From the TUC

Responsible Capitalism & Predistribution: 1996 Edition

26 Sep 2012, by Guest in Economics

‘Predistribution’ and ‘Responsible Capitalism’, two concepts now associated with Ed Miliband, are starting to generate an interesting discussion about they actually mean in concrete policy terms.

I’d especially recommend recent articles from Sonia Sodha, Nick Pearce & Gavin Kelly, Paul Hackett and my colleague Tim Page. My own contributions (far less interesting) can be found here, here and here.

The two related ideas have generated much interest, but so far little in the way of ‘actionable proposals’. A point very well made by Paul Gregg, a man who knows a thing or two about the labour market, over at the LSE’s British Politics blog:

The key constraint is that they are indirect effects, and indirect interventions often lack the power to overturn the deeper processes already at work. Will a Living Wage campaign backed by public sector procurement achieve the scale to overturn the steady rise in wage inequality in the UK? Will shareholder activism combined with rules around binding votes for remuneration packages of top executives halt the rise in pay unrelated to firm performance?

As Gregg argues, there is a lot of good stuff in these concepts but more work is required

I think if these ideas are going to have the kind of impact on British public policy than their advocates support, they need to be fleshed out more fully – otherwise they run the risk of generating a lot of light but not much heat.

For example, one key component of ‘Responsible Capitalism’ is the reforming of corporate governance in order to involve more stakeholders than simply shareholders, empower workers and combat both extreme inequalities of pay and the short termism of corporate Britain which leads to a low level of investment.

Take this description in the Independent from Gavyn Davies:

In the US and the UK, the rights of the owners of the firm, the shareholders, are not only seen as sacrosanct, but company directors are required by law to protect them. This gives shareholders a primacy over other groups, such as employees, customers, or indeed the local community from which the firm derives its support services. Flowing from all this, it is claimed by the left, is the short- termism bred by Anglo-Saxon stockmarkets and the takeover culture. It is quite possible to imagine free market economies in which private firms do not operate in this way. In fact, Germany is one such example – a genuinely free market economy, but paradoxically one which requires directors on supervisory boards to represent all the interest groups that come together in a firm, not just the shareholders. The absence of any significant influence from the outside capital markets is said to have encouraged a long-term approach to investment decisions, employment practices, and customer relations. Many in the Labour Party want to see the next government take legislative action designed to import the German system of corporate governance into the UK.

There’s not much there I’d disagree with – involving stakeholders in governance, ending short-termism, etc. But that Gavyn Davies article dates from January 1996.

There is huge potential in the notion ‘Responsible Capitalism’, but for that potential to be realised the rhetoric needs to be transformed into practical policy solutions.  

2 Responses to Responsible Capitalism & Predistribution: 1996 Edition

  1. John
    Sep 27th 2012, 1:51 am

    Is there any similarity between this & ´´Participation´´ as proposed by the unions in 1974? From memory as the word suggests the plan was that all employees would be represented at board level to discuss departmental & company policy related to employees. The idea was to involve employees! This concept was used at the time in West Germany. However, in the uk I believe the proposal never went any further than a union proposal.
    Unfortunately, we still have the ´have & have not´ discrimination in many of our board rooms!

  2. McDuff
    Sep 28th 2012, 4:04 am

    The fact that there needs to be a conversation about what exactly it is Milliband is proposing does not fill me with joy. One would hope we would have been informed by the content of the proposals.

    In any event, this seems to me to be another attempt by the Labour Party to aim for a good end point (a less unequal society) by implementing a huge set of complex, gameable, potentially contradictory regulations and programs. There may well be merits behind individual ideas, but the whole thing reeks of Blairist managerialism.

    Labour seems to be permanently unwilling to suggest that taxing people and using that money to provide social benefits will have much the same effect that they hope to achieve by implementing a system of complex rules. Why should we have any confidence that complex Milliband style predistribution won’t fail just as strongly as complex Blairism?