Sunday, 22 January 2012

Labour are the party of responsible capitalism, but we need to be work out exactly what measures we're proposing.

Post the Fabian Society conference on the 14th January, everyone was shouting about “predistribution, not redistribution”; that Labour should advocate an economy where the distribution of wealth is fair and equitable without the government having to step in with wildly redistributive policies, as part of the wider campaign for “nice” capitalism…I saw some rather over excited tweets claiming that if Labourites simply kept pushing that phrase from now to the election, we would defiantly see a Parliamentary majority.

And then Cameron decided he was a nice capitalist too.

This isn’t hard territory to outflank him on, though; yes, the Conservative’s Co-operatives bill is no bad thing, but largely Cameron’s words are far more rhetoric than substance, while it has been Ed Miliband who has been framing this debate, Labour who are the sister party of the Co-operative party; it was the Co-operative Party in partnership with Labour which secured the legislation that is to be consolidated.

But while a Cameron focused more on benefit caps than pay increases might not be hard to outflank on nice capitalism, Labour needs a really coherent, strong, responsible capitalism policy package to show how we would go about reinventing the markets once back in power; many key Labour figures have put forward various ideas, but these need expanding and consolidating.

 Ed Miliband has put forward five key proposals:

- Banks lending to the businesses that need it; and this being their primary goal, above the pursuit of short term profits.

- Greater power to shareholders with long-term holdings greater power, particularly at times of takeovers, to refocus the emphasis on long term sustainability and growth, rather than short term profits.

- Encouraging vocational skills, to meet unmet market needs.

- Restraints on executive pay.

- An end to "large concentrations of unaccountable private power that lead to higher prices, exploit consumers and lead to inefficiency".

We need to look further at how Labour would actually make these things happen; how would they been encouraged…or would they be legally enforceable?

Should banks have to lend a certain minimum to businesses…if so what types of businesses? Would all companies have to give greater power to long term shareholders…should there be some sort of minimum length of time that shareholders would have to hold shares in a company? What kind of educational reforms would be put in place to encourage vocational training? How far should the government go in actively breaking up monopolies to avoid concentrations of power?

As for high pay, we should certainly adopt the High Pay Commission's recommendations for greater transparency…

-Publishing the top ten executive pay packages outside the boardroom

-Forcing companies to publish a pay ratio between the highest paid executive and the company median

-Companies to reveal total pay figure earned by the executive

…but is that enough? Will business pay its top level people less just because it’s all out in the open? Some, probably, but it’s very unlikely all would.

If we’re not looking at taxation as a way to curb top tear pay (although the five point plan’s bankers bonus tax could probably find a place in a responsible capitalism package), then instead maybe we should examine linking the amount that the highest paid earner can earn to the amount the lowest paid earner can earn…potentially enforcing this through legislation.

Meanwhile Labour can go a lot further in supporting and encouraging co-operative enterprise than Cameron is currently doing (although we should, of course, fully support what he is doing), and outside of the cooperatives movement we can still work to put employees in a far more central position in regards to decision making; for example, making businesses put employees in remunerations committees.

Finally, and I’m starting to sound like a parrot here, but Labour should actively support, as in, say we will pass legislation making it law kind of support, the Living Wage. Not just saying “well, hopefully; we’d like to do it”; saying that we will.

Labour are the party of responsible capitalism, but we need to prove that, unlike Cameron, this is substantial and not just rhetorical, by sitting down and working out exactly what that means in terms of what actions we would and will take in power, to great a better, fairer capitalism and society, and presenting this to the public as a fully thought out, coherent proposal.


  1. I have to say on the whole I'm a little ambivalent about predistribution myself. Things like tackling vertical integration and concentration within energy markets is great, but it should be the norm, it should in other words run alongside redistribution. I think that while it's necessary and important to deal with all of these issues-- and they do excite me-- there is, as you say, rather a lot of enthusiasm for something which is essentially tinkering around the edges.

    Some of these otherwise noble desires are also unrealistic without seriously addressing the major issues we're facing at the moment. Much as with project Merlin, it's a nonsense to demand higher lending to SMEs if the environment is increasingly demand-constrained, because the aggregate demand levels can't support new business investment.

    Similarly, industrial policy while important is restrained in its ability to affect our current account balance if our main trading partners are demand-constrained. Obviously, as this suggests, not everything is in our power to change, though Cameron's posture on Europe has hardly helped matters, when compared with Brown's.

    In the meantime of course, some reforms will simply take the course of a parliament to implement, others while swift to implement will produce little change in the short term.

    There's also the issue that merely having long term holdings (which is very important, alongside reducing speculative activity which contributes to wider market distortions) doesn't compel shareholders to act responsibly, many are famously absent from decision making.

    None of which is a criticism of what you're saying. Rather I'm just trying to articulate my concern that Labour is so busy looking for structural changes that won't cost money, that it is ignoring the macroeconomic arguments.

    I think the party will have enormous trouble breaking through on these issues without very bold, clear, unambiguous alternatives, and what Cameron can do-- whether he's credible on the issue or not-- is to muddy the waters. His proposals on these issues make anything Labour says that much more marginal, that much less decisive or different. He can make fairly modest proposals on high pay, and still steal a lot of the thunder from the opposition.

    Labour is undeniably failing to produce a coherent alternative on the economy at the moment, all the more so since the fabian conference (or rather the day or so before that), but it won't be able to survive on 'responsible capitalism', which is after all something of a shibboleth, without a very serious set of proposals. And radicalism tends to scare away people in the middle of the preference range.

    I do think a lot of these proposals are good and even necessary. We definitely need to substantially change the UK model. I'm just not convinced we can watch the government policy succeed or fail (according to your personal economic prognosis) without a strong alternative, and expect to be elected on the back of structural reforms. Historically parties have often survived economic mismanagement, as long as there was no strong alternative, and no absolute crisis. The tories are showing signs of that same resilience.

    Apologies for the rather rambling comment.

  2. Oh and I love the Keynes quote, never was it more timely.