The Financial Times’ front-page headline today presumably wasn’t meant to fire up Jeremy Corbyn’s Labour support base, but there’s no doubt it’s done that. By putting an astonishing £300bn value on Labour’s worker ownership proposals, the paper has put rocket boosters on Labour’s economic program for government.
£300bn for the working class? Fine by us. Alongside potential plans, first floated in the same FT article by Shadow Chancellor John McDonnell, for a “Right to Buy” for private sector tenants, it should be clear that when Jeremy Corbyn wins the next election, this will be a government determined to shift the balance of power, wealth and opportunity decisively to the benefit of working people.
The daft thing, of course, is that the headline isn’t entirely accurate. Labour’s “Inclusive Ownership Fund” proposal, developed over summer 2018 and first announced by McDonnell at Labour’s annual conference that year, will not be imposing a cost on companies. What the scheme proposes is that companies employing more than 250 workers — covering about half the workforce in Britain — would be expected to transfer 1 percent of their shares, every year, into a pot owned by its employees.
These shares would be held collectively by the entire workforce, and, since they are shares, would grant the Fund to voting rights and decision-making powers in the company – as well as entitling every worker to dividend payments.
In other words, the Inclusive Ownership Funds would slowly but surely transfer the ownership of our large companies towards their workers. The total pot is capped at 10 percent — more than big enough, given the fragmentation of ownership of major companies, with hundreds of funds each owning tiny fractions of many companies, for the Fund to be a commanding presence in any large firm. And because the Fund will be entitled to dividends, just like any other shareholder, it can mean a much-needed boost to workers’ earnings.
After nine years of Tory austerity, average real wages are still below their 2010 levels. By receiving dividends from the Fund (presently, but not necessarily, capped at £500 a year), workers will be receiving a valuable addition to their pay.
The aim, as Mat Lawrence has pointed out, is to create the same kind of material incentive to support a shift in ownership as Margaret Thatcher’s 1980s “Right to Buy” scheme also had built in. Based on what was originally a Labour policy, Right to Buy saw Britain’s huge public housing stock sold at knock-down rates to tenants. The result was to move from a country in which one-third of the population lived in council housing (public housing in the UK) to one in which private sector rental dominates for the young. But the material incentive to support the shift was plain: a council tenant could exercise their Right to Buy and get a house far cheaper than its market value.
The heart of Labour’s economic program, alongside the environmental commitments, is a shift in ownership. This isn’t just about the Inclusive Ownership Funds: as in the 2017 manifesto, which helped deliver the surge in Labour’s support and place it within a whisker of power, Labour will correct the mistakes of the 1980s and 1990s by bringing water, energy, the railways and the Royal Mail back where they belong — under democratic, responsible public ownership.
After decades of failure under privatization, Labour’s renationalization plans are hugely popular — even for Conservative voters. But the transfer of large company ownership stakes out something more radical. The problems of British capitalism are well-known: this is a low investment economy, with low productivity and low wages. On top of that, this weak form of capitalism will also now have to decarbonize rapidly.
To drive up investment, pay, productivity and to decarbonize will require major institutional changes, alongside the delivery of public investment through Labour’s £250bn National Transformation Fund. The academic evidence shows convincingly that companies with worker ownership are more productive and better-able to make longer-term decisions. We think worker ownership can not only address some of the inequalities in Britain — rampant under neoliberalism since the 1980s — but will also introduce the structural changes needed to produce a radically fairer and more efficient economy.
These are bold, radical ideas, calculated to address the social challenges we face. It’s no wonder Bernie Sanders is looking at the same proposals. But there has been some predictable opposition from some quarters. By creating this new collective ownership fund for the workers, the implication is that existing shareholders will see their shares reduced in value. But major companies regularly dilute their shareholders by issuing more shares.
One of the more common reasons to do this is to offer shares to senior management: for the United States, the average annual dilution of shares for chief executive and senior management pay was 2.5 percent. If dilution is good enough for bosses’ bonuses, it should be good enough for workers’ pay packets. This is class politics.
And let’s be clear about who those shareholders are. Despite mythology, they aren’t pension funds. Industry analyst Mercer’s survey shows that just 7 percent of UK pension funds by value are held in UK shares, with funds preferring to hold either equities from overseas, or UK government debt — now accounting for 50 percent of UK pension fund holdings. And after decades of neoliberalism, individual share ownership has collapsed, from 54 percent in 1964 to just 12 percent today.
What’s more, 54 percent of UK shares are held overseas, often by one of a very few major funds. The impact of a 1 percent annual dilution is tiny, relative to the entire stock of shares out there: but it could be decisive for individual companies and their workforces.
Britain could be facing an election as early as October this year. We have a brilliant campaigning leadership, and over 500,000 members ready to get out and fight for a Labour government — a not-so-secret weapon that the Tories can’t hope to match. But the Tories have learned some lessons from last time round: they’ll not just talk about ending austerity, but try to match the slogans with funding.
By posing as the man who delivered Brexit, Johnson wants to seize the mantle of the insurgent candidate — absurd for a longtime member of government, but that’s what he’s going for. If Labour is to win, it’ll have to build on the offer of the 2017 Manifesto with new policies staking out new terrain — getting to places the Tories won’t dare touch.
By promising real rewards and foregrounding a radically changed economy, Labour’s ownership agenda could be the fast road to Number 10 for Jeremy Corbyn.