Why workplace democracy must be part of Labour's economic agenda

Strengthening workers' bargaining power can deliver fairer wages and more productive enterprises.

All orthodox economic commentary today is focused on the need for fiscal responsibility. Cutting the deficit is said to be a pre-requisite for growth. On the left, the argument is about short-term stimulus followed by longer-term prudence to get the economy back on track. Unfortunately, a small dose of Keynesianism, while welcome, will leave many of the problems that pre-date the crisis largely untouched.

First, governments of all political hues have failed to halt and reverse the enormous rise in income inequality that took place in the 1980s. Far from being a source of dynamism, excessive inequality is now seen as a cause of economic instability. The IMF argues that the pre-crisis bubble was a result of rising personal indebtedness driven by a growing gap between rich and poor. Their prescription for recovery is equally clear: wages must rise in line with productivity and the bargaining power of those with modest to low incomes must be improved. 

Second, the Labour government was successful in restoring full employment as an objective of public policy. But the net effect of this achievement was to move half a million people from workless to working poverty. Families continued to struggle to make ends meet, despite the minimum wage and tax credits. Wages at the bottom end of the labour market were simply too low.

Third, since 2004, wages for all those below the middle of the earnings distribution have been either frozen or have fallen once inflation is taken into account. Robust growth depends upon a steady stream of consumer demand but consumers are hardly likely to feel upbeat if their living standards are being squeezed.

Obviously the state has a role to pay in solving these problems by making full employment a priority and redistributing through the tax credits system. But the government cannot determine wages for all people at work. Rebalancing bargaining power depends on institutions that can represent workers interests effectively – a relationship that is explored in the Smith Institute’s latest report Just deserts? Poverty and income inequality: can workplace democracy make a difference? (July 2013, Coats). To use the US scholar Jacob Hacker’s formulation, pre-distribution matters.

The centre-left, then, has an opportunity to revive an argument that has been treated with contempt for far too long – that workplace democracy can deliver fairer wages and more productive enterprises. The international evidence is compelling: those countries with a fairer distribution of incomes, like the Nordic states and the Netherlands, have an array of institutions which create an inclusive labour market with decent work for all.

Productivity levels and the extent of innovation in German manufacturing are also looked on with envy by British policymakers. This impressive record is partly a result of effective industrial policy, but it depends just as much on the engagement of workers and their involvement in the process of incremental improvement. Works councils and trade unions, despite their weakened condition, remain central to the integrity of the German system. Britain presents a stark contrast, with an exceptionally low level of employee participation (only Lithuania is worse in the EU).

It would be wrong not to recognise the weakness of trade unions, especially in the private sector, even though the workers covered by collective agreements receive wages around 6% higher than those in a similar non-union firm. There is still a union 'sword of justice' effect, but it has become weaker as membership has fallen. Labour must think radically about how the state can facilitate the growth of effective workplace institutions. There is an irresistible case for learning from the works council models that are to be found in most EU 15 member states.

Rebalancing bargaining power means that the state has to re-establish its role as an exemplary contractor and employer too. The living wage should be used as the pay floor in public procurement and where negotiated rates of pay exist they should be observed by all those in the government’s supply chain, including sub-contractors. Beyond using the government’s contractual powers, the Low Pay Commission (LPC) should be given extended terms of reference to investigate the causes, consequences and cures of low pay. The LPC should also be required to develop principles of affordability, identifying when a rate above the minimum wage could be applied to an industry. And government should sponsor a dialogue on skills and productivity between all stakeholders (including the trade unions) in low wage industries.

The central element of Labour’s story has to be a reconceptualisation of the purposes of economic growth and the role of major corporations. It demands a return to the notion of stakeholding that was rapidly adopted and equally rapidly jettisoned by Tony Blair in the mid-1990s. That the architecture of British capitalism is broken should be a matter of consensus, if 'One Nation' means anything it surely means a broad agreement about the terms under which markets operate. Thoughtful Conservatives like Ferdinand Mount, who served as policy head to Margaret Thatcher, have begun to see the wisdom of two-tier corporate boards on the continental European model.  It would be odd if Labour missed the opportunity to develop an agenda for the reform of British capitalism

While it would be wrong to argue that the electorate have moved decisively to the left, there is a widespread belief that a return to the pre-crisis status quo is unacceptable. The possibility of a progressive post-Thatcherite settlement is tantalisingly close but triangulation and well-intentioned tinkering will prove inadequate to the task. Labour’s alternative has to include a progressive agenda for the world of work. Reducing income inequality and the extent of low pay is essential in convincing a sceptical electorate that the party has a credible economic programme.

