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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The far right rises as the Nordic welfare model is tested to breaking point by immigration

Writing from Stockholm, the New Statesman’s editor observes how mass immigration has tested the old Scandinavian model of welfare capitalism.

In the summer of 1999 I was commissioned by a Scandinavian magazine to write about the completion of the longest road-and-rail link in Europe, connecting Denmark and Sweden across the Øresund strait at the gateway to the Baltic Sea. I was a guest at the ceremony, along with assorted Swedish and Danish royalty, at which the final girder of the concrete and steel-cable-stayed bridge was fitted into place.

It was a cold day but the mood was joyful. The Øresund Fixed Link symbolised the new Europe of open borders and free movement of people. There was much excitement about the creation of an economic zone centred on Copenhagen but incorporating Malmö and the university town of Lund in Sweden. The Øresund Bridge has since become an icon of Scandinavian culture, in part because of the success of the noirish television crime series The Bridge, starring the blank-eyed Sofia Helin as the Swedish police detective Saga Norén, which fetishises the structure in its brilliantly stylised opening credits.

Emergency measures

Last autumn, after Angela Merkel declared that Germany’s borders were open to Syrian refugees, it was across the Øresund that tens of thousands of desperate people began arriving in Sweden, straining the country’s habitual openness to incomers. They were arriving not just from Syria but from Afghanistan, Iraq, Pakistan, Eritrea and elsewhere in Africa – sometimes as many as 10,000 a week. In 2015, 163,000 people registered for asylum in Sweden, including 36,000 unaccompanied children. Many others are presumed to have entered the country illegally. (The comparative figure registering for asylum in Germany was 1.2 million and in Denmark 25,000. David Cameron has pledged to resettle 20,000 Syrian refugees in Britain by 2020.)

There was a sense last November that Stefan Löfven’s minority Social Democratic government was losing control of the situation. As a result, Sweden was forced to introduce emergency border controls, as well as security checks for those arriving across the bridge from Denmark. The rules of the Schengen passport-free area allow for such measures to be enacted in a crisis. Denmark responded by tightening border controls with Germany as fences and barriers were erected across Europe in an attempt to stem the flow of refugees heading north along the so-called western Balkan route.

Sweden’s Blair

To the outsider, Sweden no longer seems to be a country at ease with itself. Mass immigration has tested the old Scandinavian model of welfare capitalism to near breaking point and resentment is festering. “Immigration is now the number one issue facing our country,” Johan Forssell told me when we met at the Riksdag in Stockholm. He is a former chief of staff for Fredrik Reinfeldt, prime minister from 2006-14. As a former leader of the Moderate Party, Reinfeldt is a conservative, but, in his commitment to free markets and open borders, the politician he most resembles is Tony Blair. I was a guest at a lunch for Reinfeldt in London last autumn, and, as he defended his immigration policies, I was struck above all by his liberalism.

In August 2014, in a celebrated speech, he called on his fellow Swedes to “open their hearts” and “show tolerance” to immigrants and asylum-seekers. The speech was received with derision. It surely contributed to the defeat of the Moderate-led centre-right coalition in the general election in which the far-right Sweden Democrats, led by Jimmie Åkesson, recorded their best ever performance, winning 49 out of 349 parliamentary seats. “It was a brave speech, but Freddie didn’t prepare the people for it,” one senior Swedish politician said to me.

Editorial positions

One afternoon I visited Peter Wolodarski, the 38-year-old editor-in-chief of Sweden’s leading quality daily newspaper, Dagens Nyheter (“Today’s News”), at his office in Stockholm. The son of a Polish-Jewish architect who came to Sweden in the 1960s, Wolodarski is highly influential: editor, columnist and television commentator, and an unapologetic liberal internationalist. He likened his politics to David Miliband’s. In the past, Dagens Nyheter, which is privately owned by the Bonnier family, supported the then-hegemonic Social Democrats but, reflecting the fluidity and shifting alliances of Swedish politics, it now pursues what it describes as an “independently liberal” editorial position.

Wolodarski, who used to edit the comment pages, is slim and energetic and speaks perfect English. We discussed the EU referendum in Britain, which alarmed and mystified him, and Islamist terror as well as the rise of the anti-immigrant Sweden Democrats. Security at the Dagens Nyheter offices has been tightened considerably since the Charlie Hebdo massacre – Wolodarski’s paper as well as others in the group republished Charlie cartoons – and it has been reported that as many as 300 Swedish nationals are fighting for Isis in Syria. One Swede, Osama Krayem, is suspected of being part of the group that carried out the Brussels attacks in March. The Sweden Democrats have seized on this as further evidence of the failures of Nordic multiculturalism.

A refugee’s story

One morning I visited a refugee registration centre in Märsta in the northern suburbs. The people there were fleeing war or persecution. Each was waiting to discover where next they would be moved while their asylum application was processed.

One young, secular Muslim woman from Gambia told me she was escaping an arranged marriage (to her mother’s polygamous brother, who was in his sixties) and the horror of female genital mutilation. Articulate and frustrated, she wept as we talked. The next day, I received an email from her. She was now in a small town in the far north. “It is remote here and cold,” she wrote. And then she wished me a “safe return journey” to London.

Jason Cowley is editor of the New Statesman. He has been the editor of Granta, a senior editor at the Observer and a staff writer at the Times.

This article first appeared in the 06 April 2016 issue of the New Statesman, The longest hatred