Category Archives: Income Redistribution

Issue Entrepreneurship and the ‘Sleeping Giant’ of Income Redistribution

I was listening to BBC Radio 4 News in March (22/3/23) and was particularly interested in an interview of Sushil Wadhwani, who runs his own asset management firm, and for three years was a member of the Monetary Policy Committee of the Bank of England.  His CV is that of a mainstream fund manager.  In the interview he mentioned his surprise that corporate profit margins had remained so high despite the cost of living crisis.  Serendipitously the Financial Times published a chart on its front page that day on corporate profit margins in the United States which I have copied below. What is very clear is that in these hard times not everyone is suffering.

It seems to me, and to many of those I speak with, absolutely astonishing that this disparity is allowed to continue. With inflation pushing so many households into poverty, it feels bizarre that there has been no major party clamouring for an adjustment which eases the burden on those who are struggling and increases the demands on those who appeared to be doing well through increased taxation. 

I often wonder why few of the opposition parties appear willing to tackle this head on. There is obviously a strong moral case for shifting the burden away from those who have been forced into food banks and making difficult “eating versus heating” decisions over the past six months, and onto those “with the broadest shoulders”. Furthermore, there is also a strong economic case. In a country like the UK, which is suffering severely from anaemic economic growth, it is obvious that tilting the tax system in a way which put more disposable income in the hands of the bottom third of earners, at the expense of the top third of earners would increase economic growth. This stems from the fact that the marginal propensity to consume for those at the bottom must be nearly 100% (they will spend all marginal income on essentials and perhaps repaying debt) whereas extra income for the wealthiest in our society is not spent on consumption but rather in pouring more capital into financial assets.

The only reason a cynic like me can think of is that opposition parties, like the government, receive their campaign funding from the wealthy who are typically antagonistic towards the redistribution of income.  Also, talk of redistributing income has the feel of a “third rail” issue for politicians—touch it and you go up in smoke.  I am no longer certain this is the case.

I have been studying “orphan issues” like this for my master’s degree at UCL. These are just sitting there waiting for “issue entrepreneurs” to pick them up and run with them, as they seek the support of the electorate.  This concept of “issue entrepreneurship” seems to have been developed by theorists Sara Hobolt and Catherine de Vries in a 2015 article (“Issue Entrepreneurship and Multiparty Competition”).  In it they introduced the concept but also identify the circumstances under which political parties may or may not grab hold of such issues.  There are two primary points they make, the first is that “political parties are more likely to become issue entrepreneurs when they are losers on the dominant dimension of contestation”, and that these “parties will choose which issue to promote on the basis of their internal cohesion and proximity to the mean voter on that same issue”.  It remains to be seen if these propositions are correct and if the current opposition parties are willing to take the risk.

In prior research, written in 2007 by Cees Van der Eijk and Mark Franklin, (“Potential for Contestation on European Matters at National Elections in Europe”) the authors identified the issue of EU integration as a potential “sleeping giant”, ready to dramatically shift political behaviour in Europe.  This issue had lain dormant for some time but was seized upon by Eurosceptic and far-right parties, with notable success.

I wonder if the UK Labour party has an entrepreneurial bone in their political body………….   

(PS—this post was written weeks ago, but I forgot to hit “send”.)

Rodney Schwartz

London, UK—23 April 2023

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments