Thursday, 3 February 2011

Are these the most influential Liberal pamphlets of the last century ? part four

Part Four-you can access parts 1-3 here

As we have seen the Ownership for All pamphlet identified the 'gross and shocking' maldistribution of wealth/property and power as a major barrier to the achievement of Liberal objectives. Their answer was not the socialist solution of nationalisation or the for the free for all of laissez faire economics which championed the rights of capital. Instead they advocated using state power to break up monopolies, to redistribute wealth and to promote workers participation in the management and ownership of Industry.  As the writers of the pamphlet realised there was real public anger that workers were hired and discarded at the will of capital. It attacked their dignity and undermined their vision of how free citizens should live. Their model was one in which men and women had property which helped to guarantee their independence.

This policy of co-ownership was central to the Liberal case. It asserted that employees had rights to share the wealth that their work created. This is an old Liberal idea. J S Mill in Political Economy wrote:

 The policy developed a party committee in 1945 advocated compulsory co-ownership for firms with more than fifty employees or more than £50,000 capital. The policy continued to develop right up until the merger between the SDP and the Liberal Party and on during Paddy's leadership. Liberal economic spokesman talked of Labour hiring Capital -firms like Scott Bader and the John Lewis partnership were seen as models of how Liberals wanted to see industry managed and owned.

Jo Grimond speaking at a pre election rally said:

We believe both that capital wealth should be more widely shared, and that the salaried workers and those in the public services should be more adequately rewarded. As for industry, apart from giving the worker a share of the profits, we believe that the state should give a lead to industry by fixing minimum wages and indicating a maximum for wages, salaries and profits, leaving room within these limits for bargaining over exact wage rates. As far as profits are concerned, our proposals for free competition and consumers’­ protection, and the steps to curb speculation in land, should keep them in check. But of course profits must be brought into the general purview. If the public welfare is ignored by firms, then sanctions in the form of extra taxation should be applied. These proposals are related to a detailed programme for job-training, consultation and the more skilful use of manpower in industry. We stretch out our hands to the unions who are going our way. The forces of progress in the movement must feel the support of all progressive opinion.

Jo went further when in 1978 with his book The Common Welfare in which as one reviewer points out his ideas go back to syndicalism and Christian Socialism-the advantages of socialism without the state. Indeed in an article of May 1960 in the Observer Grimond explicitly called for a 'new form of syndicalism'

Most impressive of all for Grimond was the achievement of the Mondragon Co operatives in the Basque lands of Spain to which he was introduced by Robert Oakeshott  (whose book on the case for workers' co ops is sadly out of print.)  Together they set up Job Ownership Ltd to promote the co operative ownership of businesses. Today this has become the Employee Ownership Association to which we shall return.
Staurt White writing in the ippr publication Beyond Liberty argues :

 key Liberal thinkers in the 20th century, such as Jo Grimond and Paddy Ashdown, stressed a commitment to a fairness that had redistributing wealth and property, and the accompanying freedom they bring, at its core. An attention to the fair ownership of assets, rather than simple income redistribution, as a primary means to egalitarian ends has become increasingly prominent in progressive thought ...........
In recent years the Liberal Democrats have not championed this idea with the vigour of former times. Yes, there has been talk about mutualism and stakeholders rights but frankly nothing as radical or redistributative as the old Liberal party. The tentacles of the corporate state have reached out and squashed the potency out of the notion. All the talk of partnership is concerning working together with the state and businesses as they are presently established and owned-which is for the most part is motivated by the desire to increase share value. The Liberal vision was always that these structures were an alternative to state dominance, separate and independent to it not subsumed within it.

It is strange that when these ideas may be at their most attractive they have fallen down the priority list for Liberal Democrats. As Will Hutton and others have pointed out there has been a fire sale of British assets. Firms have been bought and sold often with funds from merchant banks, hedge funds and with little regard for the employees or even the customer. Hutton is now chairing a Commission on Ownership and using British Airports as an example he writes:

 what British Airports Authority cares about – generating the cash flow to give Ferrovial, the ultimate Spanish owner, the interest and dividend payments to make its over-expensive asset pay. Heathrow is the Manchester United or Liverpool FC of the airport world, an organisation which was expensively taken over by outsiders and which now has to create the surpluses to pay off the debts incurred in its purchase. The consequence is an extraordinary vulnerability to any shock .

