Richard Mason
Naked Politics Blogger
There were quite a few rather disconcerting things said at this year’s Labour party conference. The suggestion that ‘properly-taught’ children wouldn’t grow up to be conservative being one example. A call for a general strike to force a general election being another.
Perhaps most troubling, however, was the announcement of a plan by Shadow Chancellor John McDonnell to force large companies to hand out 10% of their equity to their workers. Unlike the former two examples, which simply demonstrate a strange sense of anti-democracy and free thought from some of its members, Labour’s plan provides an eery glimpse into the reality of a Labour government.
But what, exactly, would be the problem with such a policy? After all, many companies such as John Lewis have already voluntarily put such a scheme into practice and have seen certain benefits as a result.
Sadly, the beauty of such a system ends once it is thrust upon businesses by the state, rather than implemented voluntarily a la John Lewis. While those of us who are more liberally-inclined will likely already take issue with the idea of the government telling a private company what to do with its equity, such a policy would do more than raise the blood-pressure of free marketeers.
Ultimately, this is because the policy is rather misguided. While (potentially) intended simply as a well-intentioned measure of returning a degree of control to workers, or to encourage them to take a more active role in the business, there are plenty of unintended consequences which promise to severely undermine this plan.
One such example stems from the international nature of many of Britain’s largest companies. As Ian King points out in an article for Sky News, many of the companies listed on the UK’s FTSE 100 and FTSE 250 indices are owned, in large part, by foreign-based shareholders.
Should Labour’s plan come to fruition, then the stakes these shareholders have in British-listed businesses will be weakened, sapping their incentive to invest in the UK and pushing them abroad. Similarly, businesses themselves may be more inclined to relocate their headquarters abroad in order to avoid alienating their shareholders.
In seeking to empower and protect the workers of British firms, the plan instead threatens to push their employers overseas, taking jobs and revenue with them. In a time when Britain needs to be attracting as much new investment and making as many new trade partners as possible, the scheme provides a deterrent to any overseas investors from coming to the UK.
Perhaps we can see Labour’s plan as a manifestation of that old saying: ‘The road to hell is paved with good intentions.’ While Labour may be seeking to broaden the degree to which workers have a vested interest in the firms, an undoubtedly noble goal, the policy itself is poised to do far more harm than good.
But are Labour truly just looking out for the workers here?
While the policy would ensure that the workers of any eligible firm who has not fled the country access to annual dividend payments, these would be capped at £500 per year. Should the real value of the workers’ new shares in the company exceed £500, the excess will go in the state coffers.
According to Labour’s own estimations, this would result in around £2.1 billion, out of the expected £4 billion raised by the new policy to go to the state.
Simply put, just over half of the shares supposedly given to workers would, instead, go to the government.
This begs the question: Why would a policy, intended to put wealth and interest back into the hands of the workers, take away over half of their dividends? If the intentions truly lie in the vested interests of workers, why cap the benefits from their shares at £500? Why not allow them to enjoy the full value of their new-found stock?
Naturally, this raises more than a few eyebrows and offers a great deal of weight to the argument that the policy is little more than a stealth tax on businesses.
Well-intentioned, nefarious, or otherwise, Labour’s new policy doesn’t have much prospect to actually help the workers in that way it seeks to. Instead, it threatens both to send old investors packing, and deter new ones from coming in, all the while denying workers access to the payments of the shares they now own.
My brother, let’s put on a sweet tune, shake our hips, and get down and dirty with the arguemnts you’ve put forward.
You like Liberation, by OutKast? Probably not, but i’m dj’ing. You can pick the next tune.
https://www.youtube.com/watch?v=SiBh_JinGbE
Before we get started, I want to signpost my argument on a big sign with big letters: there is a debate to be had here, but you’re not having it. I’ve had a couple, I’m nice and loose. Let’s get into this.
[Sidenote: it’s really interesting, and by interesting I mean infuriating, that responses to Labour’s economic ideas never grapple with the actual political content of the policies, or with say, reference to evidence. In this case, I would point you towards the suceess of Germany’s long history of state-mandated ownership of companies by employees. Hell, they even get workers to sit on the board. It’s pretty much baked into their system as a safeguard against the more rapacious and expolitative tendencies of our current flavour of capitalism (admittedly not revolutionary enough for my tastes, but that’s another discussion). There’s even a FANTASTIC article in last week’s LRB that touches on the ways that modern finance capital has created a culture of ‘managerialism’ in British corporations, leading to a decline in… oh, nevermind. Let’s just ask, would Carillion have happened if someone with even a whiff of dignity or vested interest in the fate of the workers sat on the board? Would Philip Green’s siphoning of BHS’s pension fund? Labour is out here, making a pretty solid case for a more thoughtful stewardship of the economy, and all the right/centre right/neoliberal vampires can do is shiver at the idea of a redistribution of captial from corporations (who have record-setting profits and cash in the bank, btw https://www.independent.co.uk/news/business/comment/wages-down-as-prices-and-profits-soar-corporate-britain-has-is-it-far-too-easy-a8155271.html) into the pockets of workers, and mumble something about ‘foreign share holders’. I mean, last time I checked, Deutschland didn’t have any trouble attracting outside investment, maybe because they ensured the survival of healthy middle and working classes by redistributing the gains of capitalism through such meausures as, oh, let me see, giving workers a stake in the businesses for which they doth toil? So, yeah, we could have had a good chat about that stuff, but no, I guess I have to dance with the one who brung me, as they say. Here’s that lrb article btw: https://www.lrb.co.uk/v40/n22/neal-ascherson/as-the-toffs-began-to-retreat%5D.
Where was I? Oh yeah, right. We need a new tune. I’ll go again. The ASAP bars in this are so good:
https://www.youtube.com/watch?v=93M1QtYDtpU
Like, the bit about mumble rapping, and it being hard to find actual talent? Such fire, but it’s not even aggressive, ya know?
So, aside from the INTENDED consequences of Labour’s proposal – I’m not going to assume you’re chill with these consequences, although a deconstruction of why is upsettingly absent from your analysis – let’s take a look at the supposed unintended consequences of this ‘wolf in sheep’s clothing’.
Part 1) “such a policy would do more than raise the blood-pressure of free marketeers” – Bro I spend literally all my time on the internet trying to figure out how to do this. Okay, this is a joke point, but after living through the April Fool’s-that-went-on-too-long of ‘contractionary expansions’, trolling the free marketers is high up on the list of policy imperatives of everyone to the left of Cheney at this point. Sorry boo. We got the best memes.
Part 2) “Should Labour’s plan come to fruition, then the stakes these shareholders have in British-listed businesses will be weakened, sapping their incentive to invest in the UK and pushing them abroad. Similarly, businesses themselves may be more inclined to relocate their headquarters abroad in order to avoid alienating their shareholders.” I’m gonna take a breath and call you out on this passive bit of construction, my brother from a neoliberal mother: “may be more inclined…” Oh come on. You’re pussy footing around one of the hoary old men of right-leaning arguments about the problems of even thinking about daring to tax a company. Aside from my original point (Germany doesn’t seem to be suffering, see above), I’m just gonna say that in this world of international finance, tax havens, a double irish with a dutch sandwich (I wish I made that one up, https://www.investopedia.com/terms/d/double-irish-with-a-dutch-sandwich.asp), it doesn’t matter two figs where a company is HQ’d. They only make that decision based on the insane game theory of international tax arrangements. Last time I checked, Netflix was in Sarl, Amazon in the Netherlands, Google in Ireland… and they all still have major presences in London because of the city’s tech workers. So it seems odd to base your reservations on something that is so immaterial to our modern economy. ¯\_(ツ)_/¯. (Oh, and here you should insert typical leftist point about how pretty much every company running on ‘foreign capital’ you talk about routinely extracts the michael from HMRC by paying piddling amounts of tax, so why should we kowtow to their every want and need?)
Also, the fact that Labour detailed a ten-year transition plan where companies would only need to transfer 1%/year of their equity, means nothing to you?
But yeah… your argument seems to hinge on the fact that politics is a trade off. Some people win and some lose out. McDonnel is saying that in this case, he’s more than happy to be a minor irritant to ‘foreign investment’ in order to reshape Britain’s economy in favour of the workers, which totally fits in with his party’s broader vision. And it’s not even radical socialism, it’s a policy that has been shown to work in capitalist powerhouses around the world.
And you don’t mention anything about one of the big questions that pops into my mind: can companies afford it? Maybe that’s because all the evidence points to: yes, yes they can. Share buy-back schemes have pretty much become an hourly occurence, so I’d hazard a guess that companies have no issue with wealth transfers (so long as it’s in the direction of the people who already have allllllll the cash). And it’s worth mentioning that there are (at least) two mechanisms through which companies can achieve 10% employee equity: by either releasing new shares (the ‘dilution’ you refer to), or through a buy-back scheme (which wouldn’t dilute any investors’ equity at all! In fact, you could even see it as a soft support of the company’s share price! I love exclamation points! But the fact that you didn’t even make a cursory mention of this very facile response to your main line of argumentation makes me think you’re more interested in dissing the policy than discussing its merits/pitfalls! I hope I am mistaken! Exclamation points!)
Yo, is that potato salad? Let’s go.
Part 3) “But are Labour truly just looking out for the workers here?” Errrr, ok, stop me if I’m wrong, but the point you’re trying to make here is that… this isn’t really in the interest of the workers, because the Gov will keep dividend payments in excess of £500…?
This critique of the policy is interesting (no wait, I got confused again, I mean infuriating).
a) You’re treating this policy as if there are no other benefits than a material gain for workers. What about how this could help to build sustainability and constancy in a corporate culture that totally overvalues shortterm profits over longterm investment, training, etc. What about the insane inflation of wages and bonuses for management? (which would be much harder to achieve if workers had representation in the boardroom). All these benefits still exist, even if dividend payments are capped at £500. Labour’s got plans, bruv, they got stuff to pay for, like the NHS and maybe a universal basic income, and free netflix for Grime artists and so on. Corporate profits seems like an OK place to get some of this cash.
b) You think the workers of the companies are going to turn this offer down? “Oh, we only get a divendend of £500? Mate, we’d rather go back to the old days, where we had no say in company direction and no dividend.” If anything your point sound more like an argument to keep the policy but raise the dividend cap.
Lastly, let’s take a moment to think about what share dividends are: a company has earned a profit, paid all its workers, invested as much as it can, and then said, oh gosh darn, we still have a big pile of money on the floor over here. We can’t use it to innovate, invest, or reward our workers, or do any of the social good that capital is supposed to do, so let’s just give it to the people who own our shares!
[Ok, I admit, you might have a more favourable view of shareholders, seeing them as capitalism’s fairy godmothers, sprinkling the fairy dust of stock market confidence on favoured shares, but you must admit that payments out to them should be quite low down on the list of corprate priorities. For the record, I’m inclined to see shareholders as funds steered fail-sons drowning in eau de cologne, bouncing aimlessly from one hedged deal to the next, experiencing near fatal levels of ennui but without the emotional vocabulary to put a name to the constant squeeze on their souls.]
It seems perfectly resonable to tax this cash, especially during a time of unprecedented dividends: https://www.thisismoney.co.uk/money/diyinvesting/article-5316357/How-did-UK-investors-make-dividends-2017.html.
And your last sentence implies that the a worker’s dividend would be zero, which… I can’t even… again, it’s almost like you’re don’t really care about the details of the policy.
Alright, I admit, that was a lot. I feel winded. Let’s get a slower tune on:
https://www.youtube.com/watch?v=FG2PgVl0Nlc
But my overall point is: the neoliberal vision of the economy is hitting the buffers. That’s true in Spain, Portugal, Greece, Hungary, Poland, the US, here, etc etc and so on and so forth. Some people will look to right-wing solutions to this – enthnicly tinted strains of nationalism, anti-immigrant scaremongering, etc. Some will seek leftwing solutions to this: nationalistaion, infrastructure, education, fighting climate change. What’s certain is that a couple more years of laissez faire economic policy, austerity, and people hand-wringing over the interests of foreign capital, is about all anyone can take. We need ways for people to feel less isolated, less ignored, and more involved in a ‘common purpose’, cheesy as that sounds. Becoming part of your company’s ownership structure is a small part of that, but it’s not insignificant.
I’m sorry if I went a bit deep there. Hmu up if you want to chat state interventions, nationalistation, the decommodification of housing, education, and healthcare, or your fav Outkast tunes.
xoxox