A Positive Policy for Economic Empowerment

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.

Leviathan

This week marked the closest Theresa May has been to being removed as prime minister since her disastrous general election result in June. A now infamously bad speech, cabinet infighting and a general perception of her being weak have made her departure, in the eyes of many, inevitable, even if for the time being not immediately forthcoming.

Depending on who you ask (or, depending on the interviewee’s political leaning) the problem facing Mrs. May and the Conservative party in general is either Brexit, or a lack of clear, coherent and compassionate domestic policy. The discrepancy in reasoning is caused merely by respective actors emphasising their strengths – the issue is the same regardless: there is a lack of direction in Theresa May’s government.

This, in the opinion of many, will be fatal, if for no other reason than cool-headed reliability to do a task they have been asked to do is proudly promoted by many Conservatives as the modus operandi of the Tory party. A lack of direction, and by extension an inability to effectively deal with the tasks at hand, all serve to damage the party doubly as they damage the Conservatives the government and the brand.

This is why Theresa May is most certainly a dead woman walking. The very fact she is still walking is because the crisis facing the Tory party is systemic, rather than a sickness held in the head. The most likely candidate to replace her is Boris Johnson, eluding again to the behemoth of Brexit that is crushing this government and, it must be said, most of Westminster. An election of Boris as leader of would almost certainly smother some of the Brexit fires, but would leave other flames to burn out of control. It would also reinforce the perception that the Tories are out of touch; according to YouGov, he has never been more unpopular.¹

In what is now becoming a list of problems, the Conservatives find themselves with another: Mrs. May can’t lead but must, whilst Mr. Johnson can lead be must not. If we were to muse as to how to solve this problem, one might take it as a joke when I refer to a snake, but it is not. A leviathan in the context of history is one that unites various warring tribes through its singular might. Politicians might be snakes, but are any leviathans?

The apparent consensus is no, but that’s hardly creative thinking. Brexit has caused all of this mess, and perhaps it can fix it. Mrs. May faces an increasingly difficult task in leaving the European Union, whilst Brexiteers breathe down her throat, and the masses of young Remainers at home flock to Jeremy Corbyn. As a political move, calling a second referendum on Brexit may solve all three of these problems.

Assuming that, given the chance to vote again, a coalition of mobilised youth, terrified metropolitan elite and regretful middle-Englanders might reverse the result, Mrs. May may save her premiership. Talk of Brexit would be over, allowing her to focus on a strong domestic agenda and give her party an important sense of direction. Equally, it would cripple the hard Brexit wing of the party – including Mr. Johnson – through a shift to the centre ground. The result would be alienation for Boris and co.

Finally, Mr. Corbyn (whom I have spoken little about) would have his wind knocked out of his sails as his legions of supporters would, in a manner of speaking, side with the enemy. To put it another way, Mrs. May would be offering the young something only a prime minister could offer, and the young would be hard pressed to refuse.

As a solution, of course, it is not perfect. There would be accusations of old wounds opening (though, I would retort, that said wounds never closed) and it is certainly short-termist – the problem of Europe would continue to plague the Conservatives for years to come. But as I have written previously, this will be the case regardless.²

Though these are not the major flaw with this plan. The major flaw is the assumption that the result would be reversed. Just as Mr. Cameron did before her, losing the referendum would result in Mrs. May’s resignation. But so too will a ‘no deal,’ outcome, or simply a strategy of waiting it out. Mrs. May is on a collision course with failure, and only a risk might rectify that. If ever there was a time for bold and brave (if not necessarily strong and stable) leadership, let it be now. Call a second referendum.

¹ https://yougov.co.uk/opi/browse/Boris_Johnson

² http://stuartmmills.blogspot.co.uk/2017/07/how-do-you-solve-problem-like-brexit.html