It is worth quoting the article at some length:

It is phenomenally stupid – a combination of the pre-financial crash boom in which banks showered credit like confetti on allcomers regardless of the consequences, together with Britain's callow approach to ownership. The country has never seriously debated what good ownership of assets might constitute – whether by a football club or a public company. Instead, the response to the social and economic irresponsibility of some private ownership has been to call for nationalisation and public ownership, while the response to the waste and lack of innovation of some public ownership has been to call for private ownership. There has been too little attempt to think through what the constitution and process of ownership might be that would create great owners, whether in the public or private sector, or among the many other forms of ownership, ranging from partnership to co-operatives.

Instead, with the rise of the neoconservative right, there has just been the unquestioning assumption that the best form of ownership is private; in Britain, that necessarily means our idiosyncratic variant of the public limited company. This represents the oddest and most regressive constitution for private ownership anywhere in western capitalism. British company law makes no requirement on shareholders and directors to have any obligation to be good stewards of their assets, their employees or their customers. Shareholders' rights to do what they want with their shares to maximise their immediate value is more stark than anywhere else and directors' responsibilities are only to serve the interests of these madly unconstrained shareholders.

he points out

Last Christmas in Britain, it was Cadbury trying to fend off the attentions of Kraft, which, after the takeover, organised Cadbury's finances so that it paid hundreds of millions less tax. Next Christmas, it will be someone else. The debts for these never-ending takeovers have to be paid for by someone and that is us.

Last year the think tank Demos published a report Reinventing the Firm. In the introduction its takes up Hutton's argument:

For many years it has been the received wisdom that the pursuit of ‘shareholder value’ was the best way to motivate management and maximise value for shareholders. The crisis has exposed the weaknesses of the drive for short-term maximum gain.
It is only now that the urgency of addressing the banking system has abated that business leaders, policy makers, commentators and citizens have begun to reflect on what alternative types of capitalist structures might be more inclusive of all stakeholders, be more resilient in the long term and reduce the
risk of future crises. 
Greater diversity in the way companies are owned and run should be welcomed. As this report highlights, there are multiple ownership models and corporate governance structures that can generate wealth as well as positive benefits for society and shareholders alike.
Employee ownership is one solution to the problem of building a more sustainable economy built on long-term foundations. That does not mean blunting the entrepreneurial spirit – far from it. Employee ownership can also help fulfil the increasing desire we have for more influence in our work,
reflecting the greater choice we have come to expect in our personal lives, so as to unleash our potential and productivity.
The UK employee-owned sector is worth £25 billion annually and is a growing force in the economy. It has the potential to contribute significantly to the long-term well being of employees and communities as well as to greater social cohesion.

The words could have come right out of the Yellow Book and its chapter on The Diffusion of Ownership and yet we as a party are strangely absence from this debate. When the public were scarcely interested in the notion we would scarcely shut up about it, now that it is extremely relevant our leaders  seemed to have swallowed the neo conservative right view that the separation of labour and capital is the best option and that implied the best measure of success was the share price.As the Demos pamphlet demonstrates:

Many of the dominant social, economic and political challenges that Britain will face over the coming years can be exacerbated or alleviated depending on how companies behave and are organised. In addition to producing wealth, firms have a profound influence on well-being and on the fabric of civil society. Different types of organisation produce different levels of inequality and fulfilment in people. It has long been convenient to ignore this, and leave firm structures out of public debate about our society and political economy.

For Liberals keen to find a way forward that spreads wealth and democratises society employee ownership has obvious benefits.The here today and gone tomorrow antics of venture capital going where the profit is greatest and quickest undermines our view of how the economy should operate. The Yellow Book authors expressed it as;
that individual men and women may have life and have in more abundantly
Even hard boiled business men are recognising today that the present model demand short term decision making, which turns its back on training and research investment, creates instability, lowers productivity and increases alienation amongst workers.
If we want to build the sort of society where people are not dependent on the state but where they exercise control over their own lives then that has to include the area of work. The firm should not become a 'no go' area for democracy. As the Demos report says: there is the fiscal crisis that imperils progressive ends unless new, non-state-oriented routes to social and economic security can be found. In addition there is the moral case that Belloc and the Liberal redistributionists made and which has echoed down the years about the maldistribution of wealth which Ownership for All described as 'gross and shocking'. It is worse today. This is another attractive feature of sharing ownership. As Demos identifies;  there is a moral
crisis, associated with spiralling inequality and a sense of an illegitimate ‘winner-take-all’ ethic at work in contemporary capitalism, which is then compensated for by an unsustainable culture of debt-fuelled  consumerism. Company structures and practices are not innocent in this regard.

