We face the biggest crisis of capitalism since the 1930s, including the potential for economic meltdown and a second Great Depression . If the Labour leader wants to be taken seriously and win public confidence, he’s got to come up with some fresh radical policies. Labour needs a big idea that will reduce the possibility of a repeat economic meltdown – and create a fairer, more just society. In this period of financial crisis, the public is open to new ideas. This is the moment to push for the democratisation of the economy.
The absence of economic democracy and accountability contributed to the reckless corporate decisions that precipitated the economic crisis since 2008. The RBS and Northern Rock directors got away with their high-risk investment decisions because economic power was, and still is, too concentrated and too unaccountable. If economic decision-making was more democratic and decentralised, it would reduce the chances of future corporate negligence and irresponsibility.
We expect political democracy. Why not economic democracy too? Ed Miliband should show real leadership by putting economic democracy on the political agenda. He would win public support if he called for the economy to be bought into closer democratic alignment with the political system. Democracy is a popular idea. Economic democracy cuts with the grain of public opinion. Extending the economic franchise is about democracy and justice. It can help create a greater plurality and diversity of economic power, and also lay the foundations for a more equitable and productive economic partnership between all those who contribute to wealth creation and to the provision of public and private services.
The current economic system is characterised by an absence of democracy, participation, transparency and accountability. Employees and their representative bodies are frozen out of economic influence and decision-making. The captains of industry, commerce and finance have almost total power. They run their enterprises on quasi-totalitarian lines. All decision-making is concentrated in the hands of a tiny, privileged cabal of major shareholders, directors and managers. They alone determine how the company operates. Employees – without whom no wealth would be created and no institution could function – are powerless and disenfranchised.
The advent of nationalised public industries, utilities and services changed little. They have been run in much the same centralised, dictatorial manner as their privately-owned counterparts. There was never any economic democracy in the state-run railways or coalmines. The bosses of public utilities and nationalised industries were almost as powerful as the captains of private enterprise. Their employees remained locked out of the decision-making process. It was state capitalism, not socialism. Labour and the trade unions made a huge mistake. They over-emphasised public ownership, to the neglect of public control and accountability.
Wherever we look, in all sectors of the economy, the democratic deficit is universal. Power is concentrated and wielded in ways that are contrary to the democratic, egalitarian spirit of 21st century Britain. The idea of something different – economic democracy – is nothing new. It was big in the 1970s, in the heyday of Labour’s left-wing revival, when much of the party was idealistic and visionary. In those days, we wanted to redistribute wealth and power. Some of us still do.
Three proposals for economic democracy from four decades ago are worth reviving: industrial democracy, trade union control of pension funds and the transfer of stock ownership into employee share funds.
A system of industrial democracy, broadly based on the 1973 Bullock Report and Labour’s programme of 1976, would require the boards of all public and private enterprises with 50 or more employees to establish equal representation and joint control between management and elected staff representatives. Under an independent chairperson acceptable to both sides, these boards would have full access to all corporate information and the final say over all corporate decisions, including nvestment, technology, jobs, wages, prices and so on. This system of co-determination would produce a major extension in workplace democracy. It would shift the balance of economic power; constraining the remit of capital and expanding the influence of labour. It would also be good for the economy because worker directors would offer independent oversight of corporate operations and bring to the boardroom practical, often cost-saving, insights from their direct day-to-day experience. Not motivated solely by the profit motive and private gain, they would be more likely to blow the whistle on reckless risk-taking and on decisions that damage the consumer and the environment.
Trade union control of pension funds, which total around £900 billion, is another way to decentralise, diversify, and democratise the economy. It could be accomplished by legislatively re-assigning the administration of pension fund assets to financial experts appointed by, and accountable to, individual trade unions who would act as trustees of the funds on behalf of their members all across the country. Alternatively, the funds could be placed in the hands of a regional union pension fund, acting for all the unions and their members in a particular region. This would localise and decentralise investment decisions; increasing the likelihood that the funds would be used to meet particular local needs. Either version of this pension fund scheme would give organised labour direct power over a massive wedge of public and private investment capital. It could then direct these funds into specific enterprises corresponding to the interests of union members and to broader social and environmental needs, such as the development of renewable energy and the conversion of arms industries to socially-useful civilian manufacture.
Perhaps the most radical proposal for economic democracy involves the progressive transfer of share ownership into trade union-administered employee share funds. This would obligate all private share capital companies to assign to a union-controlled fund a proportion of their annual profits in the form of a new share issue. This would gradually, over many decades, give employees, through their unions, a controlling interest in their firms – transforming them into self-governing workers’ co-operatives. The great strength of this scheme is that it incentivises and rewards employees for economic success. The more productive and profitable a company, the more shares it has to issue to the employees’ funds and the sooner employees gain a controlling stake. This gives employees a strong encouragement to increase productivity, which benefits them, their firms and the economy.
In contrast to Labour’s traditional reformist economic doctrines of Keynesianism and welfare statism – which merely seek to redistribute wealth more fairly within the confines of the existing free market, private ownership system – these three models of economic democracy are mechanisms for the structural transformation of capitalism. If implemented, they would radically redistribute wealth and power in favour of organised labour and working people. Ed Miliband could really make his mark if he challenged the system of economic autocracy and set out a new model of economic participation, accountability, decentralisation and transparency. The interests of employees, consumers and the wider public demand it. The time for economic democracy is now.
