A future that won't work

Labour Briefing no. 31, October 1986, p. 15

Transcribed or corrected by hand from the printed page.

By-line as printed: Phil Hearse (Islington North CLP).

The NEC recently published a detailed statement on the economic plans of a future Labour government. The future they envisage is not socialist; nor will it do much to fight unemployment, despite the rhetoric. The plans are posed in terms which are designed to cause the maximum confusion about what they really mean. It is vital for the Left in the Party to understand what is being proposed.

The joint John Smith-David Blunkett statement "Social Ownership — a vision for the 1990s" is a succinct statement of the NEC's proposals.

Its key planks are the establishment of a National Investment Bank (NIB), a new corporation to boost investment called "British Enterprise", and the extension of "social ownership" to replace the "outmoded" concept of "nationalisation". It sounds very radical, but the small print of the proposals belies the radical phrases.

What is the "social ownership" being proposed?

It is two things: worker co-operatives and employee share ownership plans (ESOPs). This is what replaces "old fashioned" nationalisation.

Now, no one on the left would want to oppose worker co-operatives, indeed they would have an important role in any socialist plan for the economy.

But the problem has always been that worker co-ops which have to operate in a capitalist economy are subject to the same imperatives of profitability as normal capitalist companies. The result is that they have a hard time flourishing under capitalism, when the entrenched capitalist corporations can squeeze them out.

The case of the Meridan motorcycle co-op in the 1970s is a classic. Despite the support of the then Industry Minister Tony Benn, the Meridan co-op was simply crushed by capitalist competition.

Worker co-ops won't blossom in any decisive sectors of the economy without state financing: and this would mean supporting them against the existing capitalist firms — something which a Kinnock-Hattersley government is unlikely to do.

In the real world worker co-ops are likely to remain small and marginal to the economy. Seetting up a workers co-op car factory or steel mill in opposition to the existing firms is both economically irrational and self-defeating.

What about ESOPs? This is the decisive proposal of the new "social ownership" plan.

ESOP companies would be required to be run on the basis of giving workers voting shares. Workers, owners and managers would all have shares and votes.

Now this proposal can work if you have a new, small firm, with no existing pattern of share ownership. It would be, in fact, a worker co-operative.

But is it in the least bit likely that existing British industry, the multi-national giants, or even the medium sized British manufacturing companies will become ESOP-ised?

The barriers to such development are enormous. The bait being offered to existing owners and managers — state financing — is not enough to make them give up their present capitalist ownership.

Most will continue to go to the High Street and merchant bankers for their capital, without the overhead of having to give their companies over to the majority votes of worker shareholders.

And in any case, what do you do with a company which declares for ESOP and government financing, but has hundreds of existing shareholders? How do you prevent the workforce being outvoted, without expropriating the existing shareholders, something which of course is definitely not proposed.

The truth is therefore that worker co-ops and ESOP-ised companies are going to remain, at best, marginal companies on the fringes of an overwhelmingly capitalist economy.

The experience of the 1974 Labour government with voluntary planning agreements (i.e. that nobody volunteered) should tell us exactly what is going to happen to ESOPs.

Finally, the notion of ESOPs as an alternative to nationalisation is not so new as David Blunkett and John Smith think — it has a remarkable resemblence to the old Liberal Party doctrine of co-ownership.

It is worth making the point once again that this tinkering with "new" forms of social ownership is justified by Blunkett and Smith on the grounds that the existing nationalised corporations are bureaucratic monoliths which alienate people and haven't done much to change the real structure of ownership and control of the economy in Britain.

This startling insight, a constant theme of the LCC-style soft left, gratefully taken up by the leadership as a weapon to beat the left which defends nationalisation, is really not so new either.

In fact, any militant socialist would have told you exactly the same twenty or thirty years ago when the Party leadership were still defending Morrisonian nationalisation.

The problem with existing nationalised industries is that they are the nationalised sector of a capitalist economy, and act under capitalist economic imperatives and with capitalist labour discipline and authority structures.

Our alternative is nationalised industry as the dominant sector of the economy, democratically run under workers' control.

The "radical" Blunkett-Smith alternative turns out to be small-scale tinkering with marginal firms.

If social ownership is the selling point of Hattersley-economics the most operative point is the National Investment Bank and the new corporation "British Enterprise".

The national Investment Bank (NIB) will encourage deposits from investors through "tax incentives". In this way the money will be found to boost the economy. Such a plan is fraught with problems.

Among the most obvious are:

• The amount of money needed to really renovate the British economy is so vast that the NIB can't possibly raise it.

For example the TUC has proposed a minimum of £30 billion be spent in five years on renewing infrastructure — roads, hospitals, schools, the collapsing sewers and so on.

This amount of money will never be raised by the NIB, nor the equally large amount needed to recapitalise industry.

• Return on capital invested with the NIB is not likely to be higher than short-term speculative gain which the by-then de-regulated Stock Exchange can get by investing abroad, on takeovers, etc.

Tax concessions and penalties for investing abroad can easily be evaded, and in any case won't compensate for the differential on the rate of return.

• In the last analysis, without imposing stringent controls on capital movements, which would need to be rigorously enforced, the NIB would rely on the goodwill of investors to raise the money.

The major banks would lend some money through the pressure of the Bank of England. But the sum would be marginal to any serious plan to boost the economy sufficiently to make a major impact on unemployment.

Once again we are left with the conclusion that the NIB and British Enterprise would be marginal bodies, as was the National Enterprise Board in the 1970s, at least in terms of the scale of the investment needed to create jobs.

The comparison with the National Enterprise Board is an interesting one because this body merely acted as a funnel for state handouts for private industry, and got nothing back in terms of industrial democracy or workers control in return.

Indeed, while the NEC was pumping money into British Leyland, the BL management was in the first stages of slashing the workforce and trying to destroy shop-floor organisation.

Perhaps the Party's economic spokespeople have a premonition that their plans won't produce much because they have drastically pruned their objectives.

The new NEC—TUC plan is for a reduction in unemployment by one million in two years. With real unemployment between 4 and 5 million this is less than ambitious. But then to do more is inconceivable without mobilising vast amounts of new investment capital, only possible by nationalising the banks and the finance companies.

It goes without saying that this is not being proposed by the NEC; for the British capitalist class it is a crunch question, one which they would do everything in their power to prevent. But then we never are going to advance towards socialism without confronting the ruling class, are we?

One final point on the "Social Ownership" document — its proposals on renationalisation.

Since expropriation is deemed out of the question, the plan for renationalisation of for example British Telecom involves exchanging shares for non-voting investment bonds. Short term capital gains through early selling of the bonds will be severely penalised through taxation. Only long-terms investors will make a substantial profit.

It is not (surprise, surprise) envisaged that this plan would be carried out immediately, but only after several years of Labour government.

The weakness of the plan is of course that the large capitalist institutions which have the lion's share of the private investment in BT, and will have in British Gas and other formerly nationalised industries, might well be content to leave their investment to accrue substantial capital gains over the long term.

The non-voting bonds ploy does not circumvent a change in the structure of nationalised industry — a huge chunk of it will remain privately owned.

The NEC's proposals on the economy have to be set in the context of two other proposals, one explicit the other hinted at but definitely on the agenda.

• The NEC-TUC document on labour law retains statutory compulsion for strike ballots, and a labour relations tribunal backed by the force of the law. A move to delete the word "statutory" from the document by Tom Sawyer of NUPE at the NEC was outmanoeuvred by Kinnock who put it back in a subsequent paragraph.
• Second, the proposal for a statutory minimum wage, very modestly posed by the TUC at £80 per week, is being interpreted by Hattersley as meaning that in order to maintain the value of this minimum, other sectors of workers will have to show "restraint".

In an interview with Jonathan Dimbleby on March 16, Hattersley made it clear that although there would be no formal pay norm, the unions would have to come to an "understanding" with the government on how much was available for wages.

The Hattersley-Smith-Blunkett plans for the economy after the election of a Labour government are flawed because the mechanisms they propose will turn out to be peripheral to the basic structures of ownership, control and investment decision-making.

Thus they will be incapable of either dealing with unemployment or making any steps towards socialism.

The Left should not be fooled. The elephant of capitalism will swat the gnat of "social ownership"— or better still ignore it.

transcribed from the page image, 2 Nov 2026; spelling as printed (Meridan, Seetting, resemblence, "national Investment Bank" with lower-case n, long-terms, "we never are going to"). By-line "By Phil Hearse (Islington North CLP)" at the head of the second column, under the headline; the opening three paragraphs sit above it in the first column in bold and are taken as the standfirst. Complete on the page, no jump. Many paragraphs are set in bold in the paper and are kept bold here; the bullet points are the paper's. Left out: photos ("Social contract, social con-trick" placard, credit Dave Evans, IFL; Hattersley and Kinnock; "John Smith facing shipworkers' lobby of Parliament", credit G. Livett/Frame) and the "On the fringe" conference notices box.