Numerous corporations are now bigger than many nation states. In the words of the United Nations Conference on Trade and Development (UNCTAD):376
Twenty-nine of the world’s 100 largest economic entities are transnational corporations (TNCs), according to a new UNCTAD list that ranks both countries and TNCs on the basis of value added. Of the 200 TNCs with the highest assets abroad in 2000, Exxon is the biggest in terms of value added ($63 billion). It ranks 45th on the new list, making it comparable in economic size to the economies of Chile or Pakistan. Nigeria comes in just between DaimlerChrysler and General Electric, while Philip Morris is on a par with Tunisia, Slovakia and Guatemala.
Using different measures, other estimates suggest that half of the world’s largest economies are multinationals, and that General Motors is bigger than Denmark, that DaimlerChrysler is bigger than Poland; Royal Dutch/Shell bigger than Venezuela, and Sony bigger than Pakistan. Like the aristocratic ownership of huge tracts of land, which in 1791 Tom Paine attacked in his The Rights of Man,377 these productive assets remain effectively in the hands of a very few, very rich people, and make our claims to real democracy look pretty thin.
In Tom Paine’s lifetime the capitalist system was in its infancy. As an advocate of equality and democracy, he focused his attack on the landed aristocracy, the nobility, the monarchy, and on their ownership of huge swathes of land. He seems to have assumed that the market system, then involving mainly small traders and craftsmen, would remain small-scale, fairly egalitarian, and so compatible with democracy. Had he foreseen how the development of huge multinational corporations would surpass the concentrations of wealth and undemocratic power of his day, he would surely have included them in his sights. It is not possible to discuss ways of reducing income differences without discussing what can be done about these bastions of wealth, power and privilege.
The failed experiment with state ownership in the centrally planned economies of the former Soviet Union and Eastern Europe was intended, among other things, to provide a solution to the problem of the growing concentration of productive power in private hands. But concentrating that power into the hands of the state was not only sometimes hugely inefficient, but invited corruption, led to the denial of important basic freedoms and harmed public life. That failure seems to have made us feel there are no workable alternatives to the standard capitalist model and prevented us thinking creatively about other more democratic and egalitarian methods. We blinker ourselves to the fact that there are lots of alternatives, many of which are already part of our lives and flourishing all around us.
ALTERNATIVES
In his book, America Beyond Capitalism: Reclaiming our Wealth, our Liberty and our Democracy, Gar Alperovitz, a professor of political economy at the University of Maryland, summarizes the variety and scale of the alternatives operating in the USA.378 He emphasizes the huge size of the non-profit sector. In the twenty largest US cities almost 40 per cent of the 200 largest enterprises are non-profit organizations like universities and medical institutions. He mentions the 2,000 municipal electric utilities which supply 40 million Americans with electricity. Largely because they are not having to make profits for shareholders they are often cheaper – an average of 11 per cent cheaper, Alperovitz says – than profit-making companies, and many pay particular attention to sustainability and the development of renewable sources of power. Also at the local level, he discusses organizations like the 4,000 or so Community Development Corporations which support local communities by setting up low-income housing schemes, providing finance for local businesses which they sometimes own and control. There are 48,000 co-ops in the US and some 120 million people are members of them. There are around 10,000 credit unions, with assets totalling $600 billion, providing financial services for 83 million Americans. Around 1,000 mutual insurance companies are owned by their policy-holders, and 30 per cent of American farm products are marketed through co-operatives.
In Britain institutions like universities, hospitals and local government are also often the largest local employers. Because medical care and universities – like the rest of education – are almost entirely publicly funded, they are governed by bodies accountable to the public. The governing bodies of Oxford and Cambridge colleges are democratically comprised of all fellows. Despite a stampede to cash in the profits to be made by selling off friendly societies and mutuals, there are still 63 building societies (with over 2,000 branches and 38,000 employees), 650 credit unions, 70 mutual insurance companies as well as 250 friendly societies in Britain, providing various financial services to their members. There are almost 170,000 charities with a combined annual income of over £44 billion. In 2007 the Co-operative Bank, with £40 billion of assets, was recognized as the most corporately responsible company in the UK, according to Business in the Community, an influential charitable association of British companies. The often rather lacklustre 6,300 Co-op shops still have a market share of about 5 per cent of all food retailing and they remain the UK’s largest ‘neighbourhood’ retailer with a share of almost 8 per cent of that market. Even Britain’s experience of nationalized industries (which once covered electricity, gas, water, telephones, railways) was not all bad. Throughout the 1950s and 1960s, as the economist and journalist Will Hutton has pointed out, productivity in the nationalized industries matched or exceeded the private sector.379 He says they began to get a bad name when governments raided their profits and held down their prices to help reduce inflationary pressures in the national economy.
