This election is shaping up to be the most important in this country for generations and decisive for the future of British business. For all the bluster from prime minister Boris Johnson, or the daily nonsense of the opinion polls, it will be a close-fought contest over two radically different visions of a future Britain, with dramatically different consequences for businesses here. The first is the one hidden behind the legalese, and the bureaucratic and parliamentary manoeuvres of the Tory Brexit debacle. It is a vision – alluded by Johnson as both foreign secretary and in his recent New York speech as prime minister – of a low-tax, low-regulation ‘Singapore on Thames’, able to outcompete the supposedly sluggardly, over-regulated Europe. It is the vision embodied in the governments’ withdrawal agreement and political declaration, as agreed with the European Union: an acceleration of the ‘neoliberal’ model of running the economy, stripping regulations and taxes to a bare minimum in the hope of maintaining a foothold in an increasingly brutal world economy. Johnson and his crowd will be hoping the serious and seemingly permanent unpopularity of their worldview will be clouded by Brexit posturing. For most businesses, this will be a brutal economic shock: if the economic forecasts are remotely correct, Johnson’s Brexit will lead to years of dislocation and failure, spread across the country, as our economy and society are radically reshaped.
Confronting Johnson’s bleak view is Labour’s vision. Put together in the years since Jeremy Corbyn became Labour leader, but drawing on a rich intellectual heritage, this has become an increasingly confident view of a different kind of economy. As the Financial Times, in its detailed recent survey on Labour’s economic thinking notes, this will be a “fundamental redistribution of power and income in the UK”. Far from the boring media stereotypes of the 1970s, Labour’s ‘new economics’ represents a concerted effort to address the core economic problems that now confront Britain: a decaying public sphere, after a decade of austerity; low and uneven investment, after four decades of neoliberalism; and the overwhelming social challenge of climate change. In 2017, this programme led on the question of restoring – and improving – public services from the hammering of austerity, with £47bn of additional public spending. That core offer will remain in place; the social destruction wrought by austerity is today only too visible, and sketchy Tory promises will not address it.
But in the two years since the need for more radical changes has become more apparent. At the centre of the new economics is a shift away from the traditional focus of post-war social democracy on the question of tax-and-spend. This agenda, building on a line of thinking best associated with Anthony Crosland, has delivered much in the last six or more decades – including major increases in public spending under Gordon Brown as chancellor. But the problems we must now confront run far deeper than this. Britain is largely a low-investment, low-productivity economy, a situation that prevailed even before Tory Brexit uncertainty crashed business investment spending. The last decade has seen the replacement of secure, better-paid work with lower-paid and more insecure jobs, largely as the result of the substitution of cheap, ‘flexible’ labour for longer-term capital investment. Inequalities of wealth and income disfigures our society, and the yawning chasm that separates those few economic bright spots from the low-pay, low-investment murk that shrouds much of our country is only too apparent.
Labour’s new economics has two fundamental principles: first, that the greatest social challenge facing this economy, as with any globally, is that of climate change and environmental destruction more generally; a challenge on such a scale that only an overhaul of how economy functions – the ‘rules of the game’ it operates with; the institutions it relies on; the location and types of investment being made – will be sufficient to address it. Second, that the social mechanism needed to transform our economy is a shift in ownership: making society not only more equal, but reshaping incentives and, ultimately, placing real power back in the hands of those who create the wealth.
Place these two together, and Labour’s new economics is not crudely ‘anti-business’. It’s an opportunity for new kinds of businesses to emerge and prosper. Certainly, it’s clear that at least some businesses are already alert to the social challenges, here and elsewhere in the developed world. Business Roundtable in the US, representing hundreds of the largest corporations, issued a statement committing its members to realising the ‘purpose of a corporation’ beyond merely maximising short-term shareholder gains, but also ‘supporting the communities in which we work’ and ‘investing in our employees’, amongst other feel-good things. The Financial Times recently called for a ‘reset’ of capitalism. Major oil companies busily rebrand themselves as green; gurus of every stripe promote variations on a new, caring ethos for business.
But much of this is familiar. It’s just over a decade since David Cameron, prior to his election as prime minister, began extolling the virtues of ‘shared responsibilities’ for business and of companies being ‘good neighbours’. It’s 15 years since Gordon Brown extolled businesses to provide ‘leadership’ in their communities. And it’s almost a quarter of a century since Will Hutton’s best-selling The State We’re In popularised the idea of businesses as the central plank of a ‘stakeholder society’. It’s a line of thinking that can be traced at least as far back as to the great liberal economist, JK Galbraith, who saw the rise of the modern corporation, post-world war two as the potential foundation for a good society.
Indeed, one version of what the new economics means for businesses today is simply the completion of that Will Hutton programme from the 1990s: speculative finance curtailed, the City brought to book; solid, long-term investment delivered through reformed and chastened financial institutions; high-paying manufacturing jobs, spread across the country; and workers given their fair share in companies large and smaller through seats on the board and co-operative ownership schemes. (We might wonder why – with all the enthusiasm with which Hutton’s book was greeted back in 1995 – selling 200,000 copies, cited by New Labour shadow ministers – New Labour in government delivered almost the exact opposite of its demands.)
Above all, what this amounts to is attempting to draw moral distinctions in business behaviour. Where a pure version of neoliberalism might say that businesses and the wealthy should be left to their own devices – the miracle of the market leading to better outcomes alone than government or society could ever create – this version of economic governance would attempt to define what makes a ‘good’ or a ‘bad’ business. New Labour’s amendments to company law, most notably in the 2006 Companies Act, placed some of this thinking in statute – but the changes made have been cosmetic relative to the monomaniacal focus on ‘shareholder value’ that still dominates.
