all of Meade's interests, we find a sustained discussion
of a social dividend: in this case of a scheme published
by Lady Rhys Williams. (9) Meade wrote of the scheme:
It
is suggested that a straightforward monetary payment or
allowance or 'social dividend' should be paid to every
man, woman and child in the country - although the rate
of payment might, of course, be lower for children than
for adults. This would take the place of all social security
benefits, such as unemployment benefit, old-age pensions,
health benefits, children's allowances. Every man, woman
and child would thus have his or her basic minimum whether
in sickness or in health, in work or out of work, young
or old. There need be no means test and no tests whether
a man was seeking work or whether a man was genuinely
ill. Doctors could stop writing out health certificates
and get on with their job of curing their patients. Employment
exchanges would stop fussing about unemployment insurance
and get on with their job of introducing employers with
vacancies to workers without jobs. The Ministry of National
Insurance could be closed down.
These
universal personal allowances would also take the place
of the whole apparatus of allowances under the income
tax. All income (other than the 'personal allowances'
which would be tax-free) would be taxed at a standard
rate of tax. The whole apparatus of Pay-as-You-Earn would
disappear; and the only task of the Inland Revenue in
this field would be to ensure that all income was taxed
at the standard rate of tax. All personal assessments
would cease for income tax purposes. (10)
Meade
saw that the scheme would offer administrative simplicity,
greater personal freedom, and more equal incomes, and that
it would 'afford a perfect instrument for the most effective
and prompt control over total national expenditure in the
interests of avoiding inflation and deflation.' (11)
Meade
was, of course, aware of a social dividend's problems. An
unconditional payment might reduce the incentive to work
- but the in-work or seeking-work condition which Lady Rhys-Williams'
scheme contained would reintroduce an unwanted complexity.
(12) (13)
In
spite of the possible difficulties, Meade's conclusion was
that a Rhys Williams social dividend scheme
has
the greatest attraction from the point of view of social
security, equity, personal freedom, administrative simplicity
and the provision of a means of exercising a prompt and
effective control over purchasing power as a measure against
inflation and deflation ... Could the scheme with modifications
be made workable? Certainly it deserves the most careful
and serious examination. (14)
Meade's
later works offer little new on the social dividend except
by way of emphasis. (15) The Controlled Economy,
published in 1971, returned to a social dividend's demand-generating
function, and added that 'there would be no insuperable
administrative difficulty in reducing the payments in times
of unexpected inflationary pressures and increasing them
in times of unexpected deflationary pressures.' (16) In
1975 Meade returned to the problem of funding a social dividend.
Without telling us where the figure comes from, he suggested
that a 50% income tax rate would be needed for a social
dividend at Supplementary Benefit (now Income Support) levels
and, believing that this would be a disincentive if imposed
across a broad wages spectrum, suggested a 75% rate on the
first slice of earned income, which would allow a rate below
50% on the rest. (17) Again, the administrative simplicity
of a social dividend is stressed (and particularly the simplifying
effect of an individual-based rather than a household-based
system); and again we find a social dividend proposed because
it would enable market-mechanisms to work more freely. (18)
(19)
Meade's
somewhat Keynesian programme had had some influence on post-war
economic policy in this country; but he rightly recognised
that by the late 1970s a great deal had changed. No longer
did investment mean more jobs (indeed, it could mean fewer
jobs); no longer could Government fix prices and wages (except
in utilities over which they had some control); and no longer
would increased spending power automatically translate into
demand for this country's goods. Meade recognised that now
'much more attention must be paid to measures other than
price and wage setting in order to achieve a fair and acceptable
distribution of income and property.' (20) Again, a social
dividend is his instrument of choice.
Meade's
Agathotopia, published in 1989, is, according to
Walter van Trier, an 'intellectual testimony' which 'presents
the results of a long intellectual career dedicated to the
search for an institutional framework congenial to his view
of a good economic life - a view resting on a deeply rooted
life-long moral conviction based on the equal importance
of liberty, equality and efficiency.' (21) In Agathotopia,
Meade foresees a time when each of us will receive income
from a variety of sources: labour shares (issued to workers
and producing dividends reflecting the firm's profits);
capital shares; wages; and a social dividend - the social
dividend being particularly important as a stable element
making it less of a problem when the other income elements
fluctuate. (22) The aim of the social dividend is 'the promotion
of equality, the alleviation of risk-bearing, the improvement
of incentives for low earners, and the simplification of
the welfare state.' (23)
In
Agathotopia, Meade offers a detailed description
of how a transition to a social dividend might be possible,
(24) and again suggests a 'surcharge' on the first slice
of earned income in order to make the scheme affordable.
