Politics
How to turn workers into capitalists
Published 20 March 2000
Denis MacShaneoffers a solution for Britain's shortage of capital, and her gross inequalities
Why are there so few capitalists in Britain? It is more than two decades since the advent of privatisation and neo-liberal economics, which was intended to convert Britain into a top capitalist country. Yet we remain desperately short of capital and capitalists.
We have plenty of the overpaid stage-hands of capitalism: bankers, analysts, lawyers, consultants, City Slicker columnists. But we do not have the actors - the capitalists - themselves. Nor do we have enough capital, the essential fuel for economic growth and social redistribution. Our enormous sterling outflows make us the world's biggest exporter of capital and give us Europe's biggest balance of trade deficit. British capital fuels American capitalism. Chris Gent's Vodafone has shown it can energise German capitalism. But UK capital won't stay and strut its stuff in dear old Blighty.
This is the great question that Third Way theoreticians - stronger on social, cultural and identity politics than on economics - have failed to answer. Their cheerleader-in-chief, Bill Clinton, has no such problem. He presides over a Marshall Plan - only this time in reverse since Europe (and the rest of the world) has been sending its capital to America to fuel the long Clinton boom. Americans spend $106 for every $100 they earn; the generosity of Britain and other European nations has allowed them to use our money to get rich.
On the eve of the Budget, I detect the first stirrings of a discussion about how we can increase the availability and the spread of capital here at home. All economic growth is based on tick. None of us would own our homes if we could not borrow on the basis of repayment from future earnings. And the success of all market economies has been based on the borrowing needed to create the capital for investment and growth.
For much of the 20th century, the state provided capital and investment through nationalisation and planning. Alternatively, it imposed capital controls to keep capital within its borders. Neither mechanism delivered and neither is likely to be much help in the post-national webbed economies of the 21st century. So what are the alternatives? Three are being discussed.
The first idea is for the state to make capital grants to individuals as a direct investment. Robert Reich, Clinton's former secretary for labor, first floated this idea. He argued that those who depended solely on earnings would grow further and further apart from those with access to capital. The new divide in Britain is not between north and south, but between those who possess houses, occupational pensions, Peps, Isas, unit trusts and so on - whose value, in good times at least, increases effortlessly - and those who depend solely on a wage or a fixed income like the old age pension.
Hence the proposal by Julian le Grand, professor of social policy at the London School of Economics, in the NS last year, that the state should make a capital grant of £10,000 to every 18 year old for investment in education or for the down payment on a home. Le Grand's proposal has just been published as Fabian pamphlet, while the Institute for Public Policy Research has come out with an attenuated form of the same idea, involving £1,000 grants. Another variant came from Peter Mandelson, now the Northern Ireland Secretary, and Roger Liddle, now a No 10 adviser, in a pre-election book: give newly married couples a grant of £5,000 to help them invest for their future family.
The second idea is to give people better access to small amounts of private capital. The US and many European countries benefit from a myriad of decentralised banks operating along state, regional, sectoral or even community lines. In Britain, by contrast, the big clearing house banks have a virtual monopoly. Their unwillingness to vary the price of the capital they offer holds back the development of start-up firms, particularly in poorer regions.
The third idea is perhaps the most interesting - and the one that depends most directly on the forthcoming Budget. In the US, workers can invest in their own firms and borrow money to form a capital stake against their own commitment as employees. Around 10,000 US firms, ranging from global giants like United Airlines to small care agencies, are owned by their employees. Around nine million US citizens are employee-owners. This kind of employee share-ownership is behind the enormous success of many dot-com and other new firms in America.
Britain also has employee share- ownership schemes, but they tend to treat the workers as subordinate inferiors, granted access to just a few shares with diluted rights, rather than as investing partners. Under the Tories, Treasury and DTI officials fought successful bureaucratic battles to prevent either fiscal or company law reforms being sufficiently radical to move employee ownership out of the periphery and into mainsteam policy.
There is growing evidence that firms which have significant employee ownership outperform their rivals, both in stock market growth and in higher productivity. In France, employee ownership has become central to socialist thinking about how to promote entrepreneurship. In Ireland, Eircom, the privatised state telecommunication company has transferred 15 per cent of its stock to employees with the full backing of their union.
So let us encourage employees to exploit capital, rather than allowing capital to exploit them. And then we shall have more capitalists in Britain, as well as a Third Way that has an economic model worthy of the name.
The writer is Labour MP for Rotherham. His pamphlet, "Ownership for the Many not the Few" is available (£5) from him at the House of Commons
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