Rape and Pillage or Co-operation

The announcement that Gordon Brown is to put mutualism and co-operatives, such as John Lewis Partnership, at the heart of Labour’s election manifesto is surely welcome after twelve years of the rape and pillage resulting from New Labour’s unquestioning support for free market deregulation and the maximising of shareholder wealth. But what does it mean? Is it just the sentimental swan-song of the Labour government? Or does it have substance as the foundation for real action?

The rape and pillage has done for many solid British enterprises, Cadbury and Boots being just two high profile examples which have been referenced in other posts on this site. Enterprises such as John Lewis and the Co-op, which are not at the mercy of the greed and mendacity which dominates stock markets, appear to have fared pretty well through the current crisis. The argument for partnership, co-ownership and cooperation has real economic justification, not just a sentimental return to old Labour values that someone once referred to as the ‘Utopian idealism’ of the likes of Robert Owen.

The core of the economic justification is that business enterprise is run for the benefit of all its stakeholders, customers, employees, the community and others. But for businesses with their shares quoted on a stock exchange, only shareholders are given a vote over the real strategic issues such as mergers and acquisitions. The key issue in avoiding the rape and pillage is to enfranchise these other stakeholders who have an interest in the survival and long term prosperity of the enterprise.

There are a number of different ways to do this. In Germany, for example, the two tier board enfranchises employees through their 50% membership of the supervisory board and this substantially reduces vulnerability to rape and pillage as Germany’s more robust industrial results demonstrate (highlighted elsewhere on this site). Co-ownership has a similar effect. By enfranchising the employees, the enterprise ceases to be vulnerable to stock market raids motivated by the predictable desire for short term gain. The Co-operative movement achieves the same result through the rather more complicated process of enfranchising its members including those of its customers who choose to become members.

Such forms of enterprise may well find raising the finance, which is essential to fund growth, difficult without access to the stock market. Clearly though, it can be done, as the many successful examples demonstrate. However, significant change would be slow and tortuous if it depended solely on ‘supporting’ the development of such enterprise. Putting it at the heart of a political manifesto is not going to have much effect, without some hard core commitments to enfranchising stakeholders, other than shareholders, on strategic corporate decisions.

The history of corporate governance provides some interesting insights. Early joint stock companies, for example the great trading companies such as the East India Company, as well as the Bank of England, were governed by their members democratically, ie on the basis of ‘one man one vote’, irrespective of the number of shares they owned. Over time this democratic voting was modified to give larger shareholders a greater influence, but limited to a max number of votes, such limits being designed to protect ‘the permanent welfare of companies’ from being ‘sacrificed to the partial and interested views of the few’ (quoted from a 1766 Act of Parliament). The same approach was pursued in the United States, primarily motivated by American fear of the ‘unbridled power’ of ‘large landholders and dynastic wealth’ (quoted from Lawrence Friedman’s A History of American Law).

Then, between the 1840s and 1880s, democratic corporate governance in America was more or less replaced by one share, one vote’ which returned control to the wealthy and allowed the entrance of the ‘robber barons’. Needless to say, Britain followed suit. Ironically this was the period in which political voting was becoming more democratic, moving in America from white men with property (ie excluding slaves and women) towards universal suffrage.

A return to democratic corporate governance seems unlikely to happen, though it has been made to work for the Co-op. But some enfranchisement of stakeholders would be feasible. A movement to enfranchising employees, for example, with a proportion of votes at company meetings, would be practicable and would to some extent insulte companies from the rape and pillage. It would in this gloablised world need to be pursued on an international G20 basis. But such a commitment would be a sensible and worthwhile inclusion in any political manifesto.

2 thoughts on “Rape and Pillage or Co-operation”

  1. What I find so shocking is that it has taken the Labour Party thirteen years to ‘discover’ alternative economic models for the ownership and control of work organizations. Surely this is the first thing that a socialist party would care about? Silly me. Remember the 1977 Bullock report anyone?

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  2. I remember Bullock well! The main recommendation was the board being composed of equal numbers of shareholder and employee representatives plus some independents acceptable to both. Which I felt at the time was great. But, as I recall it, the problem was that the employee representatives were not to be selected by the employees, but only those who were trade union members. Consequently it got embroiled in all sorts of political debate. Union membership apart Bullock was spot on.

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