Labour has announced dramatic new economic proposals that will revolutionise our market system. Yesterday Labour announced that they would advocate for worker representatives to be given a third of the seats on company boards, a proposal that is often called co-determination. Labour will also legislate to set up ‘inclusive ownership funds’ to give workers shares in companies.
All companies with more than 250 workers would be legally bound to have worker directors elected by the entire workforce. European nations like France, Germany and Denmark all have co-determination enshrined in law. Theresa May briefly supported such proposals but they were dropped when she became Tory leader.
McDonnell also built on his ideas about giving workers ownership of companies, and setting up inclusive ownership funds. McDonnell fleshed out plans stating that these shares would have the same voting rights as normal shares.
Companies would have to transfer 1% of their shares each year into the fund, up to a maximum of 10%.
Workers would get dividends payments up to £500, at a flat rate across the company. Any excess dividends over £500 would be taken by the government. Labour say this will raise the public purse £2.1bn, though others including the BBC have said this is a conservative estimate.
The scheme would also only apply to companies with more than 250 workers. Funds would be managed collectively and workers would not be allowed to sell or trade their shares. Small companies will be allowed to set up inclusive ownership funds on a voluntary basis.
10.7 million workers would be available to receive dividends, if the proposal was initiated.
The system would work in a similar way to employee owned company John Lewis. Labour in their 2017 manifesto promised to double the co-operative sector. However, it is unclear if companies which are employee owned mutuals, like John Lewis, and companies with employee ownership funds will count towards this.
The Institute for Public Policy Research’s director said:
“We welcome this new initiative to give workers a greater stake in firms. It has the potential to boost productivity as well as improve household incomes after a decade of wage stagnation.”
The plan has been criticised by the CBI business lobby group as anti-enterprise and another form of taxation.
McDonnell dismissed the criticism. stating:
“If you look at other economies, like Germany, where there’s been much more worker involvement, it’s been the reverse. You get more investment, you get longer-term decision-making, and you have a growing economy.
It was also annouced water would be the first industry to be re-nationalised.
Analysis from Iwan Doherty- Editor in Chief
It cannot be stressed enough how transformative these policies could be. They are the first steps in the journey towards a socialist economy. Labour’s 2017 Manifesto was good but it made little progress beyond establishing a larger welfare state. This is different. Increased worker controls can deliver a fundamental shift in balance in our economy. Co-operatives are more efficient than corporations and this is the first step in transforming corporations to worker owned co-ops. Worker management may also help deliver goals such as less tax avoidance and a better wage structure, worker run companies like Mondragon have pay ratios to ensure executive pay does not become excessive. Co-determination could also help stop capital flight. This is the beginning of movements towards a worker run economy.
Support for worker ownership can transcend party lines and a number of right wing colleagues of mine have expressed support for McDonnell’s proposals stating they can help solve Britain’s productivity crisis. Some companies may be worried but this is a policy that will garner huge support and have serious practical benefits for workers and society as a whole.
The fact that worker dividends is capped is unforeseen but it may help deliver more revenue to the public purse. This may be seen as additional taxation on workers and it will be interesting to see how this will be incorporated into corporation tax receipts.
These are policies I have advocated for. My writing on co-ops and co-determination are available here on TPN, and it is hugely positive to see Labour support them.