From the TUC

What’s Left – an important debate that needs to focus more on workplace democracy

28 Sep 2012, by in Economics

The recent Juncture article from Gavin Kelly and Nick Pearce makes the vital argument that we need:

A more fundamental thinking of social democratic political economy than has yet been undertaken in the UK, and with it a new configuration of priorities. Our goal must be a more resilient and stable British capitalism, with more productive, regionally balanced investment, dynamic markets, and demand generated from higher productivity and rising real wages, rather than speculative bubbles, rent seeking and debt-finances increases in living standards.

Such a vision has long been TUC ambition. In a speech at Liverpool University last year Brendan set out his view that:

One thing’s for sure: we cannot continue as we are. The current model of capitalism – deregulated, unequal, unstable – is facing a crisis of legitimacy…Unless we get to grips with some of the root causes of the current turmoil – debt-fuelled growth; stagnant wages for the majority; financial speculation – then who knows what the future may hold. These really are profoundly volatile and turbulent times. But lofty ambitions do not generate easy policy answers.

The analysis is not so very different, even if there are variations in tone.  And Brendan’s final observation remains pertinent – answers are very far from easy.

So while I welcome the debate that this article opens, and strongly agree with the authors that far from simply securing a return to business as usual we need to address the ‘core weaknesses in the UK economy which were graphically exposed when the crisis struck’, I also worry that in some areas there is not yet full recognition of the scale or scope of change that might be necessary to achieve the goals – fairer wages, better jobs, socially useful finance and long-term business thinking & investment – that many increasingly recognise that we need. In particular, an honest assessment of potential solutions needs to recognise that workplace democracy will have to play key role in achieving success, as it does in all other countries with fairer wealth distributions than the UK. Without it, all the evidence shows us that realistic solutions are likely to be elusive.

With that in mind, there are three broad areas where I’d like to see discussion go further.

1. It’s time to think seriously about involving wider stakeholders in corporate governance.

The essay is right that increasing business investment needs to be a key aspiration – but the UK has had a problem with poor investment performance for decades, and while sorting this out needs significant change in our financial sector, we also need a comprehensive look at our systems of corporate governance (as well as our tax system). Yes, there are problems around the lack of transparency in costs, charges and remuneration structures, with low levels of active shareholder involvement and with a lack of available data on long-term business performance, but our corporate governance system also suffers from an over reliance upon shareholders as the only means (other than regulators) of monitoring corporate decision making.

With a declining proportion of shares owned by UK insurance and pension funds, increasingly diversified portfolios and ever increasing levels of share trading as a means to generate returns we can’t automatically assume a convergence between the long-term interests of a company and those of its shareholders. So we need to debate restricting voting rights to those with a  long-term interest, as well as looking in detail at how the views of other stakeholders (including employees) could be taken into account in company decision making.

Mergers and takeovers are another area ripe for reform – as while they can create real value their record is mixed. But at present whether a merger proceeds is generally dependent upon the share price on offer, rather than consideration of the long-term impacts for the company, and for its employees, and whether a merger stands to enhance future productive capacity. A new mergers and takeovers commission, or a strengthening of the Competition Commission’s remit, could play a vital role.

Discussions around these areas have absolutely begun, but informed progressive debate around wider stakeholder involvement – and the impact such changes could have for wider investment decisions – remains low. The job of demonstrating why we need significant change, debating what could work and finding business advocates to champion it, has barely started (and although some have been making the case for a while, there is also far more we could do).

If this is to be a serious discussion for progressive policy it will also need recognition of the attempts that were made to start it during the last decade – and why they failed. The Company Law Review in 2005 decided, for example, against replacing shareholder primacy with models which would put the interests of other stakeholders (including employees) on a par with those of shareholders (despite the fact that in the EEA a majority of countries have significant worker board representation rights). We may still be some way from a full appreciation of political shifts that successful policy solutions in this area will need.

2. We need a greater focus on the workforce.

There has been good and important recent thinking on the need to improve educational opportunities for young people leaving school and choosing vocational or further education routes. As our Generation Lost pamphlet discussed, the options that young people in these groups face are in an underfunded mess, often leaving school leavers in low-paid work with no access to wider training and without a clear route into training and progression opportunities at work. With data suggesting only 5% of employers nationally are providing apprenticeships, we need a step change in support and opportunities for this group, with much to be learnt from the rest of Europe.

But it’s not just skills that need to change, nor the childcare and social care services which will enable more people to choose to undertake paid work, or the wider industrial policies which will help us create more better jobs (although measures in all these areas are of course key). A real agenda for better work will also need to look at the incentives employers face to boosting employee engagement. And it will also need to look seriously at employment rights, not just at enforcement. Our Commission on Vulnerable Employment reported several years ago, but much of what it concluded would be necessary to improve job quality at the bottom of the labour market is still relevant – active enforcement of workplace rights (which, again, evidence shows us is best when it involves workplace representatives), extensions in the powers of the Gangmaster’s Licensing Authority and reform of the employment status rules that enable such widespread false self-employment (which in 2006 the DTI’s Success at Work concluded that there was no need to review).

