Tuesday, 21 November 2017

Budget, the Liberal dog that hasn't barked

Featured on Liberal Democrat Voice a double dose of recognition this week as this posting was also included in Liberal England Six of the Best and it also got the seal of approval from Roy Connell
For decades, in the post-war era, there was not a budget day when the Liberal Party did not move an amendment to promote employee ownership and industrial democracy. Jo Grimond and Richard Wainwright were always looking for opportunities to make the case for the redistribution of ownership. Not only did they believe that this would lead to a fair distribution of wealth and influence they saw that it would contribute to productivity improvement-but more of that later

Donald Wade, (who for younger readers, was the MP for Huddersfield West,) laid out the argument in his pamphlet Our Aim and Purpose which sold over 100,000 copies. It is important to recognise that the Liberal idea was not just to radically distribute ownership but also to shift where economic initiative was centred:

Managers and employees, acting in partnership, should employ capital, since all business requires capital. But the idea of capital employing labour is an out of date concept. It is an old fashion notion which Liberals reject.

These ideas were not new- they go back to J S Mill. He saw total employee ownership as the final stage in political-economic evolutionary process, and in Principles of Political Economy he argues that:The relation of masters and workpeople will be gradually superseded by partnership, in one of two forms: association of the labourers with the capitalist; in others, and perhaps finally in all, association of labourers among themselves’.

Vince Cable's article in the Guardian  lays out some excellent ideas and certainly addresses the case for 'progressive redistribution' with an important proposal for endowments for young people. He is good on tax avoidance wanting the government to go after tax cheats as aggressively as the Tories love to go after benefit 'cheats'. But no word on the signature policy of the Grimond revival.
It is worth rehearsing some of the arguments and looking at the 'ownership effect'. Many years ago I served, for about a decade, as a  member of the party's Standing Committee that became the Policy Committee. I recall one policy discussion based on a paper by James Meade. Meade received the Nobel Prize of economics. Let us pause for a moment and just unpick that a bit. One of the great disasters of the Clegg leadership was the way it was captured by economic commentators who had fallen under the spell of those false gods-the neoliberals. We are still living with the consequences despite Tim and Vince's efforts. This was particularly evident in the coalition negotiations in 2010. Writing in the Journal of Liberal History David Howarth observed:
.. Liberal Democrat leadership took no external advice about the issue, or about the separate issue of accelerated deficit reduction. Both the Treasury and the Bank of England would have reinforced the acceleration view, given half a chance, but that view is built into their nature. Others took very different positions on the optimal path, from the NIESR’s moderate caution to David Blanchflower’s jeremiads. The puzzle is not that the party took one view or another, but that it did so on the fly without consulting specialists. Has the party of Keynes lost touch with economics as a discipline?
James Meade was not just any economist. He struggled with the ideas that concern social liberals. He was a self-described liberal-socialist and sought ways to create a fair and prosperous society where free citizens lived rich and fulfilling lives. Decades before Piketty examined accelerating inequality he proposed policy solutions. He identified that as wealth was created it was going disproportionately to the shrinking number of owners of capital and employees were getting proportionately less. This was a situation which automation and the failure of inheritance taxation were exacerbating. Meade championed employee ownership. Writing on the Open Democracy website the academic Stuart White in his essay 'Citizen Ownership: The Lost radicalism of the Centre explores this challenge and Meade's other ideas.
If the return to capital is rising relative to labour, then the way to prevent this leading to growing inequality of income is to democratise claims over wealth – over returns to capital. This can be done in two ways.
First, the stateionatley  can enact policies to encourage a wider dispersion of privately-held wealth. This is what Meade means by ‘property-owning democracy’. Meade himself puts a lot of emphasis on designing an inheritance or accessions tax in a way that will break down large concentrations of wealth and encourage people to give wealth to those who have yet to receive much from this source. One can readily imagine other, complementary policies to help with this goal. In one interesting response to Paul Krugman’s article on the ‘rise of the robots’, Noah Smith argues along Meade-type lines, suggesting the idea of a universal capital endowment as a right of citizenship
Second, the state can itself build up a stake in national wealth and distribute this as income to citizens. For much of his career, Meade was an advocate of what he termed ‘Topsy Turvy Nationalization’. He was not supportive, in general, of the state buying up private sector firms and then trying to manage them. But he did strongly support the creation of a state investment fund. The state would own a portfolio of assets across the economy. The return on these assets could then be returned to the citizenry, e.g., as a uniform social dividend or basic income. One might call this a Citizens’ Trust.
A second issue that employee ownership answers is of particular interest to those of us who live outside of London. How do we create sustainable long-term employment in our communities? The Employee Ownership Association (EOA) -whose first chair was Jo Grimond - has some budget proposals on its website and this is an area they specifically address.
....two thirds or 4.7 million businesses, are family owned, as reported by the Institute for Family Business and the report earlier this year of the lack of business succession planning in the UK’s family owned businesses. Equally important to the future of SME’s are the ambitious plans of the Government-supported Scale Up Institute and the opportunity for employee ownership to play a critical part in engaging the entire workforce behind a growth or scale up plan.
Secondly, employee ownership is a growing feature across every regional economy. With the ability to help root businesses in a place for the long term, unlike trade sales which often result in a loss of a business or jobs, employee owned businesses contribute to more sustainable economies, with their higher levels of resilience and their longer-term orientation.
William Wallace in his Beveridge Lecture explains why the absence of regionally based sustainable business is so important. I would add to William's observation the point made by the EOA, that a lot of businesses are sold off when the founders retire and the default position of banks and accountants is to dispose of them without any thought about the long-term future of the company or the local economy. The record is that jobs are lost and in the short and medium term companies close.
Part of the problem we face is that globalization, in the form of foreign takeovers and cross-national mergers, has weakened domestic corporate leadership.  The directors of regional banks, the CEOs of companies based in Manchester, Leeds or Newcastle, are no longer there to create the ‘place-based industrial regeneration’ that government is now beginning to discuss.  
LEPs draw in the regional managers of multi-national companies, many of whom are committed to their roles for as long as they stay in their posts; but it’s striking that BEIS documents often refer to universities as triggers for regional regeneration rather than financial or corporate leaders.  And – I would argue, though some of you may not agree – that the looseness of the UK’s takeover rules, and the short-term culture of Britain’s financial institutions, continue to lead to too many of Britain’s new enterprises being swallowed by American or Asian takeovers as they grow: thus failing to generate the new regional leaders, the new players in the global market, that will revitalise the British economy.  
The contrast with Germany is striking: greater support to German companies from financial institutions, tighter restrictions on takeovers, contribute to maintaining a dynamic domestic economy the benefits of which are dispersed across the country rather than concentrated in and around the capital.
The needs to sustain local and regional business and create a UK version of Mittelstand is crucial. So what is to be done? The EOA has some budget advice for the Chancellor and I would add that we should look at employee 'right to buy' when a business is sold. This would require government-backed enterprise bank until local institutions like Caja Laboral can be established. Back to the EOA:

