SO FAR the Labour Social gathering’s annual convention has very a lot been John McDonnell’s. The shadow chancellor not solely delivered right this moment’s keynote deal with in the principle corridor. He’s been ubiquitous within the media and on the perimeter. That is correctly. Mr McDonnell has supplied the Labour Social gathering with the closest factor that it has to a radical new concept: forcing firms to provide their employees shares value maybe 10% of the overall.
Mr McDonnell’s huge speech was hardly a rhetorical triumph. His voice was starting to fail (he’d repeated Theresa Could’s mistake of giving too many interviews on his huge day, however with out such disastrous penalties). He engaged in a spell of Trump-style press bashing by praising Jeremy Corbyn for standing as much as press “assaults” over anti-Semitism. He raised the difficulty of Brexit solely to say nothing of any curiosity aside from that Labour needs a normal election (“carry it on” provoked predictable applause). He ran out of power in the direction of the tip. But it surely did give us an perception into the way in which {that a} man who may simply be Britain’s subsequent chancellor of the exchequer views the world.
And it was undoubtedly daring. Eventually 12 months’s convention Mr McDonnell was in his responsible-bank-manager position: belief us to run the economic system higher than the opposite lot. This 12 months he didn’t attempt to conceal the dimensions of his ambition to shift the stability of energy from capitalists to employees. He insisted that “the larger the mess we inherit the extra radical we’ve got to be”, and he supplied a reasonably complete record of what is perhaps completed to scrub up the mess. The Labour Social gathering clearly not solely believes that it would win the following election however that it would get a mandate for a far-reaching agenda.
The pillars of McDonnellism are “public possession” and “democratisation”. Mr McDonnell identified that this 12 months marks the hundredth anniversary of Labour’s adoption of Clause 4 (which commits the social gathering to the “public possession of the technique of manufacturing, distribution and trade”). He declared to resounding public applause that the precept is extra related than ever. He additionally asserted that “democracy” doesn’t cease on the manufacturing facility gates or workplace door. He needs a full-scale adoption of commercial democracy (which in observe will imply activists boring all people else into submission after which passing mysterious “composite motions”, simply as occurs within the Labour Social gathering). He additionally needs employees to make up a 3rd of firm boards.
Mr McDonnell descended from these lofty heights to stipulate his insurance policies for “reprogramming capitalism”. There have been acquainted blunt devices: a £10 minimal wage; sectoral collective bargaining; the closing of the gender pay hole. However there have been additionally some extra refined concepts. Mr McDonnell needs to rewire the Treasury to transform it from a block on “progressive reform” into an agent of regional regeneration and public funding. Extra dramatically nonetheless, he needs to “rewire” the general public company to resolve all the pieces from Britain’s curse of short-termism to the perennial hostility between employees and managers. Mr McDonnell needs to power “huge” firms to provide 10% of their shares to their employees. These shares could be put right into a collective fund that might do three issues: pay a most £500 in dividends yearly to employees; plough a refund into the corporate; and plough any additional a refund to the taxman to pay for “social funding”.
It’s not clear whether or not this can be a political winner. The commonly rapturous viewers handled Mr McDonnell’s concepts with boredom verging on indifference. A lady sitting in entrance of your correspondent who cheered wildly at each point out of a “composite movement” remained mercifully silent. The viewers was a lot happier when Mr McDonnell talked about nationalising the utilities. The default mindset of Labour Social gathering members remains to be very a lot what it was earlier than Tony Blair: nationalise what you’ll be able to after which champion “us” towards “them” within the non-public sector. To this world view, employee share-ownership is a push-me-pull-you.
What in regards to the sensible deserves of Mr McDonnell’s concepts? There may be an fascinating debate available about firms giving employees shares. The argument towards relies on diversification: you don’t wish to maintain shares within the firm that additionally pays your wage. Simply ask Enron’s workers about their Enron inventory. The argument in favour is about motivation: there may be some educational proof that individuals work tougher and strike much less if they’ve an possession stake of their firms. The John Lewis Partnership has completed nicely out of this mannequin (although its latest efficiency has been disappointing).
However up to now Mr McDonnell’s concepts are badly labored out to the purpose of irresponsibility. The shadow chancellor’s blueprint fails three fundamental assessments. It fails to respect property rights—what he’s advocating is basically the expropriation of a major amount of shareholder wealth (what Mr McDonnell’s guru, Karl Marx, known as “the expropriation of the expropriators”). This might trigger an enormous capital flight which might severely harm the British economic system (which is without doubt one of the most globalised on this planet) whereas making certain that the shares that the employees got could be of declining worth. It might give management of shares to an possession fund reasonably than to the workers. Mr McDonnell’s plan would do little to vary worker incentives since workers would get such a small pay-off (£500) with the remaining going to the taxman. Mr McDonnell appears to be extra fascinated about elevating taxes on firms (which might simply transfer overseas) than he’s on altering the wiring of capitalism. It additionally raises the likelihood that Mr McDonnell’s scheme would flip right into a British model of “black empowerment” by which the state appoints well-connected individuals to regulate funding funds and run firms.
Mr McDonnell has additionally failed to supply solutions to essential questions. How would his concepts apply to foreign-owned companies? Would UK-based workers get a tenth of all of the capital of a multinational? And in that case wouldn’t wise multinationals instantly shut down their British operations? How would the thought apply to companies which solely have a small proportion of their workers within the UK (comparable to Rio Tinto, BP and HSBC)? Wouldn’t they be gone in a jiffy? And the way would Mr McDonnell’s concept apply to overseas companies with British subsidiaries? What makes Mr McDonnell’s blueprint much more annoying is that there’s a a lot simpler strategy to enhance share possession: creating tax breaks for share awards.
Mr McDonnell deserves reward for presenting the closest factor to an precise concept to the Labour Social gathering Convention. It’s a pity it’s such a dud.
