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required transferrable skills and not vocational speciality, and that tradition and local practice could be superseded by rationalised administration and production, both turned out to be mistaken.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

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PMQs review: Jeremy Corbyn turns "the nasty party" back on Theresa May

The Labour leader exploited Conservative splits over disability benefits.

It didn't take long for Theresa May to herald the Conservatives' Copeland by-election victory at PMQs (and one couldn't blame her). But Jeremy Corbyn swiftly brought her down to earth. The Labour leader denounced the government for "sneaking out" its decision to overrule a court judgement calling for Personal Independence Payments (PIPs) to be extended to those with severe mental health problems.

Rather than merely expressing his own outrage, Corbyn drew on that of others. He smartly quoted Tory backbencher Heidi Allen, one of the tax credit rebels, who has called on May to "think agan" and "honour" the court's rulings. The Prime Minister protested that the government was merely returning PIPs to their "original intention" and was already spending more than ever on those with mental health conditions. But Corbyn had more ammunition, denouncing Conservative policy chair George Freeman for his suggestion that those "taking pills" for anxiety aren't "really disabled". After May branded Labour "the nasty party" in her conference speech, Corbyn suggested that the Tories were once again worthy of her epithet.

May emphasised that Freeman had apologised and, as so often, warned that the "extra support" promised by Labour would be impossible without the "strong economy" guaranteed by the Conservatives. "The one thing we know about Labour is that they would bankrupt Britain," she declared. Unlike on previous occasions, Corbyn had a ready riposte, reminding the Tories that they had increased the national debt by more than every previous Labour government.

But May saved her jibe of choice for the end, recalling shadow cabinet minister Cat Smith's assertion that the Copeland result was an "incredible achivement" for her party. "I think that word actually sums up the Right Honourable Gentleman's leadership. In-cred-ible," May concluded, with a rather surreal Thatcher-esque flourish.

Yet many economists and EU experts say the same of her Brexit plan. Having repeatedly hailed the UK's "strong economy" (which has so far proved resilient), May had better hope that single market withdrawal does not wreck it. But on Brexit, as on disability benefits, it is Conservative rebels, not Corbyn, who will determine her fate.

George Eaton is political editor of the New Statesman.