The variety and vast scale of this organizational experience leaves no doubt that profit-making business is not the only effective way people can work together to provide important services. It is a truism – but nevertheless an important one – to say that the key difference between the kinds of organization we have listed and profit-making corporations is simply whether or not their primary purpose is to make money or to provide a service while remaining economically viable. Although some profit-making businesses have high ethical standards, the institutional framework (and often cutthroat market pressures) seem to invite them into an exploitative relationship with society – hence perhaps why we have needed a ‘fair trade’ movement. Presumably because of the motivational difference, there is a strong impression that many of the other forms of organization allow institutions to develop a service ethic and to see their purpose as the furthering of environmental and community interests. The fact that top salaries in the profit-making sector are several hundred times top political, judicial or military salaries is no doubt partly a reflection of the profit-making motive.
WHAT CAN BE DONE?
So how can the inequality-generating forces in the profit-making sector be contained and democratized? How can they be adapted to fit in with the need to make our societies more equal? What can we do which cannot be easily reversed by an incoming government with opposing interests? When thinking about this we should keep in mind just how fundamental a turning point we have reached in human history. As we showed in Chapters 1 and 2, further improvements in the quality of life no longer depend on further economic growth: the issue is now community and how we relate to each other.
One approach to tackling runaway pay rates at the top might be to plug loopholes in the tax system, limit ‘business expenses’, increase top tax rates, and even legislate to limit maximum pay in a company to some multiple of the average or lowest paid. While such solutions may seem to be the only short-term option, they are very vulnerable to changes in government: even if effective tax changes were devised and introduced, a new government with different political allegiances could simply reverse them all. Given the importance of keeping inequality down, we need to find ways of ensuring that greater equality is more deeply rooted in the fabric of our societies and less vulnerable to the whim of successive governments. We need to address the concentrations of power at the heart of the economic life.
An approach which would solve some of the problems is democratic employee-ownership. It not only
avoids concentrating power in the hands of the state, but evaluations suggest that it has major economic and social advantages over organizations owned and controlled by outside investors in whose interests they act.
In many countries, governments use tax concessions to encourage employee share-ownership systems. They do so because it is assumed that share ownership improves company performance by reducing the opposition of interests between employers and employees. In the UK, share-ownership schemes now cover almost a quarter of all employees and some 15 or 20 per cent of all UK companies.380–381 In the US, the 2001 Tax Law increased the tax advantages of Employee Stock Ownership Plans (ESOPs), and they now cover 8 million employees in 10,000 firms with an average employee-ownership of 15–20 per cent.382
However, many share-ownership schemes amount to little more than incentive schemes, intended to make employees more compliant with management and sometimes to provide a nest-egg for retirement. As a result, they are often seen as tokenism, rather than as a key to transforming the structure of employment. This is why research shows that employee share-ownership, on its own, is not enough to make much difference to company performance. Patrick Rooney, an economist at the universities of Indiana and Perdue, found that employee share-ownership did not necessarily mean that employees were more involved in the running of the companies in which they worked.383 He compared the extent of employee participation in a wide range of decisions in companies with and without employee share-ownership schemes. In general, employee involvement was low, but even in companies with employee share-ownership schemes staff members were often not informed or consulted, and the majority of these companies did not enable employees to have a significant input into decision making.
To make a reliable difference to company performance, share-ownership has to be combined with more participative management methods.384–385 There have now been a number of large and well-controlled studies – including those using before-and-after performance data for several hundred matched pairs of companies386 – which demonstrate the economic benefits of the combination of employee share-ownership and participation.385, 387 The studies show repeatedly that substantial performance benefits come only when employee share-ownership schemes are accompanied by more participatory management methods.380, 383, 388–389 Research that looked at a large number of British companies during the 1990s found that employee share-ownership, profit-sharing and participation each make an independent contribution to increased productivity.380 A review of research concluded: 385
We can say with certainty that when ownership and participative management are combined, substantial gains result. Ownership alone and participation alone, however, have at best, spotty or short-lived results. (p. 11)
. . . the impact of participation in the absence of (share) ownership is short-lived . . . Ownership seems to provide the cultural glue to keep participation going. (p. 3)
Studies of how work affects health point in the same direction: as we saw in Chapter 6, people seem to thrive where they have more control over their work. Having control at work was the most successful single factor explaining threefold differences in death rates between senior and junior civil servants working in the same government offices in Britain.64 In practice, this probably has a lot to do with a sense of autonomy and not feeling so directly subordinated. The importance of control at work is now understood to involve a greater degree of workplace democracy.390 There is, in addition, growing evidence that a sense of unfairness at work is an important risk factor for poor health.391
The concept of a company being owned by outside investors has implications which look increasingly anachronistic. A smaller and smaller part of the value of a company is the value of its buildings, equipment and marketable assets. It is instead the value of its employees. When companies are bought and sold, what is actually being bought and sold is, above all, its staff as a group of people, with their assembled skills, abilities, and knowledge of company systems and production methods. Only they have the ability to make the company tick. And of course the concept of a group of people being bought and sold, and belonging to anyone but its own members, is a concept which is the very opposite of democratic.
