The Institutional Turn

In a recent journal article, Joe Guinan and Martin O’Neill argue that the British labor movement has taken an “institutional turn” over the last year or so. Labour’s new agenda, they note, is animated by a commitment to democratizing the economy by creating powerful institutions that extend ownership and control over capital to workers and the wider public — while at the same time attacking the power of finance and extractive capitalism. Some of the more thoughtful minds in the British mainstream press have also noted this phenomenon, including the New Statesman (“Corbynism 2.0”) and the Economist (“Corbynomics”).

Some of this agenda is very old. The party proposes, for instance, establishing sectoral collective bargaining and reviving the right to secondary strikes. Restoring the power of organized labor is central to any left program worth the name — without strong unions, workers are passive participants in much of their economic life, and public policy reforms inevitably take on a more top-down and paternalistic character when institutions that facilitate workers’ collective agency are disempowered. The recent party conference deepened this commitment to popular organization, pledging £20 million to start up tenant unions around the country.

In addition to funding bottom-up organizing, Labour has promised to reintroduce public ownership of water, energy, rail, and mail; it has also pledged to stop the public-private partnerships that proliferated under Conservative and New Labour governments and reassert democratic, public control over public services. Recently, the party issued a consultation to collect input on the democratization of the public sector — asking the movement how publicly owned companies should be run and how to balance different sympathetic interests (consumers, workers, etc.) in democratic procedures.

What is clear is that the party’s thinking on the institutions of a new democratic socialism has progressed significantly — not just since Corbyn’s election as leader in 2015, but since the 2017 general election. Areas of policy that were unclear in the manifesto, or even in the celebrated Alternative Models of Ownership report, are now becoming clearer. And in most cases the clarity has been extremely welcome, strengthening rather than weakening commitments and building the party’s capacity to quickly and effectively roll out its agenda if elected.

The Inclusive Ownership Funds

Labour’s Inclusive Ownership Funds should be seen as part of this institutional turn. The point is to design socialist policies that are not merely technically feasible and morally desirable, but also informed by an analysis of the balance of forces in Britain’s political economy. Redistributing wealth only goes so far. The aim is to win office based on a program that will reconfigure existing power relations, creating new institutions and sites of popular power that can support and make demands in the future.

The Inclusive Ownership Funds would cover over 10 million workers — a little under half the private sector workforce — while affecting less than 1 percent of private employers. The chief political correspondent for the Financial Time estimates that the value of capital to be socialized would reach at least £250 billion in publicly listed UK-based firms over ten years (this doesn’t include potential IOFs in private firms or UK-listed foreign firms).

The plan is an impressive addition to the array of democratizing institutions that Labour says it will set up. Workers would gain more than money — they’d also gain certain rights as minority shareholders, including (once they reached a 10 percent holding) the ability to require an audit, a tool that could be used to improve workers’ knowledge of their company’s operations and increase their bargaining power.

Combined with recent proposals to give workers the ability to elect a third of the board in large companies, Labour’s corporate governance reforms would transfer significant stakes in both ownership and control over large firms to workers, while bolstering their independent strength in their unions. They would pose no immediate threat to small businesses, and thus minimize broad-based opposition from small capitalists, a key factor in the failure of the original Meidner Plan. The disruption associated with Brexit has divided British capitalists, and while we should not expect this situation to persist forever, it is prudent for Labour to exploit these divisions just like employers exploit divisions between workers.

Even the “right to own,” which would give workers a right of first refusal when privately listed companies are being floated, sold, or closed, would have mixed effects on small and medium-sized enterprises. It would reduce the liquidity of owners’ assets, but if implemented alongside financial and technical supports for worker buyouts, it could provide a natural buyer for small capitalists that struggle to find someone with knowledge of their operations — something the workers will almost inevitably have.

Fleshing Out the IOF

There are some differences between the IOF proposal and the original Meidner Plan (named for the Swedish economist Rudolf Meidner and pushed by the country’s main trade union federation). Meidner’s proposal recommended that the Swedish government include all firms with more than a set minimum number of workers “not below fifty and not above a hundred.” Labour’s current plan would cover all firms with more than 250 workers, with incentives for smaller firms to participate.

