Vidya Ram

Labour’s grand plan to empower workers

Vidya Ram | Updated on September 28, 2018

Strong voice Shadow Chancellor of the Exchequer John McDonnell   -  Getty Images

John McDonnell, finance spokesman for the U.K. opposition Labour party, delivers his keynote speech at the annual Labour Conference in Liverpool, U.K., on Monday, Sept. 24, 2018. Party leader Jeremy Corbyn said he wants a general election rather than a second Brexit referendum but will be “bound” by the decision of his membership when it votes Tuesday on the issue. Photographer: Simon Dawson/Bloomberg   -  Bloomberg

The strategy is to shake up the way Britain’s corporates are run and nationalise overburdened industries

Earlier this week, John McDonnell, Labour’s Shadow Chancellor (spokesperson on Treasury matters) took to the stage at the party’s annual conference to outline his vision of Britain if Labour were to be elected. Since joining the shadow bench following Jeremy Corbyn’s election as party leader in 2015, McDonnell has been known to strike fear into many of Britain’s wealthiest: an articulate, confident speaker, often dressed in a sober suit and tie (eschewed by many of his Labour colleagues), he exudes the confidence of a politician with many years’ experience building up his understanding (and in this case critique) of the system.

He has worked with unions, local government and within Labour Party groups. He is also an avowed socialist: he once worked with London’s former Left wing mayor Ken Livingstone at the Greater London Council, while as an MP he chaired (and now remains) the head of the Labour Representation Committee, which worked to secure a working class voice within the party, unions and Parliament, and regularly put forward candidates (including McDonnell) as leadership candidates at party leadership elections.

In his early days as shadow chancellor, he convened an economic advisory committee (now dormant after several resignations) made up of seven leading global economists, including Thomas Piketty and Joseph Stiglitz, to help develop strategy. Some of his ideas — including an overhaul of government policy on SMEs — have won him plaudits from business leaders, even as they’ve balked at others proposals.

Some of the proposals — nationalisation of overburdened infrastructure and industries, clamping down on corporate greed and tax dodging — have been running themes of McDonnell’s political perspective. But this year he appeared most confident, with more and more polling revealing backing for some of his policies (particularly around nationalisation).

It was the 10th anniversary of the global financial crisis and a reminder that it was greed and deregulation that turned London’s financial centre, the City, into a “multi-billion pound casino” controlled by a “small, financial elite, who exercised too much power over our political elite”, while ordinary people paid the price, with four million children living in poverty and thousands living on the streets.

“The Tories have created an age of insecurity where people have little, if any, power or control over their lives,” he told the audience. “It’s no wonder so many people voted for Brexit. They voted for any form of change….it’s time to shift the balance of power in our country. It’s time to give people back control over their lives.”

Board seats

Among the centrepieces of his plan to achieve this were proposals to shake up the way Britain’s corporates are run, through a shift of power towards those working within organisations. A Labour government would introduce legislation requiring a third of seats on company boards to be allocated by workers.

The proposal would broadly fit in with legislation in place in other parts of Europe. In France, large private firms must have one or two board members chosen by employees, while in Germany businesses employing over 500 workers must allow employees (often through trade unions) a third of representation on supervisory boards (the figure goes up to half the supervisory board in corporate giants).

Inclusive ownership funds

However, it is McDonnell’s second suggestion that is considered the most radical: the development of Inclusive Ownership Funds. Under Labour, corporates over a certain size would be required to transfer 1 per cent of equity each year into a fund and up to a total of 10 per cent over a decade.

The shares would be held and managed collectively by workers, who would have the same rights (including in votes) as other shareholders, though would be unable to buy and sell shares held by the fund. Dividends of up to £500 a year could be made directly to workers from the fund.

“That’s 11 million workers each with a greater say, and a greater stake, in the rewards of their labour,” McDonnell told delegates.

The idea draws on a concept proposed by the Left-leaning think tank, the New Economics Foundation, in a report that sought to better align the direction of UK businesses with those of employees, users and communities, which it argued made businesses more accountable and democratic, but also more enduring and profitable while also able to withstand market disruption.

It also draws on the structure of Britain’s largest employee-owned business, the (private) retail chain John Lewis Partnership which runs department stores, food stores and other businesses in the UK and beyond. Under its structure, all employees become partners, with opportunities to influence the direction, including through elections to the Partnership Council. Each partner receives a bonus, based on group profitability and salary (the percentage is the same throughout the organisation).

Ironically, the idea’s initial proponents pointed to none other than Margaret Thatcher, the former Right-wing Conservative Prime Minister who had, in the 1980s, declared her intention (partly as backing for the wave of privatisation she was driving), pushed for a society where “owning shares is as common as owning a car.”

The proposal has created shock waves within Britain’s business sector: industry body CBI warned that while the aims of engaging and motivating employees were appropriate, the proposals would result in a drop in living standards, reducing the value of shares owned by ordinary people and hobbling the UK’s ambitions on the global stage.

However, the idea — like Labour’s nationalisation proposals — appears to have considerable public support: a survey by pollster YouGov found 54 per cent of voters liked the idea, — including 39 per cent of Conservative voters — while just 17 per cent believed it was a bad one.

Some commentators — while questioning the practicality of the exercise — have acknowledged that at the very least it attempts to grapple with some of the deep-rooted economic problems of the UK economy.

According to figures released by the UK’s own statistics agency, Britain’s long-running nominal productivity gap (measured in terms of output per worker) with the other G7 nations was 16.3 per cent in 2016 while the average real productivity growth remains below average. “Employee ownership increases a company’s productivity and encourages long term decision-making,” McDonnell told delegates at the conference.

At the moment, the Conservatives lead against Labour in polls (40 per cent to 36 per cent, according to a YouGov poll in September) but with much uncertainty remaining, particularly around Brexit, and with the prospect of a snap election — a real, if not high, possibility — its practicability could well be put to the test.

Published on September 28, 2018

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