It’s not just the most vulnerable workers who need extra help at work – serious attempts to make employment work for more people will need a revolution in flexible working, significant moves towards additional parental leave and support for older workers to transition far more smoothly from paid jobs to retirement.  But the hard facts show us that achieving serious change will need stronger regulation, of the sort that has too often been avoided by previous Governments.  The Family Friendly Taskforce was an interesting initiative – but what has voluntarism achieved since then? On the other hand while many are keen to promote the need to increase women’s labour market participation, the regulatory change this could require is the missing part of many discussions.

We also need to talk honestly about boosting pay – of course achieving fairer pay growth will be easier if more employers agree to pay the Living Wage, and if the Low Pay Commission could make broader based recommendations on reducing poverty wages it would give us the evidence base to argue for more gradual improvements, but making any significant inroads into this problem will need wider solutions. These include tackling excessive pay at the top, but also mean recognising that increasing workers’ bargaining power has to be an integral part of the answer both to securing fairer pay distributions and faster pay growth for middle and lower earners. Again, in other countries that we seek to emulate better legal protections at work, and a stronger role for employee representatives, are integral to success.

3.Unions can’t simply be dismissed.

That means that any advocate of this agenda can’t afford to dismiss British unions – or to simply fall back on telling them to do better. Unions are the key means by which wider stakeholder voice in corporate governance arrangements can feasibly be achieved, by which improved conditions at work can be secured and by which wages can successfully be raised. Kelly and Pearce rightly conclude that if low to middle income households are to secure greater prosperity in the years ahead it looks likely that it will have to come from employment income rather than from government transfers, correctly noting that “there is, for instance, plenty of evidence to show the potential role of trade unions in raising real wages”.

Recognition, as the IMF have also set out, that collective bargaining is the best way we have of securing fairer pay distributions, and faster growing incomes for those on middle and lower incomes, is welcome. But the authors’ conclusion that as “unions are weak outside of the public sector in Britain, particularly in some of the lowest-paying parts of the private sector” there is little prospect of them increasing their reach, and that therefore “new coalitions for economic change will therefore have to be put together painstakingly” is a concern. We can’t afford for progressive thinkers simply to give up on British unions as a lost cause – we need more people thinking about the change that could allow them to play a greater role in creating a fairer economy.

The 80s and 90s saw the institutions that used to embed collective bargaining in our national structures removed. We used, for example, to have a network of Wages Councils which set pay rates across the lowest paid sectors of the economy, operating on a social partnership basis – the Agricultural Wages Board is the only one that remains in place, currently resisting abolition. Until 1983 there was a Fair Wages Resolution, which meant that companies contracting with public authorities had to pay the recognised or general level of pay and conditions for the trade and industry based on national collective agreements. Until 1993 Acas had a positive duty to promote collective bargaining. In other European countries, where more workers benefit from the pay premium that collective bargaining can bring, union density is not necessarily higher – but political cultures support national level sector wide agreements and integrate employee voice across corporate management and government policy structures.

And that said there are still over six  million trade union members in the UK, with a larger proportion of the workforce (31%) covered by collective agreements. Although density is stronger in the public than the private sector, close to one in five private sector employees still have their terms and conditions set by collective agreements. These numbers may not be as good as they could be, but they are far from insubstantial. Over the last year IDS pay reports that 50% of pay settlements on its database were made in union recognised workplaces, including companies including Airbus, Asda, Boots, Cadbury, Caterpillar and Cineworld (I stopped at c). The practical industrial work that unions continue to undertake across the UK is seldom publicly discussed, but continues to be vital to the living standards and working conditions of millions of UK employees. It is a fact that without unions the squeeze on living standards for middle income households, and the inequality in our pay distributions, would be significantly worse.  So simply giving up on British trade unions as a spent force, when we know that raising wages and securing better quality work is a greater imperative than ever, and when there simply aren’t any viable alternatives on the table, won’t cut it. ‘New coalitions for economic change’ may be a legitimate aspiration, but it’s far from clear what they could be, or how they would go about convincing employers that it’s a good idea to pay their staff more.

We know that effective  ‘pre-distribution’ will depend on raising wage growth in lower waged sectors as well as increasing employment rates and hours of work, increasing the supply of better jobs in a better sectoral balance and raising skills and productivity levels. A realistic assessment as to how this could be achieved needs to think about how we can find modern versions of the institutional infrastructure that has previously allowed unions to increase their reach – politically challenging as this may be.

‘Pre-distribution’, ‘responsible’ and ‘resilient’ capitalism are all agendas I strongly welcome. And there is much their advocates have promoted to agree with (not least the focus in the Juncture article of the need for a more open debate about progressive taxation). But evidence shows us that success will depend on a rebalancing in workplace voice as much as upon wider policy change. At the moment, it’s the missing part of much excellent discussion – and my concern is that without properly addressing workplace relations many recently expressed aspirations for reform will remain unfulfilled.

One Response to What’s Left – an important debate that needs to focus more on workplace democracy

  1. How to build a One Nation Economy | Shifting Grounds
    Oct 3rd 2012, 11:18 am

    […] As one  OECD economist commented last year, “To some extent, over the past two decades, the US de-invested in the underlying labour market institutions” – the same is true in the UK. This matters, as the TUC’s Nicola Smith argued last week: […]