Should employees not have full control over their work and the distribution of its earnings? And should external shareholders really receive unearned income beyond agreed interest on capital? Participation, commitment, control and profit-sharing would be maximized if companies were 100 per cent employee-owned. Companies could raise capital through loans or mortgages, retaining control themselves. At the moment, only a tiny proportion of the money gambled on the Stock Exchange makes any contribution to helping companies buy productive assets. Indeed, over time the payment of dividends to external shareholders is a major drain on company profits which might have been used to improve their technology and equipment.
Robert Oakeshott, a British authority on employee-ownership, says that employee-ownership ‘entails a movement from business as a piece of property to business as a working community’.388, p. 104 Companies change from being property to being communities when employees own a majority of shares and so control the business. That is when management becomes responsible, not to outside shareholders with little interest in the company beyond returns on capital, but to the body of employees. Then company meetings become occasions when management reports back to employees and has to deal with questions and discussion among people who have an intimate knowledge of what has gone right and what has gone wrong in the preceding period, and what the remedies might be. The transformation after an employee buy-out from the usual top-down mentality can involve a long slow process of people’s emancipation from the usual assumptions round class and ability which make those in more junior positions feel themselves to be inferior human beings. We discussed in Chapter 8 some of the experimental evidence using race and caste to show how attributions of inferior status can affect performance.
This process of adjustment and emancipation is described in Local Heroes, David Erdal’s account of the employee buy-out of Loch Fyne Oysters in Scotland.392 It is in part a process of undoing the damage of class inequality, a process presumably made more difficult by the fact that such assumptions remain entrenched all around people in the rest of their lives. However, the structures in which we work are pivotal.
Co-operatives and employee buy-outs have often originated as responses to desperate circumstances in which traditional systems of ownership and management have failed. Employees have used them to avoid closures and unemployment in the most difficult market circumstances. Even then they have sometimes succeeded beyond expectations – as did Tower Colliery in South Wales when, in 1995, miners used their redundancy money to buy the pit and ran it successfully until the coal was worked out thirteen years later. Many fully employee-owned companies have a proud record. Examples include, or have included, the London Symphony Orchestra, Carl Zeiss, United Airlines, Gore-tex, the Polaroid Corporation, and the John Lewis Partnership (one of Britain’s most successful retailers with 68,000 employee-partners and annual sales of £6.4bn). In the USA, among the largest majority employee-owned companies are Publix Supermarkets, Hy-vee Supermarkets, Science Applications International Corporation (SAIC), the international engineering and construction company CH2M Hill and Tribune which, among other media operations, publishes the Los Angeles Times and Chicago Tribune. These companies average 55,000 employees each.
One of the best-known co-operative groups is the Mondragon Corporation in the Basque region of Spain. Over half a century it has developed into a group of over 120 employee-owned co-operatives with 40,000 worker-owners and sales of $4.8 billion US dollars. Mondragon co-operatives are twice as profitable as other Spanish firms and have the highest labour productivity in the country.388 It is hard to explain some of the successes unless a combination of ownership and participation does indeed have the potential to improve productivity by reducing the conflict of interests.
For most of the employed population it is at work
that they interact most closely with people other than family and have the potential to feel part of a community. In Chapter 3 we saw evidence of the huge rises in anxiety which have taken place over the last fifty or so years as community life has weakened under the impact of growing geographical and social mobility. While greater equality is associated with more cohesive communities and higher levels of trust (see Chapter 4) and so may be expected to improve life in residential neighbourhoods, in the near future we are unlikely to regain the benefits of the very close-knit residential communities of the past.
But at work there is the potential for people to find a nucleus of friendships and to feel valued. This potential is usually undermined by the hierarchical stratification of people into various gradations of order-givers and order-takers, which ensure that employees act not as a community, but as property, brought together and used to earn a return on other people’s capital. One of us recently visited two small companies soon after they had been bought by their employees. When staff were asked what difference it had made, the first thing office staff in both companies said in reply was that, when they went on to the shop floor, ‘people look you in the eye’. Under the old system, eye contact had been avoided.
Employee-ownership has the advantage of increasing equality specifically by extending liberty and democracy. It is bottom-up rather than top-down. Although we don’t know what scale of income differences people would think fair, it seems likely that they might agree that the chief executive of the company they work for should be paid a salary several times as big as their own – maybe three, or perhaps even ten, times as big. But it is unlikely that they would say several hundred times as big. Indeed, such huge differentials can probably only be maintained by denying any measure of economic democracy.
The Spirit Level: Why Greater Equality Makes Societies Stronger Page 23