The Piketty bubble is now seemingly only matched by London’s property market. Yet where the latter is worryingly detached from economic fundamentals, the former’s analysis of the dynamic of capital accumulation rigorously underscores what many already feel. The stark inequalities of power, wealth and income that capitalism generates is not an aberration or pathology but rather inherent to its normal functioning. This power imbalance in our economy underpins the UK’s poor productivity record. When one third of people are afraid in some way at work, a fifth of workers – and growing - earn less than the Living Wage and the bottom half of the country own only 2 per cent of the wealth, it is not surprising that our productivity rate is now 16 per cent below the average of other G7 nations, the widest gap since 1994. These inequalities seriously corrode the potential of sharing a common life together as democratic citizens.
Yet if inequalities of power and reward undermine both the health of our democracy and the vibrancy of our economy, crucially Piketty also shows how public policy, guided by the democratic interest, can tame the inegalitarian tendencies of capitalism and better channel its creative potential. Piketty’s proposed solutions, including a progressive global wealth tax, have been criticised on the grounds of practicality. But the problem is not his ambition – few people know the history of tax policy in advance – but rather that his solution does not address the root of the issue: who owns capital and who has claims on return to capital. What is required instead is a strategy to build new institutions that can disperse capital ownership claims, democratise the workplace and make finance a useful servant not a dominant master. In essence, a step-by-step democratisation of the marketplace to give people a genuine stake and a say in their place of work.
IPPR’s new report - Fair Shares - sets out how to begin dispersing both economic power and strengthening new forms of employee voice. Firstly, a new tax-advantaged profit sharing scheme could ensure all employees share in collectively created success. It would alter the balance of power and reward between labour and capital whilst putting money in people’s pockets. In France, where profit sharing is compulsory for firms with more than 50 people, over €6.7bn was distributed to millions of workers in 2012. Democratic profit sharing, where all employees participate and vote on the levels of the share, has been proven to successfully boost productivity, wellbeing and commitment.
Secondly, how power and profit is distributed is profoundly shaped by how a company is owned and structured. The dominance of the PLC model intent on maximising returns to shareholders should give way to greater pluralism that rewards a much wider range of committed stakeholders. We therefore recommend ways to improve funding and support for the mutual, co-operative and employee owned sector. Corporate governance should also be reformed to account for a wider range of interests. Similarly, firms should be governed more democratically, with strengthened mechanisms for employee engagement and influence at work. Fair Shares therefore sets out new institutions of workplace democracy, such as introducing an ‘employee working life forum’, that would learn from the successful economic democracies of Germany and the Netherlands. We also suggest potential new avenues for collective bargaining in the workplace to help ensure everyone is represented at work.
Finally, deep concentrations of economic power will only be reversed if finance is made to better serve the productive capacity and social needs of the UK. We need new forms of patient, democratic finance, such as new co-operative capital funds, Solidarity Investment Funds as practiced successfully in Canada and a greater role for public financing of companies through a Small Business Administration unit that has proved so successful in the USA, Singapore and Germany.
For progressives, institutional conservatism tempered by sporadic bouts of what Roberto Unger called "vulgar Keynesianism" cannot achieve the programmatic dispersal of economic power that is required. Instead, a focus is needed on building new institutions of democratic wealth and influence in the economy that can drive innovation, competitiveness and a future of broad-based prosperity for all. While there are of course significant vested interests that would resist the democratisation of the economy, it is a challenge worth pursuing. After all, as Raymond Williams argued, "to be truly radical is to make hope possible, rather than despair convincing".
Mathew Lawrence is Research Fellow at IPPR