The CBI’s reaction to John
McDonnell’s employee share ownership plan was to be expected. Not only might
such a plan place an initial administrative hinderance on many firms throughout
the country, but in the longer term the ability for workers to lever
shareholder power over executives shifts the dynamics of executive/employee
power.
These are the arguments the CBI could
be making – namely, that the plan is disruptive to business. Instead, across
the media an almost myopic rebuttal to McDonnell’s plan can be heard. There are
claims the plan will reduce productivity, reduce business investment, and drive
businesses aboard, ultimately harming jobs. Above all, the CBI claims that such
legislation is unnecessary as businesses already give employees the chance to
become shareholders.
Partly due to disdain, partly due
to inaccuracy, and partly due to the political and economic climate we find
ourselves in, these arguments may be dismissed.
Consider productivity. As the
Office for National Statistics (ONS) reports, UK productivity since the
financial crisis has increased from an indexed value of 95.7 to 100.7. Over the
10 years prior to 2008, productivity increased from 84.9 to the cited 95.7. Of
course, these are simply the figures for a problem that has not gone unnoticed:
in March, July and August of this year the Financial
Times (amongst others) highlighted the UK productivity issue, with a speech
by the Bank of England’s chief economist Andrew Haldane on the issue being
published in June.
The CBI’s claims that McDonnell’s
proposal will harm productivity seems to ignore the elephant in the room,
therefore: there is already a productivity problem in the UK. What is
interesting, and in many ways encouraging, is that this plan may actually
increase productivity, with even the CBI acknowledging that employee ownership
often has a positive effect on employee motivation and thus productivity.
Of course, a productivity argument
might be made when considering reduced business investment. The argument might
go that the burden of this plan will disincentivise businesses to invest, causing
productivity gains from new technology will be lost. Unfortunately, business
investment since the financial crisis hasn’t changed much either, going from an
indexed value of -0.3 in 2008 to 0.2 in 2017 (figures from the ONS). In other
words, whilst business investment, or lack thereof, may drive productivity
growth, given there has been very little business investment over the past
decade it is a dubious argument to attack Labour’s proposal with the threat of
further disinvestment.
Though this ignores a wider
point. If employees have an ownership stake in businesses, they can encourage
and thus counter any disinvestment that it is claimed might occur. Why? Well,
following the prevailing theories of investor motivations, those
employees/shareholders will want to maximise their return just as all other
investors would. This, ultimately, is a more compelling argument than I think
is immediately obvious: just because 10% of the company is owned by the
employees, it does not mean the remaining 90% of shareholders are going to
tolerate disinvestment and the forgoing of profitable endeavours. Presently,
executives attempt to maximise shareholder value; they do not care who the
shareholders are.
Perhaps, however, the best way to
maximise such value is to move abroad and avoid Labour’s proposal. Ignoring the
administrative costs of doing such a thing, let us take note of two things.
Firstly, as a consequence of Brexit, firms are already leaving this country.
For many, the question will be asked what difference will this policy really
make? Secondly, this supposed threat of emigration has been raised countless
times, be it in opposition to higher corporate taxes, greater sector
regulation, increases in wages or trade union bargaining power and so on. Many
times, politicians have bought into this threat – implicitly underestimating
the value of the UK to these businesses – and have not acted. Now many look
around and see the barren, economic desolation that such concessions have
brought them. For a great many workers, if the price of keeping these
businesses is low corporate taxes, low regulation and weak workers’ rights, low
wages and little bargaining power, their desire to appeal to business to stay
will be found to be lacking.
For a great many, now is the time
to call business’s bluff.
Finally, we must address the
claim by the CBI that many firms already allow employees to become
shareholders, often by allowing said employees the opportunity to purchase
shares at a discounted price. This statement is true, and to be sure it’s
generally a positive idea. But it is not fair to bring up such a statement in
the context of McDonnell’s proposal.
Whilst those working on the shop
floor or the assembly line will be given these share purchase opportunities in
their lifetimes, for those who are struggling to pay their rent or struggling
to put food on the table because their pay is so low; for those who cannot
afford to pay into their pension pot, or perhaps must leave the heating off in
the winter; for those people, no matter how good the share offer is objectively, they will never be able to
part-take. And even if they did, what power would their voice have versus the
vast ownership shares of angel and institutional investors?
For the CBI to dismiss John
McDonnell’s plan because similar means of empowering workers already exist,
they are either blind to the realities of the everyday worker, or they are
intentionally selling a false equivalency.
To be sure, the details of this
proposal need to be checked, and checked again. It is foolish to assume all the
nuances are known, all the problems are ironed out. But given the arguments
offered thus far, primarily by the CBI, this plan remains – in my opinion – a
positive policy for economic empowerment.
