To reform the economy, Miliband should learn from Germany

The German economy, with its works councils, its regional banks and its vocational training system was much better equipped to deal with globalisation than we were.

It is two and half years since Labour’s general election defeat and there are two-and-a-half-years to go until we face the country again. It seems that we are still torn between a defence of the New Labour record and the articulation of something different and better. But the second option still requires an explanation of what went wrong when Labour was in power.

The central insight of Blue Labour is that there was a fundamental problem with the political economy of New Labour. The assumption that globalisation required transferrable skills and not vocational speciality, and that tradition and local practice could be superseded by rationalised administration and production, both turned out to be mistaken. The denuding of the country and its people of their institutional and productive inheritance by the higher rates of returns found in the City of London, and then the vulnerability of those gains to speculative loss, is the story we confronted in 2008. It turns out that the German political economy, with its federal republic and subsidiarity, with its works councils and co-determination between capital and labour, with its regional and local banks and vocational control of labour market entry - a democracy locational and vocational - was much better equipped to deal with globalisation than we were with our financial services and transferrable skills.

The financial crash of 2008 will turn out to be the most important event in the politics of the next twenty years. It was the result of a failure of many things but one of them is corporate governance, and most particularly, accountability. There is a growing realisation that the workforce has interests in the flourishing of the firm and an internal expertise in what is going on and how it is done. The complement of workforce to shareholder accountability strengthens the honesty and durability of the firm. It establishes a form of relational accountability.

A comparative analysis of corporate restructuring strategy in Germany and Britain tells the story clearly. The resilience of German industry was based upon two fundamental differences with Britain, both relating to corporate governance. The first was that each stakeholder interest - capital, labour and region - has access to the same information about the state of the firm and the sector and could negotiate a common response and bring people with them.

The second reason relates to the common good. The recognition of complexity within the corporation, the recognition that it is a body constituted by complex and mutually dependent functions and the representation of that in the corporate governance model meant that a common good of the firm could be negotiated. German industry works within a legal framework that is based upon the ‘equalisation of the burdens’. In this the burdens of decisions must be agreed to be balanced between owners and workers. This meant that there could not be the imposition of a strategy that was based upon the interests of only one party. The result is predictable: fewer increases in managerial pay, a far greater retention of workers within a framework of greater flexibility, and a shared concern for the renewal of competitiveness.

Corporate governance reform asks a lot of capital. It relinquishes its ultimate sovereignty and recognises the workforce, and a skilled and powerful workforce at that, as a necessary part of the generation of value. It recognises the inability to hold itself accountable and recognises its common interest with labour in disciplining its tendency to be too generous to itself. It also asks a lot of labour, and of the unions. The German and British trade unions took different pathways in 1945.

While the British model was faster out of the blocks in 1945, it turned out that the German model won the race. They retained far higher trade union membership, lower wage differentials, fewer job losses and a vocational status for labour within the economy. One of the consequences of corporate governance reform is the requirement for trade unions to seek the common good and that is a conversation that has barely begun.

Worker representation on remuneration committees is a step in the right direction but needs to be extended into wider reform of the governance of any firm above fifty employees. A third of the seats on the supervisory board should be elected by the workforce. The energy, skills and commitment of the workforce is of fundamental importance to the good of any company and how that feeds into decision making and product innovation is a matter of institutional design.

Corporate governance reform is not a stand-alone policy and requires new regional banking institutions and a renewal of vocational training and status. It is, however, the most fundamental for it restores a dignity to labour, a value that has been for too long neglected in our economy. The lesson of the German economy is that labour is a source of value and its representation on the corporate body of the firm means that its value can be reproduced. It is a fundamental part of the institutional ecology of a sustainable economy.  

Maurice Glasman is a Labour peer and director of the faith and citizenship programme at London Metropolitan University

A longer version of this piece appears in the new Fabian Society pamphlet The Great Rebalancing

The sun sets on Berlin's Reichstag building which houses Germany's lower house of parliament. Photograph: Getty Images.

Maurice Glasman is a Labour peer and director of the faith and citizenship programme at London Metropolitan University

GARY WATERS
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In defence of expertise: it’s time to take the heart out of “passionate” politics

What we need is cool logic.

