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Economic democracy – the left’s big new idea

Peter Tatchell says the democratisation of the economy is the key to a fairer, more just society

December 6, 2011
8 min read

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Britain is an economic dictatorship. A rich and powerful economic elite makes all the key economic decisions, disenfranchising millions of employees and consumers.

Our country’s democratic political transformation – pushed forward by the Levellers, Chartists and Suffragettes – has never been matched by a corresponding economic democratisation. ‘One person, one vote’ has been won in the political sphere (albeit imperfectly) but not in the realm of economics. Britain’s democratic revolution, begun four centuries ago, remains unfinished.

It is time the labour movement followed the lead of the Green Party and put economic democracy on the political agenda; to bring the economy into democratic alignment with the political system.

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.

Whatever people think of the current economic system, one thing is indisputable: it is characterised by an absence of democracy, participation, transparency and accountability. Employees and their representative bodies – the trade unions – are frozen out of economic influence and decision-making.

Big business rules. The captains of industry, commerce and finance have almost total power. They run their enterprises on 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. They are little more than serfs of the moneyed classes and government.

Not much has changed in two centuries of capitalism. There have been no major democratic reforms of the economy. Although millions of people bought shares in privatised public enterprises like BT, their individual holdings are minuscule and marginal. They have no real influence. Big corporate interests retain the decisive economic power. This power is as centralised and autocratic as ever. A few determine the fate of the many.

The advent of nationalised public industries, utilities and services changed nothing. 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 coal mines. The system of ownership changed but not the system of management. 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 in over-emphasising public ownership, to the neglect of public control.

The same applies today in the NHS and other public services. They are administered according to the classic capitalist model of top-down command and control. NHS big-wigs have almost as much power as private medical bosses. Doctors, nurses and ancillary staff are excluded from policy-making in both public and private medicine. Their years of accumulated hands-on, frontline-service knowledge is disregarded when it comes to policy-making.

Wherever we look, in all sectors of the economy, the democratic deficit is universal. Power is concentrated and wielded in ways that is contrary to the democratic, egalitarian spirit of twenty-first century Britain.

The idea of something different – economic democracy – is nothing new. It was big in the 1970s, in the hey-day 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.

There are three proposals for economic democracy from four decades ago that 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 investment, technology, wages, prices and so on. Although imperfect, 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; forging a more co-equal partnership. 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 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. Or, alternatively, the funds could be placed in the hands of a regional union pension fund, acting for all the trade unions and their members in a particular region. This would localise and decentralise investment decisions and allow the funds to 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 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 is a variation on the ‘wage-earner funds’ proposed by Rudolf Meidner of the Swedish trade union federation, the LO, in the 1970s. It 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.

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, bosses-rule system, these three models of economic democracy are mechanisms for the structural transformation of capitalism. If implemented, they would alter, fundamentally, the distribution of wealth and power, in favour of organised labour and working people.

Economic democracy should be a central plank of progressive politics – a high priority for the labour and trade union movement. Alas, under Tony Blair and Gordon Brown, the gap between the rich and the poor widened, the rights of employees were constrained and there was no attempt to democratise economic decision-making. Ed Miliband has shown no inclination to democratise the economy.

The trade unions are little better. They have no agenda to change the system. At best, they fight defensive struggles for a better deal within the status quo. At worst, they actively sabotaged the industrial democracy proposals of the 1970s.

A new left revival requires new thinking. We need to make the left relevant again by offering both radical and practical solutions to the economic crisis – a crisis that has arisen, in large part, from concentrated and unaccountable economic power. This means challenging the system of economic dictatorship and setting out a new model of economic participation, accountability, decentralisation and transparency. The interests of employees, consumers and the wider public welfare demand it. The time for economic democracy is now.

* For more information about Peter Tatchell’s human rights and social justice campaigns: www.petertatchell.net

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