The 2018 Labour Conference brought with it a raft of new proposals, but none attracted as much press as Labour’s proposals to force large companies to have a third of positions on their boards be reserved for workers at the company, and to make large companies reserve 10% of their shares for a fund owned and managed by workers. These proposals have attracted attention for a reason: unlike the 2017 manifesto, which called for nationalization, which had previously been implemented by Labour under Atlee, these new proposals are beyond anything Labour has attempted before. As a consequence, many commentators on the right and center of British politics have accused Labour of going too far left in its economic policy. Yet, across the North Sea, similar policies have been in place for decades.
While the concept of worker participation in companies was well established in Germany prior to the Second World War, it was not until afterwards that what is now referred to as ‘Mitbestimmung’, or ‘Co-determination’, was established. In the aftermath of the war, West German politicians were able to persuade companies to cede partial control to workers in order to keep labour peace and to help construct a new German social identity out of the destruction. Part of this co-determination, as exists today, is a policy requiring companies employing more than 500 workers to have a third of their supervisory board be workers; above 2000 and it rises to one half. In place for over half a century, this system of co-determination, according to its proponents, has helped Germany achieve a more equal wealth disparity while avoiding the titanic clashes between businesses and unions common in France. In this sense, Labour’s proposal, for companies above 250 workers to have one third of workers on supervisory boards, is not particularly radical. Other Labour (and Liberal Democrat) proposals such as a Land Value Tax have far less data on their efficacy, particularly in large countries. Yet, the Labour proposal is radical in a different way, as Labour, in the short span of one government, would presumably implement the British ‘Mitbestimmung’, which took decades to take root and become implemented in Germany.
The other major proposal to come out of the Labour conference has generated even more vitrol from the pro-business sectors of British society, which is perhaps unsurprising. According to Shadow Chancellor McDonnell, every year, companies of over 250 workers would put 1% of their shares (up to a maximum of 10%) into an “inclusive ownership fund” owned and overseen by the company’s workers. Workers would not be able to individually sell these shares, but would receive dividends from them much the same as normal shareholders. Such a proposal, according to Labour estimates, would cover about 40% of the British private sector workforce, and would serve to flatten Britain’s steep income distribution curve and curb excess corporate greed.
Unlike the co-determination proposal, there is no direct equivalent for what John McDonnell is proposing here. Employee stock ownership schemes are common in most countries with a functioning stock market, but they primarily serve as incentives given by companies for employees to work harder and become invested, emotionally and literally, in the company’s success. Most employees can cash out their accumulated shares when they want under such an arrangement, or at the very least, have a defined process by which they can do so. Fixed-ownership funds more similar to Labour’s proposal are found more commonly on the national level, with sovereign wealth funds such as that of Norway being the envy of the world. Such funds operate similarly, but are controlled and owned by the government, which decides what to invest in, and what to do with the proceeds. The Labour proposal instead gives workers a more direct control over the proceeds and management of the fund.
If the “ownership fund” proposal is taken together with the co-determination proposal, the most apt comparison for what Labour is trying to do is right here at home. The British co-operative movement has been a force in the British economy and political sphere since the late 1800’s, and is comprised of credit unions, consumer co-operatives, and worker co-operatives. Perhaps the most well known worker-cooperative in Britain is John Lewis, which is owned by a trust on behalf of its employees, who elect representatives to the board of directors and receive a dividend of the year’s profit. Labour’s proposals, while falling quite short of converting British companies to John Lewis-type co-operatives, does illustrate Labour’s drive to, in their words, democratize the British economy.
Perhaps unsurprisingly, most British companies (or rather, their current shareholders), have little interest in being “democratized”. Labour will likely have to convince them that their proposals are the price, as in 1950’s Germany, for ensuring a harmonious and prosperous British society. Failing to do so could end disastrously should British businesses decide to move elsewhere or engage in a capital strike. Whether they can convince them (or indeed, whether they will have the opportunity to even try given that Labour’s position in opposition), is an open question.