What’s that about the workers?

Boss: Right, if you could just read your final list of demands, please gentleman. Hawkins, take note.
Union official: First, we ask for the graduated power-sharing scheme, then the reduction to a 35-hour week by 1981, the upgrading of differentials with regard to other settlements made … and finally, myself and Mr Stewart would like to sleep with your wife.
– Not the Nine O’clock News (BBC TV 1979-1982)

Worker share ownership was pushed by the Liberal Party in the 1970s as one way of making strikes less likely, by better aligning the interests of employers and employees. So enamoured was Margaret Thatcher of this idea that, in 1982, her Government privatised National Freight Corporation (think Pickfords) by selling it to its own workers.

The compulsory appointment of worker-directors to the boards of companies with 2,000 or more employees was proposed in a 1977 report by the Right Honourable Lord Bullock, inter a lot of alia vice-chancellor of Oxford University.

Charging companies some sort of ‘social dividend’ to compensate society for the educational, infrastructural and other public investments from which they benefit is an idea that has been doing the rounds, again in liberal circles, in one form or another, for years.

Such is the not-wildly radical genealogy of three of Labour’s most eye-catching economic proposals at its annual conference. The lack of radicalism may not matter, however, if the ideas work. Did they?

National Freight Consortium (as it became) was floated on the Stock Exchange in 1989, ending seven years of employee ownership. Various parts were sold off and the rump of NFC is currently part of a logistics company called Exel.

The Bullock Report recommendations, unsurprisingly, died with the end of the 1974–79 Labour period in office. But they had already been hamstrung by a lack of enthusiasm from the party’s trade union allies.

As for the ‘social dividend’, this has never got off the ground, not least because business can, not unreasonably, point to Corporation Tax as fulfilling, in part, the same function. It is paid only by incorporated entities as ‘persons in law’ and means that the ‘natural persons’ behind the company – the owners or shareholders – are, effectively, taxed twice.

So much for the practice. What about the theory?

Let’s start with worker share ownership. John McDonnell, the Shadow Chancellor, explained the policy thus:

We will legislate for large companies to transfer shares into an ‘inclusive ownership fund’. The shares will be held and managed collectively by the workers. The shareholding will give workers the same rights as other shareholders to have a say over the direction of their company.
And dividend payments will be made directly to the workers from the fund.

In other words, the ‘workers’ will have precisely none of the rights of the other shareholders, at least not as individuals. These include the right to sell their shares, the right to vote their shares as they personally see fit and the right to enjoy in full the dividend payments arising from the shares (as we shall see, part of these will be diverted elsewhere).

What is being proposed is a pot full of confiscated stock that will be overseen, presumably by trade union representatives, and from which employees will get a truncated dividend payment. This isn’t share ownership in any recognisable sense, not even in the amended form in operation at NFC, where stock could be sold only on an internal market to other employees, an understandable attempt to reconcile ownership rights with the character of an employee-owned company.

On to employee directors, who, according to Labour leader Jeremy Corbyn, will be imposed on both private and public companies with a 250-strong or larger payroll. Such companies will have ‘to set aside at least one third of places at the boardroom table for worker representatives, with a minimum of two’.

What would be the role of such directors? To promote the interests of the company and its shareholders, which is the duty of conventional board members; to represent their fellow workers, or to promote some sort of State-approved agenda of which we know, as yet, nothing?

It is worth remembering that trade unions themselves have long been suspicious of the whole notion of worker-directors, for three main reasons, ranging from the infantile to the self-interested to the sensible.

In order, these are that the workers’ role is to engage in all-out struggle with the bosses, not to join them round the boardroom table; that worker-directors would have a power base among the workforce that would rival that of union officials; and that employees and particularly trade union representatives simply have no business getting entangled in running companies.

Finally, the social dividend. This would be merely the part of the inclusive ownership fund dividends swiped from the ‘worker-shareholders’ and ‘transferred back to our public services’, according to John McDonnell.

In other words, it is a dividend tax.

Taking the package as a whole, it is striking that – along with the intellectual inconsistencies – there seems no understanding of how its strictures may provide perverse incentives. If 250 employees marks the starting point for compulsory worker-directors, keep the firm below that level. Or spin off bits into allied but technically distinct businesses, each with fewer than 250 employees but with cross-shareholdings.

Already, UK companies have had quotas of female directors, in effect, imposed on them. The more politically mandated appointments have to be made, the less will real power reside at board level. It will become like the Privy Council, while ‘executive committees’ multiply behind closed doors.

There will, presumably, be some cut-off point below which smaller firms are not required to hand over shares to their employees. Stand by for company size to be ‘gamed’ in the same way as is likely with regard to employee-directors.

Finally, there seems no understanding that plenty of workers have no desire to be either directors or shareholders. As the Labour movement once understood, and has apparently forgotten having been colonised by activists and graduate professionals, they would probably prefer more pay and shorter hours.



One thought on “What’s that about the workers?

  1. An excellent article which summarises the past well. I do however question the assumption that the current proposal can simply be explained away by Labour members being detached from the people they are meant to represent. I would suggest that john McDonnell knows exactly why he is making these proposals, even if Corbyn and most Labour members do not.

    Firstly the unions will remain opposed to worker democracy for the same reasons as in the 1970s. The only real difference is that the idea of union led class war is far less feasible now than it was then. The unions’ main concern now will be their total marginalisation rather than the loss of their extremely limited ability to strike for higher pay. So why should McDonnell propose the demise of private sector unionisation? The possible explanation is that McDonnell does not see the dual column structure of the Labour Party – the political wing and the trade union wing – as a source of strength but as a source of weakness. Although there have been plenty of people who bridged the two, being party members independent of the union political levies that they paid, the political wing has been more middle-class than the working class unions. Working class union members are also socially more conservative and less interested in the identity politics issues fascinating party members. The question to ask is, ‘Does McDonnell see the end of private sector unions as a way to ensure that the Labour Party remains more Left-leaning, committed to the expansion of the public sector and to social issues?’

    Good points are made about the ‘perverse incentives’ that would be created by the proposals. One such incentive that is not mentioned is the employment of individuals with the intention that they become ‘worker directors’. Would it be worthwhile for companies to recruit their own candidates for the elections of worker directors? Could the companies effectively rig the elections? Clearly not if there are other active candidates who through working for the company are better known to the employees. However, if the workforce is fairly apathetic, it is quite feasible for someone strong on rhetoric outside but not inside the boardroom to be elected and then to go along with the other directors once elected. Directors may also try offering alternative candidates with the intention of avoiding the election of a person who is highly undesirable to them.

    Why though should anyone want to stand as the directors’ candidate? This is the tricky part; the company would need to offer an attractive salary that would not compromise the candidate’s ability to claim to be one of the ‘workers’. Larger companies would probably be able to create positions that are not central to the operation of the company such as Corporate Social Responsibility and for which the company’s pay structure could be distorted. There is also the possibility of boardroom largesse that could be used to reward or corrupt worker directors. The 2005 Volkswagen scandal shows how far this could go. Are there however people who would play this role? I would argue that there are plenty of ‘progressives’ with flexible morals and that many are members or supporters of the Labour Party: charity executives receiving salaries that would have been unthinkable in the 1970s or BBC journalists angry that the workers know just how much they are paid. I see the possibility that McDonnell’s proposals have support within the Labour Party because Labour Party members see themselves as the people who will benefit from them; theirs will be the new set of snouts in the capitalist trough. Many from privileged backgrounds will see this as no more than their due, having had their entitlement to rule and to sit at the top table denied by irrelevancies such as only getting two ‘E’s at A-level.


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