How Labour’s new policy minds the U.K.’s inequality gap

TheStar.com – Business/Opinion
Oct. 19, 2018.   By

There is a social revolution quietly underway in Great Britain, with significant implications for the world’s leading economies.

So far, the radical changes likely in store for British capitalism, in the very country that invented it, have been obscured by the drama of Brexit, Britain’s pending divorce from the European Union (EU).

The U.K. Labour Party, which is likely to take power in Britain next year, is unique in the advanced economies in its aggressive promotion of measures that will end the “grotesque unfairness within our society,” as Labour’s popular shadow finance minister, John McDonnell, describes the growing gap between rich and poor.

As strongman governments have taken power in Poland, Hungary and most recently Austria, U.K. Labour is also unusual in channeling populist discontent in a constructive way, absent scapegoating of immigrants and demonization of business.

Labour pledges a requirement that all private-sector U.K. firms with workforces larger than 250 employees contribute a portion of their profits to Inclusive Ownership Funds.

The funds would be held in trust on behalf of the firms’ employees. The money would be used to accumulate shares in the business, from which dividends could be paid directly to employees, increasing their household income and consumer spending power.

As those shares grew in number, to a maximum of 10 per cent of total shares outstanding, the employees’ elected trustees would exert greater influence in the stewardship of the business.

Labour also wants to see one-third of board directorships held by rank and file employees.

Together, those measures would help force an “irreversible shift in wealth and power in favour of working people,” says McDonnell.

Labour also promises to expand free childcare, in a move toward universal daycare. And it seeks to re-nationalize several former state enterprises, notably water utilities, returning the provision of a wide swath of essential services to public ownership and control.

A variation on those measures came close to bringing Labour to power in last year’s snap general election. While they have been in development for the past two years, and were unveiled in full only last month at Labour’s annual policy conference, the daring reforms keep faith with Labour’s call in the 1980s for an “irreversible shift” of power and wealth to working people.

The U.K. electorate wasn’t ready for that radical agenda then, at the height of the Margaret Thatcher era of underfunding social services and privatizing state assets. That was before automation and globalization trapped millions of workers in low-wage ghettos.

Such is Labour’s resolve in acting on its reform agenda that McDonnell and his boss, party leader Jeremy Corbyn, vow to introduce the needed legislation in Labour’s first year in power.

The inevitable business backlash to the Labour economic-justice agenda – the most practical and comprehensive attack on income inequality yet advanced among advanced economies – has been surprisingly tame.

The Confederation of British Industry (CBI), the U.K.’s leading business lobby, has simply called on Labour to consult more extensively with business before implementing its reform agenda, or risk measures that “crack the foundations of this country’s prosperity.”

But the consensus of U.K. political observers is that Labour’s proposed reforms are practical and have given Labour a winning campaign platform, in contrast to the party’s muddled position on Brexit.

Then there are the precedents.

As PM in the 1980s, Thatcher proposed an employee share-ownership scheme that differs from Labour’s current proposal only in that Thatcher would allow employees to sell their shares. In Labour’s ownership funds, shares would be held by a trust, not directly by employees, ensuring that firms become and remain genuinely influenced by employee ownership.

Theresa May, current prime minister and leader of the Conservatives, embraced employee-held corporate directorships until business lobbies dissuaded her from it.

But McDonnell and Corbyn are adamant that employees with a greater stake in a business will yield a reduction in turnover and absenteeism, boost morale, and increase the innovative prowess of U.K. industry, while improving a productivity growth rate in which both the U.K. and Canada are laggards.

They have the backing of the Institute for Public Policy Research (IPPR), a U.K. think tank. In a widely discussed report last month, the IPPR insisted on the urgent need for a new capitalism model that gives “more people a share of capital and spread[s] economic power and control in the economy by expanding the decision rights of employees in the management of companies.”

Germany’s large commercial enterprises have for decades been guided by two boards of directors, one dominated by management, the other by employee and community reps. The two boards have equal power in the stewardship of the enterprise.

As to re-nationalization, McDonnell is met with thunderous applause in speaking of water utility CEOs who will have to reapply for their jobs at vastly lower pay. Polls show that a stunning 80 per cent of Britons favour re-nationalization.

Excessive executive pay encourages the short-term profit-seeking among corporate CEOs that triggered the 2008 Wall Street meltdown and resulting Great Recession. And in private hands, utilities have not provided more affordable and reliable services. Nor has a notoriously dysfunctional British Rail.

Labour has calculated that Britons are now eager for change. Decades of wage stagnation have alienated not only Britain’s working class but its shrinking middle class – worrisome conditions well known in Canada.

Eight years of fiscal austerity – the misguided Conservative response to the Great Recession – have weakened the social safety net, and imperiled a National Health Service as beloved to Britons as Medicare is to Canadians.

Canada’s poverty rate of approximately 13 per cent is intolerable. The U.K. poverty rate is close to 22 per cent. Many countries have smaller populations than the 14.4 million Britons living in poverty, 4.5 million of them children. A critical shortage of social housing has 128,000 British children living homeless or in temporary accommodations. An estimated 140 more U.K. families become homeless each day.

In the depths of Britain’s post-Second World War malaise, the U.K. invented the universal health care that every industrialized country apart from the U.S has since adopted.

As the world’s sixth-largest economy, the U.K. will retain global influence within or outside the EU in showcasing a reinvention of capitalism that more broadly benefits the people. The alternative to that model, our current gradualism in confronting a socially corrosive income and wealth gap, will someday afflict the comfortable.

Upheavals spanning the Russian food riots of 1917 to the sorry outcomes of the 2016 Brexit referendum and the ascension of Donald Trump to the U.S. presidency are proof that the patience of those great many people struggling with deprivation is not inexhaustible.

https://www.thestar.com/business/opinion/2018/10/19/how-labours-new-policy-minds-the-uks-inequality-gap.html

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