Give or take, building on Hutton was approximately the programme of the 2017 election. The next manifesto will have to move beyond that point: ending austerity; keeping the £250bn National Transformation Fund to overhaul our infrastructure (key to lifting productivity) and repurposing it to focus on delivering the high-quality green jobs we need across the whole country. But it will also seek to introduce major institutional reforms, including ways to support the best companies. The best companies already look beyond mere shareholder value, realising that delivering value over the longer-term requires investment in their employees, an awareness of environmental constraints and challenges, and a broader understanding of their own role in society. Labour in government will seek to work with the grain of the best, but introduce the changes to company law needed to support them – and implement an industrial strategy that can support their long-term ambitions.
But to fix these changes in place, we will need to go further. As Mathew Lawrence of the Common Wealth think tank – one of a cluster of new, fast-moving policy units supporting the new economics – put it, there have been two governments in Britain since the second world war that transformed how we live and work. The first was Clement Attlee’s in 1945, which shifted around 20 per cent of the economy into public ownership whilst massively expanding the provision of public services. The second was Margaret Thatcher’s of 1979, which largely reversed the Attlee nationalisations – and then went further, transferring vast public housing wealth into the private market, but failing to replace it. Lawrence argues that the next Labour government, if it is to be transformative on the economy, must be similarly ambitious in placing the question of ownership at its centre. That means a shift away from centralised and concentrated ownership of our productive assets, to ownership spread fairly across the whole country.
Technology itself is providing part of the answer here. Digitisation of manufacturing has meant that the demands for immense scale that mass production required – the kind of vast complexes, employing perhaps hundreds of thousands of the mass production factories, still familiar in Shenzhen and other global manufacturing hubs – and towards smaller-scale, high-quality, increasingly customised output. 3D printing and other digital technologies don’t demand scale in the same way, creating the plausible means for economic success for local and regional economies. This matches up directly with the creation of green jobs: if – for example – we are looking to insulate every loft in the country properly, saving on energy bills, cutting emissions, and creating jobs, then much of that insulation will have to be batch-produced on a small scale, customised and suitable for use in our older buildings. Or if we want to shift energy production into renewables, much of that production can be placed in local and community hands – like the community-owned “wind guilds” in Denmark, with 100,000 members across that country. We don’t need vast concentrations of wealth and power to compete globally – we can localise, and decentralise, and as digitisation becomes ever more ubiquitous, we will have to. It means a new role for the growing army of small businesses and the self-employed: instead of the industrial giants of old, we are already seeing how whole sectors can support a huge number of viable, smaller-scale firms – whether as sole proprietors, partnerships, family-owned companies, or under worker ownership.
As Corbyn himself has said, this shift in technology can pave the way for a ‘new, co-operatively owned British Mittelstand’: a rock-solid, high-technology, high-skilled backbone of smaller, digitally-enabled manufacturers, owned by their employees. The Mittelstand in Germany, like the co-operative enterprises of Northern Italy’s successful small-scale manufacturing centres, form a collaborative whole: able to compete internationally on the basis of their high productivity and high-quality output, but learning from each other and forming a mutually-supporting whole. Glimpses of a possible future can already be seen in the UK: the Employee Ownership Association’s Deb Oxley points to the number of employee-owned manufacturers growing, particularly in the North of England. Outside of manufacturing, Julian Richer of Richer Sounds has transferred his company to 60 per cent employee ownership, whilst nationally over 200,000 today work in employee-owned firms. With huge numbers of business owners now approaching retirement, employee-ownership is an increasingly popular way to ensure their businesses can continue – and forward-thinking Labour councils like Preston in Lancashire are working with local business owners to help this happen. With the new £250bn National Investment Bank and regional development banks charged with promoting employee ownership across the whole country, Labour will seek to create nothing less than a change to the fundamental economic geography of Britain, shifting power and wealth out of the hands of too few people in too few places and into the hands of the real wealth creators across the whole country.
Employee and worker ownership has been talked up by previous governments. “Every earner an owner, and every owner an earner,” as Margaret Thatcher herself once put it. It’s fairly safe to assume that she didn’t mean for this to act as a one-sentence soundbite description of socialism, but that’s exactly what it is. Where Thatcher – if we take her at her word – utterly failed, of course, was in not overseeing the creation of a “shareholding democracy”, but in its exact opposite. Individual share ownership has plummeted, from 37 per cent of UK shares held by individuals in 1975, to just 12 per cent today. Labour’s plans for shared ownership – with the “inclusive ownership funds” at their centre – will start to redress this, shifting the balance of ownership in large companies back towards those who work, by mandating companies to transfer up to 10 per cent of their ownership into a collectively-held fund every year. This will give every worker a stake in the business, and, as treasury research on employee ownership shows, start to reshape business incentives towards longer-term issues: long-term investment, reducing environmental damage, and giving employees a real say in management decisions.
This is what the new economics can mean for businesses: investment in infrastructure, ending years of neglect outside of a few hotspots; investment in the National Education Service that will deliver life-long learning for all; an industrial strategy worthy of the name, meeting the massive social challenges that face us; support in law for good business practices for their employees and the environment; and support for employee-owned and co-operative businesses as a new model for entrepreneurship across the country.
Photo credit: Jeremy Corbyn/flickr
The ideas in this piece will be developed further in a project on the new economy and British business coming in the new year.