The new economy

Frances O’Grady and Claire McCarthy on the place of trade unionism and co-operation in the 21st century economy

Frances O’Grady

—As the voice of six million working people from every walk of life – airline pilots and midwives; scientists and manufacturing workers; bank staff and teachers – trade unions have a critical role to play in shaping a new economy fit for the 21st century. Whether it is working with good employers to boost productivity or helping to build fairer workplaces, progressives can and must harness the huge potential of organised labour.

We desperately need a new economic settlement. It is time to ditch the free-market fundamentalism that landed us with the worst crash since 1929. In its place we need a radically different model that tackles the central challenges facing us: inequalities of wealth, power and opportunity; climate change; and global competition. Trade unions are uniquely placed to ensure the interests, experience and expertise of workers shape the process of change. And we can do this in three ways.

First, unions can nurture a stronger economy. Many economists believe the financial crisis was caused by dangerous imbalances between capital and labour, with workers forced into debt to maintain living standards while a tiny financial elite gambled on the markets. It is no coincidence that the growth of subprime mortgages in the United States followed a lengthy period of stagnating real wages. Stronger trade unions can help press the reset button by ensuring that a larger slice of GDP ends up in workers’ pay packets. Recent research by the New Economics Foundation and the University of Greenwich suggests higher unionisation could contribute £27bn to the United Kingdom’s economy thanks to higher demand. And unions want better jobs too. That is why we are campaigning for an active industrial strategy: a jobs-rich plan to decarbonise homes, offices and factories; a state investment bank to provide the finance; and bold financial reforms to prevent damaging speculation.

Second, unions can raise UK productivity, which lags 15-20 per cent behind France and Germany. In the long run this is the best way to secure jobs, pay and living standards. The Trades Union Congress believes a strong worker voice can deliver a step-change. As our competitors have shown, worker representation on company boards can be transformative: proof that democracy matters just as much industrially as it does politically. Where employers and unions have worked together to build high-performance workplaces, the Organisation for Economic Cooperation and Development and the Work Foundation discovered significant productivity gains. Our work on learning – raising the skills of over 200,000 workers a year – underlines the potential of greater engagement.

And third, unions deliver greater equality. Unionised workers enjoy higher and more equal pay, more generous pensions and better training. BME, LGBT, disabled and young workers are all beneficiaries – as are working-class people of every background. And with women more likely than men to be union members, in the month of International Women’s Day it is worth remembering that women union members earn a colossal 30 per cent more than their non-union counterparts. Factor in our commitment to affordable childcare and stronger family-friendly rights, and the conclusion is obvious: trade unions mean a fairer labour market and more equal economy.

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Frances O’Grady is general secretary of the Trades Union Congress 

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Claire McCarthy

—The financial crash of 2008 shone a light on many of the underlying weaknesses of the British economy. While many British firms are highly productive and innovative, too many are not investing in their future or that of their workforce. The obsession with quarterly earnings reports means that too many companies think on a three-month horizon. This low quality model of capitalism has affected the economy’s distribution of rewards. Stagnating wages for all but the very few at the top continue to make life hard for many families.

Despite the existence of a diverse ecology of corporate forms including family firms, employee-owned businesses, co-operatives and mutuals, the public limited company model dominates. The number of individual shareholders in PLCs listed on the London Stock Exchange has almost halved since Margaret Thatcher hailed an ownership revolution in 1985 – from 20 per cent to 11 per cent. Only three per cent of shares are owned by pension funds and five per cent by insurance companies. By 2015 the majority of company shares were owned by foreign investors. This is important because who owns a company shapes how it is run and in whose interest.

For more than 150 years the co-operative movement has been on the side of the many. The original co-operative and mutual societies were formed as a vehicle for ordinary people to have access to good quality food at a fair price, purchase their own homes and insure themselves against sickness and unemployment. Today, more than 15 million British individuals are members of one or more co-operative society and the sector generates £37bn of GDP. The co-operative sector as a whole grew by 15 per cent between 2010 and 2015, substantially outstripping growth in the wider economy.

By giving the very people – whether workers or consumers – with a stake in its future success, a stake in the business, co-operative ownership models are proven to boost productivity, harness innovation and increase entrepreneurship. In particular, evidence shows that firms where staff have a big ownership stake and a say in decisions have happier and better remunerated workers, and are more productive. The degree to which employee ownership boosts productivity can be seen in the performance of co-owned companies, which consistently outperform their PLC rivals. In cash terms, an investment of £100 in the Index of Employee Owned Companies in January 2003 would have been worth £754 at the end of September 2014. The same amount invested in the FTSE would have been worth £280.

That is why the Co-operative party has been making the case for a new economy, where employees and consumers are able to share in the ownership, decision-making and profits of more of Britain’s businesses. Employee ownership and profit-sharing incentivises staff to work towards raising company performance and rewards them fairly when they are successful. Employees and customers are the two biggest sources of corporate innovation.

The productivity boost to the UK economy of higher employee engagement is estimated to be at least £59bn. Such changes also enjoy public support, with polling showing that more than 75 per cent of the public agree that they should have a greater say in how companies are run and that employees should share in the profits.

In other words, if we want to see an economy which delivers fairer rewards to the many, we on the left need to take as strong an interest in who owns the private sector as who owns the public sector.

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Claire McCarthy is general secretary of the Co-operative party

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Comments: 1...

  1. On March 17, 2016 at 3:46 pm Josh Davis responded with... #

    Productivity has been increasing steadily since the late 1800s. Wages, however, have been flat since the mid-1970s. We are already plenty productive. We work plenty hard and create more than enough with our labour. The problem is one of distribution, not productivity. Trying to “out-productive” workers in other countries is a beggar-thy-neighbor approach. Why should we be competing with our fellow workers?

    The problem with trying to increase productivity is that one way to accomplish this is to drive labour costs (i.e. wages) down. Productivity is a ratio: output (revenue created) / input (labour cost). You can increase productivity by either increasing the nominator, or decreasing the denominator. A slave is more “productive” than an employee — if they both create the same amount in a hour of work — because the slave costs less than the employee.

    We need to stop talking about productivity and trying to out compete our fellow workers in a contest of “who can make the most for the bosses”. This is why worker-ownership is superior to trade unionism: in a worker co-op, there is no difference between the interests of the workers and the interests of the owners. All gains in productivity benefit the people who are actually being productive, and the workers themselves can decide on what level of productivity they desire, rather than just always mindlessly seeking to increase it.

    There may well be a place for unions in the new economy, but if their major goal is increasing productivity, they will have lost the thread entirely.

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