Whether or not "stakeholding" is an appropriate centre left strategy for a country like Britain, the debate about it produces the feeling that British politics is becoming serious. As Margaret Thatcher realised, serious politics requires simple, powerful ideas. Stakeholding is a strong candidate. It seems important, therefore, to put aside the temptation to talk about spin doctors and warm words, and to engage sympathetically with the concept.
The discussion so far-for instance in Tony Blair's Singapore speech or in Will Hutton's book-raises cause for concern. Labour is on the verge of power; it will govern an economy whose most fundamental traits are profoundly Anglo-Saxon: highly developed financial markets and share-based financing; de-regulated labour markets; an education and training system in which companies play little part; and a company sector in which companies have highly competitive, arm's length relations with each other. Yet the main proposals for developing a stakeholder society are borrowed from a quite different system of advanced capitalism, notably from the more co-ordinated capitalism of northern Europe, and Germany in particular.
A central element of Labour's idea of stakeholding is to give employees a real stake in their companies, through enhanced security, participation and skill development. This is a characteristic of large companies in northern European economies; it forms an attractive aspect of their type of capitalism (though don't count on benefiting to the full if you're a woman), and plays an important role in their competitiveness. But "company stakeholding" works in those economies because they have a quite different institutional framework. By contrast to the liberal market capitalism of Anglo-Saxon economies like Britain and the US, the institutional framework of northern European economies underwrites several important economic relationships: companies securing long term relations with their owners; unions and employer associations playing an important role in the de facto and often de jure regulation of labour markets; companies being closely integrated into the training system and co-operating with each other through powerful industry associations. Without this institutional framework, company stakeholding is unlikely to prosper. Thus Labour is faced with a choice: if it wants to keep company stakeholding as a central part of its strategy, it must envisage institutional changes of dramatic proportions; alternatively, it needs to develop a concept of stakeholding appropriate to an Anglo-Saxon liberal market economy.
it has long been a pragmatic and legitimate practice of Britain's centre left to borrow policies from abroad: in the 1950s and 1960s we looked to French planning; in the 1970s and 1980s to Scandinavian social democracy. Now, in the 1990s, we look to Germany and stakeholding. This approach to policy making has its attractions; it also has its problems.
For British social democrats in the institutionally bare landscape of post-Thatcherism, the Germanic northern European model opens a treasure-trove of policies: long term financing of companies; substantial employee participation; employment security; effective training systems; and so on. Moreover, Germany is undoubtedly a successful capitalist economy, which helps to counter objections from city economists and Conservative politicians. Add to that Will Hutton's heady mixture of polemic and intelligence and the attraction of policy borrowing is clear.
But there is also a very large difficulty: transplanting institutional policies from one type of system of advanced capitalism to another has seldom worked. Just as attempts to copy French planning mechanisms failed in the 1960s, so did social contract corporatism in the 1970s. The more we understand other systems, the clearer it becomes that they are institutionally interlocked: taking any one part of a system (such as company stakeholding) away from the rest of the system is unlikely to be fruitful.
In comparison to many American and British companies, their German counterparts provide employees with security and with systematic skill and career development, in exchange for the co-operative use of those skills in the company's interest. But this depends, in at least three important ways, on a framework which would have to be constructed from scratch in Britain.
The first requirement of the company stakeholding framework is long term financing. It is well known that German companies, large and small, benefit from the availability of long term finance. This is critical to the security which employees enjoy. Employees would give much less credence to the idea of security if they knew that owners could suddenly demand higher returns and job cuts, or that companies could be easily sold to new owners. And companies themselves will only be interested in taking employment security seriously if they can invest in their employees-backed by patient investors.
Why couldn't a British government develop long term capital? The German system's ability to provide long term capital does not so much depend on legislation as on concentrated shareholding and implicit agreements among large shareholders to be "stable shareholders." In Germany these arrangements are co-ordinated by banks, which depend upon the close relations between companies (through interlocking board memberships) to help them monitor company performance. The same is true of local lending by community savings and co-operative banks; they too depend on the connections between local companies to know when problems arise.
In Britain these close and long established links between companies seldom exist. The incentive structure encourages shareholders to sell out when trouble looms. We also have a different conception of market competition. In Germany there is a presumption that co-operation between companies will be important and should not be penalised by competition law. In Britain the underlying presumption is to encourage strong competition.
The second requirement of company stakeholding is an effective system of initial training whereby employees acquire substantial skills in the area in which the company operates. If labour markets are deregulated, as in Britain and the US, and it is easy for companies to bid skilled employees away from the companies which have trained them, the incentive to train diminishes sharply. In Germany, by contrast, labour markets are tightly regulated as far as wage determination and training is concerned, which makes poaching more difficult.
The initial training investment which companies make in employees, and which employees make in companies (by accepting low starting wages and by narrowing their future employment options), is critical to company stakeholding. Both sides must make a commitment. Again, it is difficult to see how a British government could create the institutional conditions for effective initial training without far greater changes than so far imagined. Moreover, the creation of strong employer associations in Britain seems beyond the government's ability.
The third element of company stakeholding is participation in decision making. This is not a happy family dance in which German employees get some intrinsic pleasure from participation. It is a central part of the stakeholder bargain, and it has two aspects: from the employee's side, a big investment is made in the company in terms of the employee's skill portfolio. In return, the employee gets a conditional guarantee of employment security subject to overriding business imperatives. But the employee is not prepared to take it on trust that the company will stick to this agreement. Hence the necessity of "works councils," elected by employees, and endowed with considerable power (on overtime, redundancies, and so on) to ensure that the employer behaves appropriately. This gives the employee confidence in the stakeholder bargain and thus promotes identification with the company's success as well as restraint in the use of employee power.
Once again, the company stakeholder model depends on institutional settings. German-style works councils are far more powerful than those envisaged in the European Union's social chapter. They would be open to abuse by employees who had not grown up in the system and would, in any case, need to be balanced by powerful employer associations, for which there is no basis in Britain. Any attempt by Labour to move in this direction would rupture the delicate relationship which it is now developing with business.
Even if it were possible to establish the institutional framework for northern European company stakeholding, it is not clear that it would be desirable to do so. While northern European economies have some advantages over Anglo-Saxon ones, these are not overwhelming. Here are just two reasons for scepticism about chasing after the Germanic model.
First, economies whose efficiency derives from companies being able to take a long term perspective, often exclude women from serious careers in the private sector. This is because such companies depend on the long term loyalty and continuous availability of employees, particularly managers. In these economies, women either care for children and elderly relatives, unpaid at home (Germany, Japan), or do the same thing, paid, in the public sector (Sweden). That is the logic of these systems. By contrast, in the most developed Anglo-Saxon economy-the US-women represent over 40 per cent of private sector managers. Companies are organised on a more short term basis and accept that able managers may leave. Well-educated women do significantly better in the US (and Britain) than in Germany, Japan or Sweden. Upwardly mobile women should be wary of proposals to develop a northern European type labour market.
Second, while the northern European and Japanese institutional frameworks provide a comparative advantage for high quality manufacturing, the more de-regulated Anglo-Saxon frameworks have an overwhelming comparative advantage in internationally competitive services. These range from international banking (the big four German banks are in the process of moving their international banking operations from Frankfurt to London) and management consulting, to airlines and the entertainment industry. Almost all radical innovation in emergent technologies (semiconductors, biotechnology) has come from the US and to a lesser extent the UK, with virtually none from Germany. Furthermore, complex systems technology (telecommunications systems, defence systems, large aircraft production, large software systems) is another field where Anglo-Saxon economies have a comparative advantage. In none of these areas-which will be of increasing importance over the next decades-are northern European economies (or Japan) leading competitors. In all these sectors, high incentives and the ability of companies to move quickly are vital. This is why more de-regulated economies perform better.
Despite all these reservations, stakeholding remains an attractive concept. Before considering what a viable strategy for stakeholding might look like in a British setting, we must be clear about what stakeholding is, what gives it its appeal, and why it goes beyond a simple elucidation of citizens' rights.
Stakeholding is an implicit contract between the state and the individual citizen. The fact that it is a contract means that both sides have obligations and receive benefits. But the benefits of stakeholding for the individual stakeholder are contingent on the carrying out of associated obligations. It thus runs counter to the principle of universal entitlements to, say, welfare benefits. The universal entitlement is to the contract; the benefits only accrue to those who have carried out the relevant obligations. Also, the citizen has a choice about how much to "invest" in the contract. Some may invest more than others. Part of the stakeholder model's attraction for the average voter (although not necessarily for the activist) is that it does not impose uniformity. It has a family connection to equality of opportunity, not to equality of outcome.
Stakeholding has other attractions, too. It implies security and inclusion. The state is underwriting the contract so you cannot be excluded so long as you have fulfilled your obligations. Stakeholding also suggests active engagement, both from the state and the individual. It is these notions-obligation, choice, security and engagement, as well as the role of the state-which give stakeholding such a potent political function for the centre left: on the one hand, it speaks to the desires and fears of the self-reliant, middle-of-the-road voters Labour needs to capture; on the other, the role of the state ties stakeholding as a political project to the centre left, preventing its appropriation by the right.
So how can the concept be applied in a useful way in Britain? As we saw earlier, company stakeholding is not practical. Welfare stakeholding, as promoted by Frank Field, has an attractive ring, but when it comes to those people who cannot or will not fulfil their obligations (the unemployed, the sick), it has to fall back on a more traditional concept of entitlement. There is, however, one area where stakeholding can cut with the grain of liberal market economies and help us think in more innovative ways-the labour market.
Labour markets have become notoriously less secure for a large proportion of the population. The company can no longer guarantee employment stability and it is playing a less important role in organising individual careers. At the same time, employees' existing skills may not equip them for employment mobility. Employers now need a large proportion of their workforces to have quite high level general, social, organisational and computing skills; specialised, company-specific technical skills can be welded on. Young people acquire these general skills by staying on at school, and increasingly by moving on to further education.
What would having a stake in the labour market, as opposed to a stake in a company, look like? And how can labour market stakeholding replace the support once provided by companies, professional bodies and trade unions? There are two elements. The first is an implicit contract that serious investment of effort by a young person at school should lead to the acquisition of the relevant general and social skills necessary for modern labour markets. For young people at schools in disadvantaged areas this may be a difficult contract to fulfil: it is one reason why it is vital for such children to be able to get out of such schools and into sixth form colleges.
But some young people from disadvantaged backgrounds may not be able to get into an environment in which appropriate general skills are acquired. If we are frank about it, those skills are the skills of being middle class. What sort of stakeholder contract can one give to a child who has no chance of developing such skills? These are the children who will fall into a low attainment/low competence trap, getting jobs without prospects at the bottom end of a deregulated labour market. We know that most "high quality training" policies for these young people are a cruel delusion. We also know that schemes to subsidise low level employment in the private sector may reduce unemployment, but seldom provide ladders out. It is therefore of great importance for a government serious about stakeholding to consider low level public sector careers, linked to adequate school performance. This would be a real contract for disadvantaged young people-where both they and the government would have serious obligations. Such a contract (which the private sector cannot offer) would provide security in a low level but useful public service career in exchange for hard work at school and commitment to the career.
The second element of a labour market stakeholder contract concerns the process of moving through careers for the great majority of citizens. As careers increasingly involve not just a number of different employers but also the acquisition of different skills, the traditional ways of dealing with breaks in employment through benefits and information about jobs is giving way to the need for access to education/training and counselling. It is in this area, where insecurity is rife, that imaginative stakeholding solutions are required. Any such solutions would have to reduce insecurity while preserving the sense of individual opportunity and not imposing excessive restrictions on employers. The individual learning/training account is one such idea. It puts the emphasis on the individual-through the individual's obligation to invest in his or her training in order to attract corresponding subsidies by employer and state, and through the individual's choice in how much to invest and where to train. But it also brings the state clearly into the picture. This would be amplified through a proper education and training counselling service, divorced from the depressing connotations of employment exchanges.
Above all, Labour must underpin the British stakeholding model with a wholehearted commitment to mass higher education. Although the present government has revolutionised higher education it is now dithering about costs. Traditionalists complain about falling standards, but almost all courses teach students-young and increasingly mature students too-the social and computing skills required by the new service economy. Even after the expansion of the past decade, only one third of young people in Britain go on to further education, compared with over half in the US. So here, at least, our model should be liberal America rather than social democratic Germany.
