The UK lags behind most of Europe in terms of employee involvement in decision-making and we suffer from relatively poor productivity. In this article, Mathew Lawrence of IPPR argues that through shifting the balance of power in the workplace, we could address both these issues and build a model of ‘shared capitalism.’ He summarises the findings of recent IPPR research, and calls for a series of changes to promote both employee voice and engagement.

 

There has been much interest in the last few months in Thomas Piketty’s analysis of modern capitalism. Though his work has its critics, it has effectively highlighted the stark inequalities of power, wealth and income that capitalism generates and further strengthens the case for new broad-based institutions of employee voice, engagement and reward.  For the power imbalance in our economy underpins the UK’s poor productivity record. When one third of people are afraid in some way at work, a fifth of workers – and growing - earn less than the Living Wage and the bottom half of the country own only 2 per cent of the wealth, it is not surprising that our productivity rate is now 16 per cent below the average of other G7 nations, the widest gap since 1994.

 

This is both an economic challenge but also an ethical concern.  IPPR’s new report - Fair Shares: shifting the balance of power in the workplace to boost productivity and pay, argues we can address this by building new institutions to disperse both economic power and strengthen new forms of employee voice.  Evidence from the UK, EU and the US showcased in the report clearly demonstrates such reforms could improve both productivity and pay at work and help create a more sustainable, prosperous economy nationally.  The challenge then is to disperse capital ownership claims, democratise the workplace and make finance a useful servant not a dominant master. In essence, a step-by-step democratisation of the marketplace is required to give people a genuine stake and a say in their place of work.  How then can we translate fine words into results?

 

Firstly, firms should be governed more democratically, with strengthened mechanisms for employee engagement and influence at work. As many IPA members are acutely aware, a happy, engaged workforce is key to sustaining success as a company.  Fair Shares therefore sets out new institutions of workplace democracy, such as introducing an ‘employee working life forum’, that would learn from the successful economic democracies of Germany and the Netherlands, and ensure all companies give employees dignity and a voice at work.  We also suggest potential new avenues for collective bargaining in the workplace to help ensure everyone is represented at work.

 

Corporate governance should also be reformed to account for a wider range of interests, including employee representatives on boards. We are an outlier within Europe in terms of not including the voice of employees at a strategic level and evidence clearly shows this places ‘UK plc’ at a disadvantage.  Similarly, stronger rights on consultation and information disclosure, for example by reforming the information and consultation regulation, could ensure more firms benefit from an engaged workforce.

 

Secondly, how power and profit is distributed is profoundly shaped by how a company is owned and structured. The dominance of the PLC model intent on maximising returns to shareholders should give way to greater pluralism that rewards a much wider range of committed stakeholders. We therefore recommend ways to improve funding and support for the mutual, co-operative and employee owned sector. 

 

Similarly, to ensure contribution is matched by reward we recommend introducing a fiscally neutral tax-advantaged profit sharing scheme to ensure all employees share in collectively created success. It would alter the balance of power and reward between labour and capital whilst putting money in people’s pockets. In France, where profit sharing is compulsory for firms with more than 50 people, over €6.7bn was distributed to millions of workers in 2012. Democratic profit sharing, where all employees participate and vote on the levels of the share, has been proven to successfully boost productivity, wellbeing and commitment.

 

Finally, deep concentrations of economic power will only be reversed if finance is made to better serve the productive capacity and social needs of the UK. We need new forms of patient, democratic finance, such as new co-operative capital funds, Solidarity Investment Funds as practiced successfully in Canada and a greater role for public financing of companies through a Small Business Administration unit that has proved so successful in the USA, Singapore and Germany. 

 

For those of interested in building a more productive economy where all employees have voice and are treated with dignity, we need to get the framework right to help companies succeed in engaging and rewarding their workers.  A focus is needed on building new institutions of democratic wealth and influence in the economy that can drive innovation, competitiveness and a future of broad-based prosperity for all. While there are of course significant vested interests that would resist the democratisation of the economy, it is a challenge worth pursuing. After all, as Raymond Williams argued, "to be truly radical is to make hope possible, rather than despair convincing".

 

Mathew Lawrence is Research Fellow at IPPR