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required transferrable skills and not vocational speciality, and that tradition and local practice could be superseded by rationalised administration and production, both turned out to be mistaken.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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The strange death of boozy Britain: why are young people drinking less?

Ditching alcohol for work.

Whenever horrific tales of the drunken escapades of the youth are reported, one photo reliably gets wheeled out: "bench girl", a young woman lying passed out on a public bench above bottles of booze in Bristol. The image is in urgent need of updating: it is now a decade old. Britain has spent that time moving away from booze.

Individual alcohol consumption in Britain has declined sharply. In 2013, the average person over 15 consumed 9.4 litres of alcohol, 19 per cent less than 2004. As with drugs, the decline in use among the young is particularly notable: the proportion of young adults who are teetotal increased by 40 per cent between 2005 and 2013. But decreased drinking is not only apparent among the young fogeys: 80 per cent of adults are making some effort to drink less, according to a new study by consumer trends agency Future Foundation. No wonder that half of all nightclubs have closed in the last decade. Pubs are also closing down: there are 13 per cent fewer pubs in the UK than in 2002. 

People are too busy vying to get ahead at work to indulge in drinking. A combination of the recession, globalisation and technology has combined to make the work of work more competitive than ever: bad news for alcohol companies. “The cost-benefit analysis for people of going out and getting hammered starts to go out of favour,” says Will Seymour of Future Foundation.

Vincent Dignan is the founder of Magnific, a company that helps tech start-ups. He identifies ditching regular boozing as a turning point in his career. “I noticed a trend of other entrepreneurs drinking three, four or five times a week at different events, while their companies went nowhere,” he says. “I realised I couldn't be just another British guy getting pissed and being mildly hungover while trying to scale a website to a million visitors a month. I feel I have a very slight edge on everyone else. While they're sleeping in, I'm working.” Dignan now only drinks occasionally; he went three months without having a drop of alcohol earlier in the year.

But the decline in booze consumption isn’t only about people becoming more work-driven. There have never been more alternate ways to be entertained than resorting to the bottle. The rise of digital TV, BBC iPlayer and Netflix means most people means that most people have almost limitless choice about what to watch.

Some social lives have also partly migrated online. In many ways this is an unfortunate development, but one upshot has been to reduce alcohol intake. “You don’t need to drink to hang out online,” says Dr James Nicholls, the author of The Politics of Alcohol who now works for Alcohol Concern. 

The sheer cost of boozing also puts people off. Although minimum pricing on booze has not been introduced, a series of taxes have made alcohol more expensive, while a ban on below-cost selling was introduced last year. Across the 28 countries of the EU, only Ireland has higher alcohol and tobacco prices than the UK today; in 1998 prices in the UK were only the fourth most expensive in the EU.

Immigration has also contributed to weaning Britain off booze. The decrease in alcohol consumption “is linked partly to demographic trends: the fall is largest in areas with greater ethnic diversity,” Nicholls says. A third of adults in London, where 37 per cent of the population is foreign born, do not drink alcohol at all, easily the highest of any region in Britain.

The alcohol industry is nothing if not resilient. “By lobbying for lower duty rates, ramping up their marketing and developing new products the big producers are doing their best to make sure the last ten years turn out to be a blip rather than a long term change in culture,” Nicholls says.

But whatever alcohol companies do to fight back against the declining popularity of booze, deep changes in British culture have made booze less attractive. Forget the horrific tales of drunken escapades from Magaluf to the Bullingdon Club. The real story is of the strange death of boozy Britain. 

Tim Wigmore is a contributing writer to the New Statesman and the author of Second XI: Cricket In Its Outposts.