And so to the policy. Inherited wealth,  it is the proper role of government to redistribute wealth. We have become too tame on this matter. In 1976, the bottom half of the UK population owned 12% of the marketable wealth, excluding property; by 2003 that had fallen to just 1%.Those who wake up one day and find themselves very rich through no efforts of their own can hardly be said to have an equal opportunity with some one born into a poor community with ill educated parent. A far more robust policy of inheritance taxation is required. And yes folk will seek to avoid it but that is not a reason to shy away from it. The old Liberal themes of taxing land -manifested most recently on Vince Cable's mansion tax- needs reinstating. The Tories hated it in 1909, they will loath it every bit as much today.
Ownership  for All -the policy of compulsory rights for employees at least equal to those held by shareholders needs to be adopted. The Liberal manifesto of 1979 would not be a had place to start. As the manifesto of the Employee Ownership Association (EOA) established by Oakeshott and Grimond declares:

As an instrument of government policy, employee ownership is economically effective, politically attractive and socially just. Without any net cost to the public purse, employee ownership could make a major contribution to re-balancing the economy, distributing wealth more widely, re-invigorating civic society, re-building trust and re-connecting people with more satisfying, more productive and happier work.
They explicitly call for: 

...where tax reliefs are subsidising regressive ownership outcomes, such as unlimited tax relief on corporate debt in private equity buyouts, they should be changed to encourage wider ownership and become conditional on the business having an all-employee trust of a minimum size. Similarly, where tax reliefs are subsidising discretionary executive share schemes, such as share option plans and  EMI schemes, which are perfectly legitimate tools for entrepreneurial businesses, they should become conditional on the business having an all-employee trust. Tax reliefs ought to lead to progressive ownership outcomes – particularly where they have been shown to improve economic performance – not to further concentrations.

On the blog previously we have mentioned the article that Vince Cable wrote in the Guardian (sorry they have a pay wall so no link). Interestingly the Guardian's Economics editor Larry Elliot was prepared to cede some ground to Vince:
It should not be forgotten that Cable was one of the few politicians to spot the crisis coming, and he makes a number of important points in his New Statesman piece. He is right when he says that Keynes was essentially a monetary economist who believed that the first line of defence in a recession should be cuts in the official interest rate followed by attempts to manipulate long-term interest rates through action in the bond markets – the process we now call quantitative easing. Fiscal policy was only to be resorted to when monetary policy ceased to be effective.

Nor did Keynes think governments should run budget deficits whatever the circumstances. He advised building up surpluses in booms so there was plenty of financial firepower to deploy during slumps, and would have expressed disquiet at the deficits run by Labour in the years before the crisis, when the economy was running at full capacity.

But the weakness remains as the retiring CBI Director has pointed out that the Government doesn't appear to have a strategy for growth and certainly nothing in the ambitious tradition of the Yellow Book. Doubtless in some back office of Downing Street someone is cobbling one together as I write. Those of the neo conservative right will not see the need. For them the only show in town is the deficit reduction. For Liberals we would wish to see government be more active.

Chris Huhne's Green Investment bank is very welcome but in truth it is not of the scale that we would wish. I cannot see that -given it is directed to long term growth- it would cause great panic on the bond markets if its resources were enhance. It would also be an opportunity to take the EOA's suggestion that the government should ensure that all investments should at least be conditional on firms having an employee trust of a minimum size-or better still enacting the co-partnership proposals of the old Liberal Party.

And still in the Yellow Book tradition there must be room for some schemes to be introduced to tackle unemployment amongst the young. The long term damage to society that may well result from long term unemployment amongst this group could well undermine the broader economic strategy. We cannot turn aside and leave it to the market.

Finally there is much interest in a mutual or co operative element to public sector reform. In Southport we worked hard to facilitate a workers' buy out'of a horticultural undertaking-regrettably they would rather have the security of being employees. I fear that in the hands of Andrew Lansley with all his fiends in the private sector funded by venture capital this may amount to merely window dressing. The danger is if there are wholly private sector take overs of public sector functions funded in the same way as the Kaft take over of BAA, or Man Utd etc they will be driven by short term returns on their investment. If mutuals are to have a chance then they need access to capital at a fixed rate of interest so that they can fund 'upfront' the sort of capital out lay that the venture capitalists will offer. It follows that such funds ought to be be available to other similarly owned firms so that they too can compete. One of the things that impressed Grimond about Mondragan was how much of the investment came via a local mutually owned savings bank. In that context we look forward to the Banking Commission recommending the re-mutualisation of some of the banking sector!

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