(25) His conclusion is that
the higher the social dividend and the higher the general
rate of tax imposed to finance it, the greater will be the
beneficial effects on the equalisation of adjusted incomes
and on the mitigation of risk-bearing. But both the rise
in the social dividend (which enables people to enjoy a
given income without earning so much) and the higher marginal
rate of tax (which reduces the net return on any additional
earnings) will tend to reduce economic incentives for work
and enterprise. In the choice of policies these results
must be weighed against each other. (26)
But
however much Meade grapples with the problems posed by the
attempt to fund a social dividend out of tax revenue, he
has not given up hope of a social dividend being what it
says it is: a distribution of profits produced by the national
asset (which he hopes might one day replace the national
debt), an asset made up of shares owned by the State and
possibly whole companies owned by the State but not managed
by it. An excellent summary of this position can be found
in an article published in Samizdat and then in the
BIRG Bulletin:
If
the merits of a competitive system are to be preserved,
and at the same time excessive inequalities are to be
avoided, we need to consider radical ways in which part
of the high returns on capital can be used to supplement
the earned incomes of the representative worker ...
A
familiar suggestion is to institute a progressive structure
of taxation which falls on the rich, the revenue from
which can be used to finance adequate social benefits
for the relief of poverty and for the raising of standards
at the lower end of the income scale. This raises a serious
danger of introducing disincentives into the productive
system. If the social benefits are confined strictly to
the support of those in poverty, the system will inevitably
lead to serious disincentives in the form of the well-known
poverty trap, since any additional earnings will be offset
by withdrawal of social benefits as the recipients work
themselves out of poverty.
On the other hand, if the benefits are not confined to
citizens who are in need, but are paid on an adequate
scale in the form of a Basic Income or Social Dividend
to every citizen, the marginal rates of tax on private
incomes needed for their finance would become intolerably
high - perhaps implying a rise from 25% to 80% in the
basic rate of income tax. The disincentive effects at
the upper end of the scale become intolerable.
There
is one possible radical change in our present economic
system which would resolve this dilemma: a structural
reform which we should, in my opinion, be considering
very seriously.
Imagine
the following happy state of affairs. The state, instead
of being burdened with a large national debt, has not
only repaid the whole of that debt but has in addition
accumulated an amount of public savings which enables
it to own a substantial National Asset ....This would
provide a very solid base for the introduction of a true
Social Dividend.
[This scenario] presents a vision of a future society
in which private competitive enterprise is the ruling
mode of production, but in which the state receives a
substantial share of the yield on the nation's real capital
resources, thus enabling it to fulfil its proper social
role without the immoderately high rates of taxation which
would destroy private enterprise and initiatives. (27)
Again,
there is nothing new on the social dividend in Meade's last
publication, Full Employment Regained?, but it contains
a most useful summary paragraph:
A
main objective of a Citizen's Income is to provide a reliable
income from some source other than earned income (thus
making the rate of pay less important relative to other
sources of income) and to do so in a way which makes the
personal distribution of the total national income more
egalitarian. (28)
This
publication comes full circle, listing the social dividend
as one of twenty-one control variables by which the economy
might be managed. (29) All the old themes return: full employment;
demand management; greater income equality; and a social
dividend (now called a Citizen's Income).
But
there are also some recent new emphases. Since his earliest
publications Meade was interested in 'external relations':
the effects of one nation's economy on another's. In his
1991 book The Building of a New Europe he looked
particularly at the new European context of our national
economy (30) and solved the problems posed by a Citizen's
Income in only one European country by proposing a Europe-wide
Citizens Income:
A
.... possibility is that the central Community authority
should allow free national experimentation in these policies
but should itself introduce and administer a positive
form of egalitarian intervention of its own. For example,
it might itself raise a general community levy or tax
of some form and use the proceeds to pay a modest Basic
Income to all the citizens of the member countries. The
national governments could be left to top this up with
their different national schemes. Movements of people
and capital would ... put a brake on the most extreme
egalitarian experiments; but the existence of the modest
Community scheme would mean that the outcome of the competition
between the national experiments would be less markedly
inegalitarian than would otherwise have been the case.
This solution would permit more national experimentation
and would involve a less complicated central bureaucratic
apparatus than ... solution through centrally administered
full national harmonisation. (31)
So
in this instance too there is continuity and development,
the development being a response to changing times, the
continuity being a reflection of Meade's continuing pursuit
of both the free market and a more equal society in an international
context.
Meade was a child of his time, and thus believed that the
abolition of unemployment was the route to the abolition
of both idleness and poverty, of both Idleness and Want.
(32) By 1981 he had recognised that the technological revolution
had created a new situation in which either wages and unemployment
would rise together or wages would decline and inequality
grow. (33) In fact, both of these things have happened in
different sectors of the economy.
It
is a pity that Meade's final book, Full Employment Regained?
did not take sufficient account of the impact of technological
change on the structure of the labour market. It might be
that 'full employment' in the traditional sense is no longer
an option - and, moreover, that it ought not to be an option.
In Agathotopia we see Meade grappling with a new
structure for the relationship between labour and capital
- but he is still in the world of today's kind of capital-intensive
and labour-intensive large company, whereas the trajectory
of technological change is towards increasing diversity
of style, size and type of enterprise.
We cannot blame Meade for failing to tackle tomorrow's problems.
We can only thank him for proposing a social dividend as
a partial solution to the problems of the years from 1935
to 1995 - and ourselves continue to work on the concept
in the knowledge that it might be even more relevant to
the new situations in which we find ourselves at the beginning
of a new millennium.
Notes
1 James Meade won the Nobel Prize for Economics in 1977
2 James Meade, 'Outline of Economic Policy for a Labour
Government', in Susan Howson (ed.), The Collected Papers
of James Meade (Unwin Hyman, 1988), vol.1, Employment
and Inflation, p.33
3 Ibid., p.53
4 J.E. Meade, An Introduction to Economic Analysis and
Policy (Oxford University Press, 1938 edition), pp.
212, 267 and 246. The first edition was published in 1936
5 Abba P. Lerner, The Economics of Control: Principles
of Welfare Economies (MacMillan, 1944)
6 J.E. Meade, 'Mr. Lerner on "The Economics of Control"',
Economic Journal, April 1945, p.48
7 Ibid.
8 J.E. Meade, Planning and the Price Mechanism: The Liberal-Socialist
Solution (George Allen and Unwin, 1948), pp.v-vi
9 Lady Rhys Williams, Something to Look Forward To: A
Suggestion for a New Social Contract (MacDonald, 1943):
a suggestion for a social dividend conditional upon the
recipient being employed, looking for work, or unable to
work
10 J.E. Meade, Planning and the Price Mechanism: The
Liberal-Socialist Solution (George Alien and Unwin,
1948), p.43
11 Ibid., p.44
12 Ibid., p.45
13 Meade was writing at a time when the low-paid paid no
income tax - so a social dividend, by reducing tax allowances,
would have brought much of the low-paid's income above the
tax threshold for the first time and would thus have imposed
a poverty trap. Now there are few employees who pay no income
tax, so this objection no longer applies to the same extent.
14 J.E. Meade. Planning and the Price Mechanism: The
Liberal-Socialist Solution (George Alien and Unwin,
1948), p. 46
15 Some publications, such as Equality and the Ownership
of Property (George Allen and Unwin, 1964), are mainly
reprints of previously published material.
16 J.E. Meade, The Controlled Economy (George Alien
and Unwin, 1971), p.239
17 J.E. Meade, The Intelligent Radical's Guide to Economic
Policy: The Mixed Economy (George Allen and Unwin, 1975),
p.91
18 Ibid., p.101
19 It was the administrative complexity of a Negative Income
Tax which led Meade to reject it, even though it would have
had many of the same effects as a social dividend (for instance,
on the poverty and unemployment traps). See particularly
his discussion comparing social dividend and negative income
tax in Poverty in the Welfare State (Oxford Economic
Papers, vol.24, no.3, Clarendon Press, 1972); and Hermione
Parker's discussion of that paper in her Instead of the
Dole: An Enquiry into Integration of the Tax and Benefit
System (Routledge, 1989), p.149. Meade's conclusion
is that a social dividend does not need to adjust to changes
in someone's other income or in their labour market status,
whereas a negative income tax does.
20 J.E. Meade, 'Full Employment, New Technologies and the
Distribution of Income', Journal of Social Policy,
vol.13, no.2, 1984, p,130
21 Walter van Trier, Every One a King: An investigation
into the meaning and significance of the debate on basic
incomes with special reference to three episodes from the
British inter-war experience (Departement Sociologie
u.v. Leuven, 1995), p.346
22 J. E. Meade, Agathotopia: The Economics of Partnership
(The David Hume Institute/Aberdeen University Press, 1989),
pp.27, 30. And see Walter van Trier's discussion in op.
cit., p.365
23 J.E. Meade, Agathotopia: The Economics of Partnership
(The David Hume Institute/Aberdeen University Press,
1989), p.34
24 Ibid..p.36
25 Ibid., p.38. In Appendix 3, Meade discusses various
different social dividend schemes and their implications
for incentives, redistribution, risk-bearing and administration.
26 Ibid., p.67
27 James Meade, 'Topsy-turvy nationalisation', Samizdat
no. 5 (July/August 1989), reprinted in BIRG Bulletin,
no. 10, Autumn/Winter 1990, pp.3, 4
28 J.E. Meade, Full Employment Regained? An Agathotopian
Dream (Cambridge University Press, 1995: University
of Cambridge Department of Applied Economics, Occasional
Paper no. 61), p.57
29 Ibid., p.85
30 J.E. Meade, The Building of the New Europe: National
Diversity versus Continental Uniformity (The David Hume
Institute, 1991).
31 Ibid., pp.24-9
32 Two of the 'five giants' Beveridge wanted to see tackled
as he planned his Social Insurance Scheme in the early 1940s.
33 J.E. Meade, 'Full Employment, New Technologies and the
Distribution of Income', Journal of Social Policy,
vol.13, no.2, 1984, pp.129-146
Select
bibliography
Books
and articles by J.E. Meade:
'Outline
of an Economic Policy for a Labour Government' (1935), in
S. Howson (ed), The Collected Papers of James Meade,
vol. I, Employment and Inflation (Unwin Hyman, London, 1988)
An
Introduction to Economic Analysis and Policy (Oxford
University Press, London, 1938 edition) (first edition 1936)
Consumers'
Credits and Unemployment (Oxford University Press, Oxford,
1938)
'Mr.
Lerner on "The Economics of Control"', Economic
Journal, April 1945, pp.47-69
Planning
and the Price Mechanism: The Liberal-Socialist Solution
(George Allen and Unwin, London, 1948)
Efficiency,
Equality and the Ownership of Property (George Allen
and Unwin, London, 1964)
Poverty
in the Welfare State (Oxford Economic Papers, vol.24,
no. 3) (Clarendon Press, Oxford, 1972)
The
Intelligent Radical's Guide to Economic Policy: The Mixed
Economy (George Allen and Unwin, London, 1975)
The
Just Economy (George Allen and Unwin, London, 1976)
The
Structure and Reform of Direct Taxation (Institute for
Fiscal Studies, London, 1978)
'Full
Employment, New Technologies and the Distribution of Income',
Journal of Social Policy, vol.13, no.2, 1984, pp.
129-146
Agathotopia:
The Economics of Partnership (Aberdeen University Press,
Aberdeen, 1989)
'Topsy-turvy
Nationalisation', Samizdat, no.5, July/August 1989,
reprinted in BIRG Bulletin, no. 10, Autumn/Winter
1990
'Can
we learn a "third way" from the Agathotopians?'
The Royal Bank of Scotland Review, no. 167, 1990,
pp. 15-28
The
Building of the New Europe: National Diversity versus Continental
Uniformity (The David Hume Institute, Edinburgh, 1991)
Liberty,
Equality and Efficiency: Apologia pro Agathotopia Mea
(Macmillan, London, 1993)
Full
Employment Regained? (University of Cambridge Department
of Applied Economics, occasional paper no. 61, Cambridge
University Press, 1995)
Other
publications
Tony
Atkinson, 'Obituary: Professor James Meade', BIRG Bulletin,
no.21, February 1996, p.16
Hermione
Parker, Instead of the Dole: An Enquiry into Integration
of the Tax and Benefit System (Routledge, 1989)
Walter
van Trier, Every One a King: An investigation into the
meaning and significance of the debate on basic incomes
with special reference to three episodes from the British
inter-war experience (Departement Sociologie u.v. Leuven,
1995)
©
Citizen's Income Trust 2005
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