There is a strong case for phasing in the IOF transfers at lower levels, covering firms with more than one hundred workers. This would still only affect the largest 1 percent of British firms, but it would expand the universe of direct IOF beneficiaries by another 2 million workers and avoid a potential pitfall: firms intentionally keeping their workforce under 250. A phase-in mechanism would thus expand the benefits of worker control while cutting down on the potential for avoidance. The phase-in could also be linked to capital intensity, preventing businesses from circumventing the IOFs through inefficient substitutions of capital for labor.

There are also some questions about the specific dividend cap Labour has adopted. I am strongly in favor of having a social dividend from collective ownership, and I strongly support the proposal to transfer a portion of IOF yields to a centrally administered fund that would benefit public services and the wider economy. But the £500 cap on dividends could be an imperfect means of doing so. While the purpose of the firm-level dividend is to bolster support for a broader policy of collective ownership, a hard cap at £500 would ensure that workers have no direct interest in backing greater collective ownership once their firm’s IOF is consistently paying out that amount.

A better solution could be a “progressive” approach to the social dividend — having an increasing proportion of yields administered centrally the larger the dividend grows. This would probably result in a smaller social dividend initially, but it would ensure that the dividend is more sustainable and more likely to expand over time. If even a small proportion of receipts over £500 — maybe a third or a quarter — were available to firm-level IOFs, there would be a much clearer link between their growth and workers’ earnings.

The transfer mechanism in Labour’s proposal is much simpler than the one in the original Meidner Plan. Meidner proposed share issuances equivalent to 20 percent of profits per annum; McDonnell proposes share issuances that would increase the IOF holding by 1 percent per annum. In practice, this would reduce the policy’s impact among the most profitable firms and increase its impact among less profitable firms.

Another difference is that unlike the Meidner proposal, McDonnell has said that IOF holdings will be capped at 10 percent. Without a cap, Labour’s proposal would take fifty years to reach majority holdings in all large firms; Meidner estimated his proposal would take twenty years for firms with a 20 percent profit rate and seventy-five years for firms with a 5 percent profit rate. (The average UK firm today has a profit rate of about 12.5 percent.)

Many socialists will disagree with this part of the McDonnell plan. But in my view, since there is an explicit timeframe (firms will begin to hit the IOF threshold ten years after the legislation’s enactment), it is more important to get the details of the proposal correct and ensure it is popular and beneficial to working-class people than to insist on a more rapid rate of socialization. Labour could then revisit the cap issue in another general election (at least two would happen between the passage of the legislation and the impact of the cap).

The Fight Ahead

No single policy will create socialism overnight. But Labour is making considerable pledges on all major fronts — democratic, public ownership of mail, utilities, and rail; sectoral collective bargaining; tackling precarious work and the gig economy; expanding rights for workers to buy out their company; doubling the size of the cooperative sector; restarting the construction of social housing; eliminating outsourcing and stealth privatization of the public sector (including the National Health Service); and, with the Inclusive Ownership Funds, beginning a process of transferring ownership over large firms to their workers.

Many of these proposals will need to be refined. Down the line, for instance, socialists might want to revisit Meidner’s original rationale for his famous plan: the need to redistribute the excess profits that highly productive firms enjoy as a result of sectoral bargaining–based wage compression (since workers at the bottom of the pay scale receive larger increases than those at the top). IOFs could automatically grow up to 10 percent, and further issuances could be made as a proportion of profits (as in the original Meidner Plan). This would be a policy for a future manifesto, once these effects are actually seen on the ground.

More immediately, Labour will need to plan for the threat of a wholesale capital strike alongside what will almost certainly be a partial withdrawal of private-sector investment. The inclusion of a cap may be a way of diminishing short-term support for a capital strike, and I would urge socialists to focus their immediate attentions on inserting (as the Economist put it) “the thin end of a thick socialist wedge.” But the party will also need to have a contingency plan in case efforts to delay a final confrontation are unsuccessful. The Left must be prepared to do whatever it takes to implement its democratic mandate, even if capital attempts to assert a veto over the people’s will.

There is still much adversity ahead. But for the first time in a long time, a massive victory could be on the horizon.