Saturday 9 August 2014

Old Labour policy on pension funds, takeovers etc

On holiday in Norfolk last week, I was pleased with a few great finds in second had bookshops. One of these was Economic Priorities for a Labour Government by Roy Hattersley, which was published in 1987. At that point I guess he was regarded by many as a terrible right-winger in Labour terms, so it's interesting to see just how far further to the Right (or, if you prefer, in an economically liberal direction) policy has shifted since.

So, for example, he has a whole chapter on 'Social Ownership and Industrial Democracy'. This includes support for employee representation in decision-making (though not spelt out, the references to the 5th Directive suggest this includes board representation) and the Swedish wage earner funds, also known as the Meidner Plan.

I'm particularly struck that he recognises the important point that we shouldn't rely on employee ownership alone to give employees a voice.

He writes: "Unless employee share ownership schemes are coupled with rights to information, consultation and representation they may be treated with justified suspicion by many trade unionists. Giving employees more say will not come for a long time - if ever in some large and multinational companies - if we just rely on ownership schemes."

This is a live issue, though rarely explicitly discussed, in the UK now. I think you would struggle to find anyone in politics arguing against the various benefits of extended employee ownership (most often advocated through ESOP type arrangements, rather than more extensive ownership structures). But the idea that employees should get representation or voice in governance - beyond that afforded to them through the ownership of a few shares - is far more controversial. The implication is that employees are allowed say if it's governed by a financial interest, but not as of right.

Hattersley is a proponent of a much more mixed economy, both in terms of the public/private split, and a plurality of ownership forms. And it all comes across rather well.

"I am for the diffusion of wealth and power - in principle. And I rejoice that the methods of bringing such a diffusion about are likely to improve our economic performance. The creation of co-operatives and the acquisition, by employees, of shares in the companies which employ them - coupled with rights to promote employee participation - is a far more effective way of providing economic enfranchisement than the creation of vast state monopolies which are insensitive to the needs both of workers and consumers..."

Onto my home turf, there are also chapters on 'Pension Funds and the Public Good' and 'The City, Takeovers and Mergers'. The former is largely a defence of pension funds adopting socially responsible investment policies, though there are a few barbs about fund manager behaviour, and increasing portfolio turnover (!). It's also interesting, though not surprising to see some familiar arguments deployed.

Here are a few examples:

"Socially responsible investment is not an alternative to financially sound investment - indeed its return looked at over a longer time horizon may well be better than conventional investment strategies."

"Too much concentration on takeovers tends to cause an obsession with short-term thinking by industrial managers to the detriment of the real economy. This is despite the fact that the long-term nature of pension fund liabilities ought to enable pension fund managers to take a longer term perspective."

"Despite the essential long-term interest of pension funds, the performance of their managers is often based on short-term results... That is certainly not the way to maximise the performance of the whole economy. It may not even be the best way to maximise the long-term income to the fund." 

Not a lot has changed in the following 25+ years.

Finally, he argues that the legal position regarding pension funds' involvement in SRI should become clearer but that, if necessary, "a Labour government... should legislate to clarify the position of trustees". This is, of course, what the Law Commission has just attempted. That's what's useful about reading Labour policy stuff from the 1980s - you get an insight into what might happen 30 years later... ;-) (e.g. the Wilson Committee proposed something a bit like the Stewardship Code, in 1981).

The chapter on mergers and takeovers is instructive, just to get a sense of just how interventionist Labour was willing to be. These days even minor tweaks to the system - like altering voting rights and approval thresholds - are characterised by vested interests as unreasonable meddling (or, more effectively in my opinion, as unlikely to make any difference). And, generally, the primary role afforded to shareholders in determining the outcome of deals is unchallenged, though there's been a bit of a shift here lately. In contrast the mid/late 80s Labour was proposing a far larger role for the state in determining what should be allowed. I will try and blog on this separately.

All in all, it provides a very useful sense of just how far Labour moved on policy relating to issues around finance, ownership and so on. The world of 1987 is long gone, of course. The City is more politically powerful, even after the crash, and the foundations for advocating policies within the Labour Party like those proposed by Hattersley were washed away by the Blairite tide. In my opinion, that in part explains the rather piecemeal nature of some of what is proposed now (e.g. employees on rem comms but not on boards, limited changes on M&A). We have accepted too much of the status quo as not contestable, because it is economically efficient. And in doing so the interests of working people - central to Hattersley's ideas - have become second to those of the functioning of the system itself.

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