British capitalism is going through its biggest crisis since the 1930s, including the potential for further economic meltdown and even a second Great Depression - and it’s all down to the way our economy is organised and run.
We can’t carry on with business as usual. But what are the alternatives? Radical, practical solutions are required, not just protest and condemnation.
One significant factor in the recession of the last few years is the undemocratic and unaccountable way in which economic power and decision-making is organised. A small elite of directors and major shareholders decide everything, to the exclusion of employees, consumers and the wider public.
Britain is, in effect, an economic dictatorship, with an extraordinary concentration of economic power and wealth. It is, in part, this lack of economic democracy and accountability that bought us to the brink of catastrophe in 2008 and has left the country vulnerable ever since.
To help prevent a repeat economic disaster and get us out of the current mess, we need greater economic democracy – more participation, transparency, decentralisation and accountability. There are four ways we could achieve this:
It is time that corporate negligence and recklessness was made an explicit criminal offence, to reign in big business sharks and ensure more responsible economic management. If other professions can have disciplinary procedures for negligent actions, why not business? Bankers and company bosses should not be able to wreck whole economies and squander with impunity people’s jobs, pensions and savings. They ought to be held personally liable for damaging corporate decisions. This spectre of legal penalties is likely to result in more prudent corporate governance. Sir Fred Goodwin would have thought twice about the gambles he took with RBS if he’d known that he could have ended up in jail.
Medium and large-sized companies - and public institutions like the NHS - should be made more accountable to their employees and to the general public. This could be achieved by a statutory requirement for them to include on their management boards at least one-third employee-elected directors and independent directors to represent the interests of consumers. Having employee directors, similar to the successful German model, would incline an organisation to greater workplace fairness. Consequently, there are likely to be more harmonious industrial relations, with employees showing improved commitment and productivity, which is good for the economy. Being less driven by the profit-motive, employee and consumer directors could push for policies that are more socially inclusive. They could also act as watchdogs and whistleblowers against corporate irresponsibility. If such directors had existed years ago, we can be fairly sure that Northern Rock’s bosses would not have got away with the reckless corporate decisions that culminated in the financial ruin of their building society.
Trade unions (or employee mutual societies) ought to be given a majority stake in the management of their members’ pension funds, to decentralise and democratise investment decision-making and to give it a more ethical dimension. The £900 billion invested in pension funds represents one-third of the stock market. It is a sizeable counter-weight to the economic clout of big business. If managed by financial experts under union or mutual oversight, pension funds could be invested in ways that are less fast-buck focussed and more weighted towards meeting social and environmental needs. Trade unions and employee mutual societies are less likely to authorise investment in the arms trade and sweatshops. They'd be more open to ethical investments such as renewable energy, new medical treatments, affordable housing and green transport - commodities with great export and earnings potential.
There is a strong argument for saying that corporate bonuses should be legally limited to a percentage of profits, their payment deferred for five to 10 years and be payable in company shares. This would deter short-term, high-risk investments. It would make bonuses conditional on a business’s long term success. Only people who made successful, sustainable investment decisions would be rewarded. Moreover, such bonuses should not be restricted to senior people who are already very rich. Bonuses should also be payable to ordinary employees. Instead of attempting to deal with the government deficit by imposing top-down cuts in public services, frontline staff ought be invited to devise reforms that cut costs without cutting services. They have a wealth of largely untapped practical skill and knowledge. Waste and inefficiency are commonplace. By reducing them, we could get many of the same services at a lower cost. The individuals or work teams that come up with efficiency-saving initiatives should get a percentage of the savings as a bonus. A similar bonus system for grassroots employees could apply in the private sector.
These four reforms would very substantially reduce the chances of a re-run of the economic crisis by a combination of devolving and decentralising economic power, incentivising wiser economic decision-making, improving corporate social responsibility and strengthening the accountability of businesses to their staff and the wider public. This structural transformation of autocratic capitalism could be the beginning a more democratic, participatory, cooperative, and socialised economy. It is a pragmatic alternative to the simplistic, damaging Con-Dem policy of maintaining the system that caused the current crisis. It’s time for economic democracy.