So what could I dare to dream of from the Chancellor this week?
That the UK Government officially recognises the employee-owned sector, and in doing so advocates and champions it via a nominated Ministerial lead.
That through this recognition, there is broad consideration of employee ownership in all policy development, and especially as HM Treasury goes about its important work of shaping the tax environment to deliver the most sustainable economic returns.
That employee ownership as a solution to business succession and scale up becomes embedded as part of the support offered by LEPs, so that every business owner is able to access advice and understand its relevance to them, from a local champion.
And that until such time as there is more widespread understanding amongst the mainstream banks of employee ownership, that there is support for the financing needs of the sector, with government-supported banks offering suitable products and security.
Employee ownership is not new; it is tested and tried and has credentials that can be seen in every sector of the economy. But just like many ideas that have yet to transcend into the mainstream, it needs government to use its voice, its influence, its advocacy and its convening power in order to realise its potential for the benefit of the UK economy.
My dream, therefore, is that Mr Hammond realises this opportunity and uses his influence to help unlock the sector's potential, and deliver more employee ownership.


  1. Hi Iain.
    I'm not convinced mutuals would work on a large scale. I worked in a plc in which all the employees owned shares. It made no noticeable difference to behaviours: employees just hoped to make a quick buck selling shares if the price went up. I agree that isn't really a mutual but, in my experience people aren't that interested in owning a stake in the companies they work for. Indeed, when they want to retire, the owners of many small companies find it hard to get employees to take the business on. It might be easier if companies are set up that way from the outset but, of course, the entrepreneurs who have the ideas and
    drive to set up the business not unreasonably want to get the largest return. Else why should they bother? I've got no problem with mutuals and encouraging employee share ownership but I doubt it could ever be material to the overall economy myself. That said I found the following article very interesting - have you seen it? (you do have to sign up for a free academic licence):
    *Why Aren't There More Companies Like John Lewis? Charlie Mayfield (Chair John Lewis Partnership), James Purnell (Director, IPPR) and Will Davies (Academic Director, Mutual and Employee-Owned Businesses, University Of Oxford). Public Policy Research, Dec-Feb 2012.

  2. Thanks for your comments. Some of these issues are going to be explored in the Social Liberal Forum book that is die out in the Spring. I think that a policy of some variant of co-ownership is viable it will not solve all our economic issue but it will make a significant contribution. we must remember that the Mondragon worker owner businesses employ over 100,000 people and in Germany co-determination is pretty universal. It is urgent that we come up with policies which tackle the maldistribution of wealth.

    Thanks for directing me to article. Will Davies did a pamphlet for DEMOS called Re-inventing the Firm published in the wake of the financial crash which I though did point the way to some important reforms.
    This policy will not be popular amongst the existing owners of capital and they will seek to dismiss it but unless we tackle issues of wealth and powerlessness the future is bleak


I am happy to address most contributions, even the drunken ones if they are coherent, but I am not going to engage with negative sniping from those who do not have the guts to add their names or a consistent on-line identity to their comments. Such postings will not be published.

Anonymous comments with a constructive contribution to make to the discussion, even if it is critical will continue to be posted. Libellous comments or remarks I think may be libellous will not be published.

I will also not tolerate personation so please do not add comments in the name of real people unless you are that person. If you do not like these rules then start your own blog.

Oh, and if you persist in repeating yourself despite the fact I have addressed your point I may get bored and reject your comment.

The views expressed in comments are those of the poster, not me.