Liberal plans for co-ownership of industry and even more radical plans for out right employee ownership all looked to replace the idea that building shareholder value was the objective businesses. Owners of capital are looking for the biggest possible return on their investment in the shortest possible time and this leads to short-term-ism and high risk taking. Not many shareholders were complaining about executive pay when their dividends were good. At the extreme this leads to daft decisions like the sale of Cadbury's to Kraft. The destruction of firms which had long term viability for short term profit.
It interesting to note that employee owned enterprises have controlled executive pay much more successfully than PLC's. There is also good evidence that they have better productivity, happier workers, create more jobs and are less tempted by short-term objectives.
Robert Oakeshott and others pointed out that there were other benefits of this model of ownership-the redistribution of wealth. David Steel and Professor James Meade made that point in the Steel edited book; Partners in one Nation and an American academic interviewed recently asserted:
I am of the opinion that we can’t address the problems we’ve got just with the standard fare of income-based measures and government transfers. Given the scale of problems that exist when thinking about economic inequality, the idea that we can bridge the gaps that exist through these traditional strategies, through government transfer payments, earned-income tax credits, or whatever you may come up with, is really not enough. If you’re looking at the drivers of income inequality, it’s not just paychecks, it’s wealth. Rich people are rich because they own stuff and that stuff gets more valuable as they sleep. The greater mass of the population is being asked to survive on paychecks—on income. That’s a race they’re never going to win. Strategies that intervene at the point of ownership of productive assets of business are, therefore, an important place to be.
There are some Labour politicians in Britain who are genuinely interested in this approach but generally speaking both in opposition and in government the Labour Party have done little to advance this alternative model of ownership. Indeed up to and including the last Labour government the Trade union Movement have been hostile to this approach. This dates back to the Webb's opposition to producer co-operatives. In this little clip from a documentary on the successful Mondragon co-ops explains their opposition (start at about 8mins-altho all of it is interesting!)
The 'left' in America has been equally unsupportive as the academic Christopher Mackin clear in the same article:
This point of view stands in contrast to an extremely fuzzy vision of a lot of my friends on the left, who, with the best of intentions, say we should have what they call “social” ownership of the means of production. At the end of the day ambiguous language like this is an invitation for supposedly enlightened government bureaucrats to make the tough calls. Does this vague idea of “social” ownership mean government ownership? Not really. Does that mean it’s worker ownership? No, not that either. This fundamentally ambivalent social ownership view comes out of social-democratic and socialist traditions that ultimately do not trust workers with ownership for fear of imagined crimes and misdemeanors that enlightened social democrats—who truly hold the reins of power—believe they alone can avoid. They believe this at the expense of the workers and at the expense of the possibilities that should be allowed to take place when there is genuine democracy at the level of the firm.
It is therefore in the context of a wider debate about ownership that we should look at the policy to control executive pay. Welcome though the steps Vince has taken are they do not contribute the the wider agenda which British Liberals have advanced for generation namely of democratising ownership and spreading wealth.