Maurice Glasman writes:
It is two and half years since Labour’s general election defeat and there
are two-and-a-half-years to go until we face the country again. It seems that
we are still torn between a defence of the New Labour record and the
articulation of something different and better. But the second option still
requires an explanation of what went wrong when Labour was in power.
The central insight of Blue Labour is that there was a fundamental problem
with the political economy of New Labour. The assumption that globalisation
required transferrable skills and not vocational speciality, and that tradition
and local practice could be superseded by rationalised administration and
production, both turned out to be mistaken. The denuding of the country and its
people of their institutional and productive inheritance by the higher rates of
returns found in the City of London, and then the vulnerability of those gains
to speculative loss, is the story we confronted in 2008.
It turns out that the German political economy, with its federal republic and subsidiarity, with its works councils and co-determination between capital and labour, with its regional and local banks and vocational control of labour market entry - a democracy locational and vocational - was much better equipped to deal with globalisation than we were with our financial services and transferrable skills.
It turns out that the German political economy, with its federal republic and subsidiarity, with its works councils and co-determination between capital and labour, with its regional and local banks and vocational control of labour market entry - a democracy locational and vocational - was much better equipped to deal with globalisation than we were with our financial services and transferrable skills.
The financial crash of 2008 will turn out to be the most important event in
the politics of the next twenty years. It was the result of a failure of many
things but one of them is corporate governance, and most particularly,
accountability. There is a growing realisation that the workforce has interests
in the flourishing of the firm and an internal expertise in what is going on
and how it is done. The complement of workforce to shareholder accountability
strengthens the honesty and durability of the firm. It establishes a form of
relational accountability.
A comparative analysis of corporate restructuring strategy in Germany and
Britain tells the story clearly. The resilience of German industry was based
upon two fundamental differences with Britain, both relating to corporate
governance. The first was that each stakeholder interest - capital, labour and
region - has access to the same information about the state of the firm and the
sector and could negotiate a common response and bring people with them.
The second reason relates to the common good. The recognition of complexity
within the corporation, the recognition that it is a body constituted by
complex and mutually dependent functions and the representation of that in the
corporate governance model meant that a common good of the firm could be
negotiated.
German industry works within a legal framework that is based upon the ‘equalisation of the burdens’. In this the burdens of decisions must be agreed to be balanced between owners and workers. This meant that there could not be the imposition of a strategy that was based upon the interests of only one party. The result is predictable: fewer increases in managerial pay, a far greater retention of workers within a framework of greater flexibility, and a shared concern for the renewal of competitiveness.
German industry works within a legal framework that is based upon the ‘equalisation of the burdens’. In this the burdens of decisions must be agreed to be balanced between owners and workers. This meant that there could not be the imposition of a strategy that was based upon the interests of only one party. The result is predictable: fewer increases in managerial pay, a far greater retention of workers within a framework of greater flexibility, and a shared concern for the renewal of competitiveness.
Corporate governance reform asks a lot of capital. It relinquishes its
ultimate sovereignty and recognises the workforce, and a skilled and powerful
workforce at that, as a necessary part of the generation of value. It
recognises the inability to hold itself accountable and recognises its common
interest with labour in disciplining its tendency to be too generous to itself.
It also asks a lot of labour, and of the unions. The German and British trade
unions took different pathways in 1945.
While the British model was faster out of the blocks in 1945, it turned out
that the German model won the race. They retained far higher trade union
membership, lower wage differentials, fewer job losses and a vocational status
for labour within the economy. One of the consequences of corporate governance
reform is the requirement for trade unions to seek the common good and that is a
conversation that has barely begun.
Worker representation on remuneration committees is a step in the right direction but needs to be extended into wider reform of the governance of any firm above fifty employees. A third of the seats on the supervisory board should be elected by the workforce. The energy, skills and commitment of the workforce is of fundamental importance to the good of any company and how that feeds into decision making and product innovation is a matter of institutional design.
Worker representation on remuneration committees is a step in the right direction but needs to be extended into wider reform of the governance of any firm above fifty employees. A third of the seats on the supervisory board should be elected by the workforce. The energy, skills and commitment of the workforce is of fundamental importance to the good of any company and how that feeds into decision making and product innovation is a matter of institutional design.
Corporate governance reform is not a stand-alone policy and requires new
regional banking institutions and a renewal of vocational training and status.
It is, however, the most fundamental for it restores a dignity to labour, a
value that has been for too long neglected in our economy. The lesson of the
German economy is that labour is a source of value and its representation on
the corporate body of the firm means that its value can be reproduced. It is a
fundamental part of the institutional ecology of a sustainable economy.
A longer version of this piece appears in the new Fabian Society
pamphlet The Great Rebalancing.
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