David Coats is a research fellow at The Smith Institute

The group's new report can be read here

 

Ed Miliband and Ed Balls at the Labour conference in Manchester last year. Photograph: Getty Images.
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Four times Owen Smith has made sexist comments

The Labour MP for Pontypridd and Jeremy Corbyn’s Labour leadership rival has been accused of misogynist remarks. Again.

2016

Wanting to “smash” Theresa May “back on her heels”

During a speech at a campaign event, Owen Smith blithely deployed some aggressive imagery about attacking the new Prime Minister. In doing so, he included the tired sexist trope beloved of the right wing press about Theresa May’s shoes – her “kitten heels” have long been a fascination of certain tabloids:

“I’ll be honest with you, it pained me that we didn’t have the strength and the power and the vitality to smash her back on her heels and argue that these our values, these are our people, this is our language that they are seeking to steal.”

When called out on his comments by Sky’s Sophy Ridge, Smith doubled down:

“They love a bit of rhetoric, don’t they? We need a bit more robust rhetoric in our politics, I’m very much in favour of that. You’ll be getting that from me, and I absolutely stand by those comments. It’s rhetoric, of course. I don’t literally want to smash Theresa May back, just to be clear. I’m not advocating violence in any way, shape or form.”

Your mole dug around to see whether this is a common phrase, but all it could find was “set back on one’s heels”, which simply means to be shocked by something. Nothing to do with “smashing”, and anyway, Smith, or somebody on his team, should be aware that invoking May’s “heels” is lazy sexism at best, and calling on your party to “smash” a woman (particularly when you’ve been in trouble for comments about violence against women before – see below) is more than casual misogyny.

Arguing that misogyny in Labour didn’t exist before Jeremy Corbyn

Smith recently told BBC News that the party’s nastier side only appeared nine months ago:

“I think Jeremy should take a little more responsibility for what’s going on in the Labour party. After all, we didn’t have this sort of abuse and intolerance, misogyny, antisemitism in the Labour party before Jeremy Corbyn became the leader.”

Luckily for Smith, he had never experienced misogyny in his party until the moment it became politically useful to him… Or perhaps, not being the prime target, he simply wasn’t paying enough attention before then?

2015

Telling Leanne Wood she was only invited on TV because of her “gender”

Before a general election TV debate for ITV Wales last year, Smith was caught on camera telling the Plaid Cymru leader that she only appeared on Question Time because she is a woman:

Wood: “Have you ever done Question Time, Owen?”

Smith: “Nope, they keep putting you on instead.”

Wood: “I think with party balance there’d be other people they’d be putting on instead of you, wouldn’t they, rather than me?”

Smith: “I think it helps. I think your gender helps as well.”

Wood: “Yeah.”

2010

Comparing the Lib Dems’ experience of coalition to domestic violence

In a tasteless analogy, Smith wrote this for WalesHome in the first year of the Tory/Lib Dem coalition:

“The Lib Dem dowry of a maybe-referendum on AV [the alternative vote system] will seem neither adequate reward nor sufficient defence when the Tories confess their taste for domestic violence on our schools, hospitals and welfare provision.

“Surely, the Liberals will file for divorce as soon as the bruises start to show through the make-up?”

But never fear! He did eventually issue a non-apology for his offensive comments, with the classic use of “if”:

“I apologise if anyone has been offended by the metaphorical reference in this article, which I will now be editing. The reference was in a phrase describing today's Tory and Liberal cuts to domestic spending on schools and welfare as metaphorical ‘domestic violence’.”

***

A one-off sexist gaffe is bad enough in a wannabe future Labour leader. But your mole sniffs a worrying pattern in this list that suggests Smith doesn’t have a huge amount of respect for women, when it comes to political rhetoric at least. And it won’t do him any electoral favours either – it makes his condemnation of Corbynite nastiness ring rather hollow.

I'm a mole, innit.