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Economic democracy: the next big left idea?

Peter Tatchell says democratising economic decision-making is the key to a fairer society and to a more stable, responsible economy
5 May 2012



Four years after a financial crisis that pushed Britain - and much of the world - into the worst recession for decades, the major political parties still have no policies to prevent a repeat economic meltdown.  They have failed to put in place adequate checks and balances to overcome the structural flaws in the private-ownership, free market system.

Unlike the Greens and Respect, the Labour, Conservative and Liberal Democrat leaderships support the highly centralised, largely unaccountable neo-liberal economic system - a system that allowed irresponsible financial decisions by banks and other major corporations. This failure to remedy the causes of the crisis leaves Britain vulnerable to more chaos in the future.

A significant cause of the near-catastrophe of the last few years is the way economic power and decision-making is organised: centralised, elitist, autocratic, secretive and unaccountable. These factors predispose the economy to risk-taking and recession, as well as being inherently anti-democratic and unfair.

One element of a stronger and more just economy is greater economic democracy: more participation, transparency, decentralisation and accountability.

Here are seven ideas on how to begin the structural transformation of the economy, to ensure it is publicly accountable and socially responsible:

Make corporate negligence and recklessness an explicit criminal offence, to reign in big business cowboys and ensure more responsible economic management. Bankers and company bosses should not be able to wreck whole economies and squander people’s jobs, pensions and savings with impunity. They ought to be personally liable for damaging corporate decisions, in the same way that doctors and others can be held liable for professional negligence. Sir Fred Goodwin would have not gambled with RBS if he had known that he could be held personally liable and face imprisonment. The threat of legal penalties is likely to result in more prudent corporate governance.

Require medium and large-sized companies (and public institutions like the NHS) to be accountable to their employees and to the wider public by including on their boards one-third employee-elected directors and independent directors to represent the interests of consumers. Proposals for employee directors were included in the 1973 Bullock Report and Labour’s 1976 Programme, and they operate today under the German works council system. Employee and consumer directors would be more likely to promote the wider public interest, rather than narrow management interests. They could act as watchdogs and whistleblowers against corporate irresponsibility. If these directors had been on the board of Northern Rock and had proper oversight, I doubt the management would have got away with so many reckless decisions. Having directors who are not driven by the profit-motive also increases the likelihood of company policies that are more socially inclusive and environmentally responsible.

Give trade unions (or employee mutual societies) a majority stake in the management of their members’ pension funds, to decentralise and democratise investment decision-making and to give it a social and ethical dimension. The nearly £900 billion invested in pension funds accounts for a third of the stock market; a massive potential counter-weight to the economic clout of big business. These contributor-controlled pension funds could be invested in ways that help make the economy more people-centred and public welfare-oriented. They are, for example, less likely to invest in the arms trade and clothing sweatshops. They would be more open to investment to meet social needs, including renewable energy, medical treatments, affordable housing and quality public transport.

Retain the current full or part public ownership of the banks that were rescued by the government, to ensure they operate in the public interest and they use their future profits for the public good. Why should banks like RBS be returned to the private sector when it made such a mess of their finances? The knock-down sell-off of Northern Rock short-changed the public by hundreds of millions of pounds. Retaining public control or remutualising the banks could be the means to fund new social housing, low-interest loans to poorer families and employee-owned enterprises.

Give employees the legal right to buy-out their companies and turn them into workers cooperatives (possibly with funding from the publicly-owned banks). This would weaken the power of big corporations, localise and socialise economic decision-making and give employees incentives for greater productivity. Evidence shows that people employed in workers cooperatives often have higher output, better job satisfaction and stronger social solidarity.

Limit corporate bonuses to a percentage of profits, make them payable in the form of shares and defer payment for ten years. This would deter short-term, high-risk investments. It would make bonuses conditional on a business’s long term success. Only people who made successful, sustainable investment decisions would be rewarded.

Legislate for 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. Gradually, over many decades, it would give employees, through their unions, a controlling interest in their firms - eventually transforming them into self-governing workers’ co-operatives. The great strength of this scheme is not only its democratic and social justice elements. It also 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.

As well as redistributing wealth and power in favour of employees and the wider public, these reforms would reduce the chances of a re-run of the economic crisis. They would achieve these twin goals by a combination of decentralising economic power, democratising economic decision-making, improving corporate social responsibility and strengthening the accountability of businesses to their staff and consumers.

Most of these policies could be implemented unilaterally by a UK government. However, given the globalised economy, they would work most effectively if they were adopted by the whole EU. Although still predominantly a big business cartel, there is nothing to stop the EU pioneering this new economic model if the peoples of Europe demand it and elect parties pledged to enact it. The EU’s massive share of international finance, production and trade would enable it to withstand pressure to conform to the dominant neo-liberal economics of the US-China axis. In other words, Britain and the EU could lead the way in the structural transformation of autocratic, dog-eat-dog capitalism into a more democratic, cooperative and accountable green socialised economy. Why not?

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


 

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Peter Tatchell 6 May 2012, 15.06

I would be interested in hearing other people’s ideas on radical, practical policies that can help transform free market capitalism.
To have credibility and win public support, Greens and the left must come up with credible, workable alternatives to the Tory, Lib Dem and Labour consensus.
More slogans are not good enough; nor are reformist demands for better wages and working conditions.
We need to promote policies that will structurally transform economic decision-making: to make it more democratic, accountable, transparent and decentralised. Please post your ideas here.


Caroline Molloy 6 May 2012, 20.08

Some interesting ideas here but we also need to try and use the existing democratic structures that used to make decisions, better. We need to be alert to the tricks the neoliberals play to privatise decision making. Top, is use of consultants to ‘make the difficult decisions’ in reports not shared with service users. We should get in the habit of doing FOIs for this (and appealing when we get told ‘commercially confidential’. We should also do FOIs to get minutes of increasing number of regular secret meetings taking place.


Sam Watson 8 May 2012, 12.20

I agree with the idea of promoting elements of syndicalism and cooperativism as well as moving away from the paradigm of maximising shareholder value – all things which you allude to in this article. Worker cooperatives and trade unions could ensure wages go up in line with productivity, although specific legislation could also help this, such as tying the minimum wage to the mean average wage.

However, I disagree that CEOs should be made criminally liable for the actions of a company; part of the blame rests with the legislators for allowing the situation to arise in the first place, it is in a sense entrapment to punish them for doing what you said they could do. I think it was probably fairly predictable what would happen once leverage controls etc. were lifted. Also, the concept of a limited liability company protects entrepreneurs; a nationalised banking system that favored sustainable, small businesses in the UK and that was more patient with returns to capital would also help.

I also support the idea of having to prove the societal benefit of financial instruments to a regulator before they can be used – as is the case with medicine.

The greatest problem is that there is no sense of society any more. Welfare promoting policies of the post war era were only really possible because of the sense of togetherness that was there. Any policy that promotes unity is surely invaluable.



Comments are now closed on this article.






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