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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How the row over Jackie Walker triggered a full-blown war in Momentum

Jon Lansman, the organisation's founder, is coming under attack. 

The battle for control within Momentum, which has been brewing for some time, has begun in earnest.

In a sign of the growing unrest within the organisation – established as the continuation of Jeremy Corbyn’s first successful leadership bid, and instrumental in delivering in his re-election -  a critical pamphlet by the Alliance for Workers’ Liberty (AWL), a Trotskyite grouping, has made its way into the pages of the Times, with the “unelected” chiefs of Momentum slated for turning the organisation into a “bland blur”.

The issue of contention: between those who see Momentum as an organisation to engage new members of the Labour party, who have been motivated by Jeremy Corbyn but are not yet Corbynites.

One trade unionist from that tendency described what they see the problem as like this: “you have people who have joined to vote for Jeremy, they’re going to meetings, but they’re voting for the Progress candidates in selections, they’re voting for Eddie Izzard [who stood as an independent but Corbynsceptic candidate] in the NEC”.  

On the other are those who see a fightback by Labour’s right and centre as inevitable, and who are trying to actively create a party within a party for what they see as an inevitable purge. One activist of that opinion wryly described Momentum as “Noah’s Ark”.

For both sides, Momentum, now financially stable thanks to its membership, which now stands at over 20,000, is a great prize. And in the firing line for those who want to turn Momentum into a parallel line is Jon Lansman, the organisation’s founder.

Lansman, who came into politics as an aide to Tony Benn, is a figure of suspicion on parts of the broad left due to his decades-long commitment to the Labour party. His major opposition within Momentum and on its ruling executive comes from the AWL.

The removal of Jackie Walker as a vice-chair of Momentum after she said that Holocaust Memorial Day belittled victims of other genocides has boosted the AWL, although the AWL's Jill Mountford, who sits on Momentum's ruling executive, voted to remove Walker as vice-chair. (Walker remains on the NEC, as she has been elected by members). But despite that, the AWL, who have been critical of the process whereby Walker lost her post, have felt the benefit across the country.

Why? Because that battle has triggered a series of serious splits, not only in Momentum’s executive but its grassroots. A raft of local groups have thrown out the local leadership, mostly veterans of Corbyn’s campaign for the leadership, for what the friend of one defeated representative described as “people who believe the Canary [a pro-Corbyn politics website that is regularly accused of indulging and promoting conspiracy theories]”.

In a further series of reverses for the Lansmanite caucus, the North West, a Momentum stronghold since the organisation was founded just under a year ago, is slipping away from old allies of Lansman and towards the “new” left. As one insider put it, the transition is from longstanding members towards people who had been kicked out in the late 1980s and early 1990s by Neil Kinnock. The constituency party of Wallasey in particular is giving senior figures in Momentum headaches just as it is their opponents on the right of the party, with one lamenting that they have “lost control” of the group.

It now means that planned changes to Momentum’s structure, which the leadership had hoped to be rubberstamped by members, now face a fraught path to passage.

Adding to the organisation’s difficulties is the expected capture of James Schneider by the leader’s office. Schneider, who appears widely on television and radio as the public face of Momentum and is well-liked by journalists, has an offer on the table to join Jeremy Corbyn’s team at Westminster as a junior to Seumas Milne.

The move, while a coup for Corbyn, is one that Momentum – and some of Corbyn’s allies in the trade union movement – are keen to resist. Taking a job in the leader’s office would reduce still further the numbers of TV-friendly loyalists who can go on the airwaves and defend the leadership. There is frustration among the leader’s office that as well as Diane Abbott and John McDonnell, who are both considered to be both polished media performers and loyalists, TV bookers turn to Ken Livingstone, who is retired and unreliable, and Paul Mason, about whom opinions are divided within Momentum. Some regard Mason as a box office performer who needs a bigger role, others as a liability.

But all are agreed that Schneider’s expected departure will weaken the media presence of Corbyn loyalists and also damage Momentum. Schneider has spent much of his time not wrangling journalists but mediating in local branches and is regarded as instrumental in the places “where Momentum is working well” in the words of one trade unionist. (Cornwall is regarded as a particular example of what the organisation should be aiming towards)

It comes at a time when Momentum’s leadership is keen to focus both on its external campaigns but the struggle for control in the Labour party. Although Corbyn has never been stronger within the party, no Corbynite candidate has yet prevailed in a by-election, with the lack of available candidates at a council level regarded as part of the problem. Councilors face mandatory reselection as a matter of course, and the hope is that a bumper crop of pro-Corbyn local politicians will go on to form the bulk of the talent pool for vacant seats in future by-elections and in marginal seats at the general election.

But at present, a draining internal battle is sapping Momentum of much of its vitality. But Lansman retains two trump cards. The first is that as well as being the founder of the organisation, he is its de facto owner: the data from Jeremy Corbyn’s leadership campaigns, without which much of the organisation could not properly run, is owned by a limited company of which he is sole director. But “rolling it up and starting again” is very much the nuclear option, that would further delay the left’s hopes of consolidating its power base in the party.

The second trump card, however, is the tribalism of many of the key players at a local level, who will resist infiltration by groups to Labour’s left just as fiercely as many on the right. As one veteran of both Corbyn’s campaigns reflected: “If those who have spent 20 years attacking our party think they have waiting allies in the left of Labour, they are woefully mistaken”. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.