We are living through a bonfire of the experts. During the EU referendum campaign, Michael Gove explained that people had had enough of them. A few weeks later, his fellow Tory MPs took him at his word and chose a relative ingénue to run against Theresa May.

After declaring for Andrea Leadsom in the Tory leadership race, Michael Howard was asked whether it might be a problem that she had never held a position higher than junior minister. Howard, whose long career includes stints as home secretary and opposition leader, demurred: “I don’t think experience is hugely important.”

Even in this jaw-dropping season, that comment caused significant mandibular dislocation. I thought: the next Tory leader will become prime minister at a time of national crisis, faced with some of the UK’s most complex problems since the Second World War. If experience doesn’t matter now, it never does. What does that imply about the job?

Leadsom’s supporters contended that her 25 years in the City were just as valuable as years spent at Westminster. Let’s leave aside the disputed question of whether Leadsom was ever a senior decision-maker (rather than a glorified marketing manager) and ask if success in one field makes it more likely that a person will succeed in another.

Consider Ben Carson, who, despite never having held elected office, contested the Republican presidential nomination. He declared that Obamacare was the worst thing to happen to the United States since slavery and that Hitler may have been stopped if the German public had been armed. Yet Carson is not stupid. He is an admired neurosurgeon who pioneered a method of separating conjoined twins.

Carson is a lesson in the first rule of expertise: it does not transfer from one field to another. This is why, outside their domain, the most brilliant people can be complete dolts. Nevertheless, we – and they – often assume otherwise. People are all too ready to believe that successful generals or entrepreneurs will be good at governing, even though, more often than not, they turn out to be painfully inept.

The psychologist Ellen Langer had her subjects play a betting game. Cards were drawn at random and the players had to bet on whose card was higher. Each played against a well-dressed, self-assured “dapper” and a shabby, awkward “schnook”. The participants knew that it was a game of chance but they took more risks against the schnook. High confidence in one area (“I’m more socially adept than the schnook”) irrationally spilled over into another (“I’ll draw better cards”).

The experiment points us to another reason why we make poor judgements about competence. We place too much faith in social cues – in what we can see. As voters, we assume that because someone is good at giving a speech or taking part in a debate, they will be good at governing. But public performance is an unreliable indicator of how they would cope with running meetings, reading policy briefs and taking decisions in private. Call it the Boris principle.

This overrating of the visible extends beyond politics. Decades of evidence show that the job interview is a poor predictor of how someone will do in the job. Organisations make better decisions when they rely on objective data such as qualifications, track record and test scores. Interviewers are often swayed by qualities that can be performed.

MPs on the Commons education select committee rejected Amanda Spielman, the government’s choice for the next head of Ofsted, after her appearance before them. The committee didn’t reject her because she was deficient in accomplishments or her grasp of education policy, but because she lacked “passion”. Her answers to the committee were thoughtful and evidence-based. Yet a Labour MP told her she wasn’t sufficiently “evangelical” about school improvement; a Tory asked her to stop using the word “data” so often. Apparently, there is little point in being an expert if you cannot emote.

England’s football team is perennially berated in the media for not being passionate enough. But what it lacks is technique. Shortly before Wales played England in the European Championship, the Welsh striker Gareth Bale suggested that England’s players lacked passion. He knew exactly what he was doing. In the tunnel before kick-off, TV cameras caught the English goalkeeper Joe Hart in a vessel-busting frenzy. On the pitch, Hart allowed Bale to score from an absurdly long range because he was incapable of thinking straight.

I wish there were less passion in politics and more cool logic; less evangelism and more data. Unthinking passion has brought the Labour Party to its knees and threatens to do the same to the country. I find myself hungering for dry analyses and thirsting for bloodless lucidity. I admire, more than ever, those with obscure technical knowledge and the hard-won skills needed to make progress, rather than merely promise it.

Political leadership is not brain surgery but it is a rich and deep domain. An effective political leader needs to be an expert in policy, diplomacy, legislative process and how not to screw up an interview. That is why it’s so hard to do the job well when you have spent most of your time in boardrooms or at anti-war rallies.

If democratic politicians display contempt for expertise, including their own, they can hardly complain if those they aspire to govern decide to do without the lot of them. 

Ian Leslie is a writer, author of CURIOUS: The Desire to Know and Why Your Future Depends On It, and writer/presenter of BBC R4's Before They Were Famous.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt