Back from speaking to East Ham CLP Manor Park and Little Ilford Labour Party wards at the Froud Centre, Newham, London, E12. Spoke about the “Labour Movement and New Capitalism”. It went down pretty well (or they were very polite!). I'm trying to gauge reactions to forming a national Labour Party “Forum” on socially responsible investment and company governance by speaking to branches.
Started off saying that at the end of the talk I hoped to persuade them that they were “New Capitalists”. Then quickly I asked if they were members of pension scheme if so which one, how many have life assurance policies, how many have shares in companies or saving plans that invest in companies? Nearly everyone present raised their hands.
Next I tried to set the scene with some sources and definitions
A lot of what I said is based on research carried out by UNISON and the TUC and that of the book “
The New Capitalists” (1) co-authored by David Pitt- Watson and others. David is a leading fund manager and use to be an assistant general secretary of the Labour Party. However, the interpretation (and any errors) is mine.
The online dictionary Encarta defines capitalism. As a “Free market system - an economic system based on the private ownership of the means of production and distribution of goods, characterized by a free competitive market and motivation by profit”.
New Capitalism refers to the fact that “private ownership” element of capitalism has now changed and that today the owners of nearly all British and many international companies are no longer a few wealthy individuals or families, instead they are the many millions of small investors who have pensions, life assurance policies, privatised utility or building society share holdings or collective investments in ISA, PEPS, Unit and Investment Trusts. At least 2/3 of the adult British population have a stake in equities (which is another word for shares). A majority of the shares quoted in the London Stock Exchange is owned by such small investors (1).
My main pension, the Local Government Pension Scheme has 3.5 million members and nationally holds assets worth over £125 billion pounds.
By Labour movement I mean the traditional labour movement family of the trade unions and the Labour Party as well as the Co-operative and other affiliated socialist societies.
New Capitalism is a Labour movement issue not only because of the obvious reason that many of these small investors are trade union members and ordinary working people or pensioners (its our money) but if New Capitalism is not working properly, which I will argue it is not, then this will have a profound negative impact not only on trade union members but also the wider civil and political economy.
For example, my pension fund may be investing my money and that of my fellow trade union members in companies who treat their workforce badly, here or abroad, don’t recognise trade unions and who fail to provide their staff with a healthy or safe workplace. However, at the moment I have no adequate means of addressing this problem. Not in my name, not with my money.
It is also a Labour movement issue that many of the companies we currently invest our money in are badly managed and governed or even some are fraudulent. Instead of creating value for pensioners and investors they can destroy value and threaten the viability of the schemes. For example look at the recent massive corporate failures such as
Enron or WorldCom where the life savings of many employees was wiped out, but also of companies who pay over the odds and take over unsuitable companies and lose huge amounts of money. Again how can I assure that the companies my funds invest in on my behalf make sure they are not thieves?
Of course not only is this issue a Labour Movement issue it is also a issue of concern to church and religious groups, many charities and other pressure groups. It is a citizen issue since everyone will be affected and since citizens are the new owners of capital.
If a company that we own decides it is cheaper to pollute the environment in order to maximise short term profits then that is an issue not only for its investors for its workers but potentially everyone in society.
If a company that we invest in deliberately turns a blind eye to its sub-contractors in India using child labour rather than sending them to school in order to make expensive sports shoes cheaply then that is a citizen issue as well as a Labour Movement issue.
I would hope by now people would except that New Capitalism is an important issue for the Labour movement. What I would like to do now is explain what is going wrong and what we can do about it.
What is wrong is that we all might be owners but we are unable to act as owners, unable to unable to carry out our responsibilities of ownership. These responsibilities are actually carried out by a small number of what has been called a small number of “distant and unaccountable players”. Very highly paid Executives, fund managers, international bankers, hedge fund operators and of course a subject that has been in the news a lot lately, Private or is it Pirate Equity?
An
American investor once famously remarked that “No-one ever washed a rented car”. Instead of owners taking charge of their companies, we employ (or rent) “managers” to act on our behalf. These managers may have no long term loyalty to the company in exactly the same way as people treat rented cars. We also have shares in this company traded by fund managers who constantly “buy” and “sell” shares. It’s about trading not investing.
Because of this share trading pressure. The chief executives of many of our companies are paid according to often short term priorities rather than long term.
Traditionally because of the lack of effective owner representation on many company boards, we find the Chief Executive often is able to stuff the board with his cronies and favourites which often meant a complete lack of accountability and scrutiny which often resulted in dreadful business decisions been made. Capitalism without owners will fail.
How do we go about changing things? In recent years there have been improvements in governance but not enough. The Labour government has introduced a requirement for all pension schemes to have 50% employee representation. Which is an excellent start? With proper training and support hopefully by the trade unions they should be encouraged to act as owners and ensure that companies that they invest in are properly managed.
Why aren’t insurance companies and other collective investments made to allow independent trade union or citizen representatives on their board? Is it about time to look further into the continental models where staffside representatives are automatically on the boards of all large companies?
Now is there a risk to our pensions and investment if we allow this? Should the only thing that matters to companies being the pursuit of profit?
I would argue that there has been a lot of research that decent well run companies generate more profits in the long run than greedy, destructive and badly runs companies. I think this is commonsense. It has been suggested that 15-20% premium in price and profits where you have sensible governance structures?
The danger to our investments is when we invest in companies where there are no owners taking responsibility.
Will it be bad for the economy if investors start acting as owners and decide to pull out their money from these badly run companies? This question can be answered by going back to what ownership really means. Instead of disinvesting or pulling out your money in bad companies what you should be doing is acting as a responsible owner and turning bad companies into good. In fact arguable you should be looking for bad companies to invest in, so you can change them and make them more profitable in the future.
Finally it important to accept that even the best and pro active “New Capitalism” will not solve all the problems in the world. There is still a vital role for traditional labour movement priorities and activities for achieving equality and social justice.
However, what we should all want is to be effective owners of decent companies will pay good profits, that don’t attack their workers, that recognise and value trade unions, that doesn’t allow kids to work in sweatshops, doesn’t bribe companies or local official (tell that to the British government) and doesn’t overpay their chief executives especially for failure.
(Also in Q&A had a dig at Council for not talking to local UNISON leaders to try and resolve a potentially very serious industrial dispute over the future of the rubbish collection service)
