2018 10 – Plan for a New Economy

Review of ‘Prosperity and Justice: a plan for a new economy

Institute for Public Policy Research (IPPR) Commission of Economic Justice

Christopher Winch

The IPPR is a well-established left of centre think tank which in recent years has made a point of drawing on the opinions and expertise of non-left-wingers and establishment figures. This particular commission, set up to develop a counter to the prevailing market economics and commitment to austerity, includes the Archbishop of Canterbury, business people, an investment manager as well as academics and the General Secretary of the TUC, Frances O’Grady.

Although packed with establishment figures the commission’s report advocates policies that the Corbynite Labour Party ought to feel comfortable with. If these policies were implemented by the Labour Party in power, it would be the most radically reforming Labour government since the Attlee government of 1945-51. It is a measure of the disillusion with liberal economics in the country that such recommendations do not now seem all that controversial even though, when someone like Corbyn suggests them, the media make out that the sky is about to fall in.

The Financial Times and the Conservative MP Jesse Norman don’t disagree about the diagnosis, but whinge about the remedies even though they don’t have any plausible counter-proposals. The public mood, including among a section of the elites, is fast moving away from the liberal economics that were the orthodoxy just a few years ago. The tide of public opinion is flowing in Labour’s direction and the mild social democracy advocated by the renewed Corbynite Labour Party is an attractive prospect to many. For the media, mild social democracy is tantamount to revolutionary reform. Hence the frantic attempts by opponents (including the liberals in the PLP) to distract attention from this uncomfortable fact through the anti-semitism hoax.

The diagnosis of the commission is that Britain’s economy is unbalanced, regionally and also in terms of the weakness of the manufacturing sector relative to an over-mighty financial sector. Firms take a short-term view of their interests which is based on the legal entrenchment of the primacy of shareholder value. Other stakeholders such as workers and consumers are given short shrift. There are too few incentives to improve productivity through better training, job design or investment in plant. The weak bargaining power of the employees leads to a decline in wages which in turn leads to a happy go lucky attitude on the part of employers, who don’t have to worry about productivity per worker as they have an abundant supply of cheap labour to draw on and little incentive to invest in increasing productivity, either through training the workforce or investing in plant. A business model which relies on low wage, low skill inputs to produce low value-added cheap products is attractive in such a climate. Workers are disengaged from their firms through having no say in how they are run.

Addressing the reluctance of firms to invest entails a greater involvement of the state in financing and directing investment. The report advocates a national investment bank which can direct funding to the regions, particularly to areas where local universities can help stimulate high value-added businesses. The bank should make good use of local knowledge in deciding where to allocate investment. The focus should thus be on moving up the value chain, drawing on areas of activity where the UK is relatively strong.

Elimination of fiscal deficits should focus on current, not investment expenditure and should aim at a balance over a rolling five-year cycle. Anti-social rent-seeking behaviour by oligopoly businesses such as the energy and internet firms should be curbed through legislation. Vocational education funding should be reformed to ensure that it is directed towards productivity and should not be fixated on increasing the number of apprenticeships merely to reach government set targets. Generally speaking, the commission is in favour of a ‘productive economy’ approach, involving the building up of productive powers, the revival of economically moribund regions through targeted intervention and a rebalancing towards high-value manufacturing and away from financial services.

The commission does not make the mistaken assumption that a mere change in government policy will be sufficient to make the changes that they advocate. One of the persistent problems that they identify is that the balance between labour and capital in Britain, in favour of the latter, has led to an unbalanced low productivity economy. As already noted, the share that labour takes in the national product has declined, leading to a lack of purchasing power and regional imbalances as firms can easily relocate to locations where labour costs less and investment brings greater short term returns than in the hard slog of reviving manufacturing. There are insufficient incentives either to change the design of jobs or to make capital investments to increase productivity. Better job design, built on a better trained workforce has the potential to increase productivity through greater efficiency and the stripping back of layers of management, not to mention a move towards higher value-added goods and services.  There has to be a rebalancing of power between labour and capital and this can be secured through repealing anti-union legislation and promoting measures to encourage trade union membership.

Here are the specific proposals on this matter:

A target of doubling collective bargaining coverage to 50 per cent of workers by 2030, with a focus on the lowest paid sectors.

A new ‘right to access’ that would give unions stronger rights of physical access to workplaces, combined with a ‘digital right of access’ to reach remote workers and a new ‘right to join’ for workers.

A trial of auto-enrolment into trade unions within the ‘gig’ economy, on the model of auto-enrolment into workplace pensions.

A WorkerTech Innovation Fund to support unions to innovate and use digital technology to recruit and organise.

It is a measure of how worried some establishment figures are about the imbalance of power between capital and labour that they can put their weight behind such measures. There is still a view amongst liberal minded economists and politicians that trade unions lack any legitimacy as participants in economic decision making and should be excluded from any significant influence. This in effect was the view of the Cameron government. The IPPR argues that the trade unions are an essential component of economic revival.

In addition, the Commission is keen on worker participation in the running of companies:

Public and private companies of more than 250 employees should have at least two workers, elected by the workforce, on their main board.

These are all policies that should please the Labour Movement and Frances O’Grady deserves a lot of credit for persuading so many establishment figures to promote workers’ and trade unions’ rights. If the trade union movement took its rightful place as one of the key components of the economy then the commission’s recommendations would not look utopian at all, but would be within the grasp of a new Labour government under Corbyn.

This brings us to the role of the trade unions in economic reform. Forty-one years ago, the trade union movement turned away from the recommendations of the Bullock Report that workers should have a significant place on boards of directors of large companies. Despite the continuing hostility from business, the issue simply won’t go away. This is because, like it or not, worker engagement is necessary to business success. Even if Britain’s trade union leaders wish to avoid the issue, the fact remains that the involvement of the workforce is an economic factor of great importance. Enlightened capitalists as well as enlightened trade unionists can see that. The class struggle can still go on, but in a way that does not bring about the ruin of the contending classes. It takes place in the boardroom but backed by industrial strength to be used if necessary. But taking responsibility for the well-being of their companies in this way is, unfortunately, alien to the traditions of British trade unionism, which in a mirror image of employers, focus on a limited number of short-term interests of their members.

The danger is, as the Financial Times has pointed out in its commentary on the Report, that a restored trade union movement would behave in 1977 mode, exercising power without responsibility. Of course, it is not surprising that the FT would take that view, but unless British trade unionism changes its focus from reacting to capital to seeking to control it, then the danger is there. British trade unionism has a choice. It can acquiesce in the slow decline of Britain’s economy in the low paid and insecure nature of the work that is available to its members or it can help take control.

The Labour Party seems to have begun to get to grips with this issue by taking up and adapting the IPPR’s proposals on industrial democracy. This is potentially a game changer for Labour, both electorally and in terms of its relationship with the trade unions. It needs to end the years in which the Party and the Union movement drifted apart and the leadership should start a serious conversation with the unions about how they can contribute to creating an economy in which labour has a share in the control of how firms are run. Given the stubbornness with which British trade unions have tended to resist this, a trend that has got worse since Bullock over 40 years ago, this is going to be a tough one for the Labour leadership. The IPPR report shows, however, that unions cannot go on dodging their wider responsibilities. The TUC is up for this, but it will require decisive action from the trade unions themselves. There is no Jack Jones around to guide them this time. They will need to rely on the TUC and the Labour leadership. Let’s hope that they rise to the challenge.

The executive summary of the IPPR report can be found here: https://www.ippr.org/research/publications/prosperity-and-justice-executive-summary.  And the full report: https://www.ippr.org/research/publications/prosperity-and-justice.