Inclusive ownership funds will build better businesses

At the heart of the Thatcherite economic programme was the vision of a society ​‘Where owning shares is as common as having a car’. That grand promise of a share-owning democracy, in which households owned businesses and held them to account, has crumbled.

What we have instead is a global capital market in which more than half of the tradable shares in UK companies are owned abroad and only just over 12% by individuals. Many of the utilities that were sold-off during that great wave of Thatcher-led privatisations are, ironically, now under the control of foreign state-owned utilities.

With the demise of trade unions, also begun by the Thatcher government, employees have a shrinking share of ownership and control over the businesses for which they create much of the value. And we wonder why the modern workplace feels more like wage-slavery and ​‘squeezed middle’ or ​‘left behind’ households — frankly most of us — have developed disruptive tendencies.

Where Thatcher’s privatisations gave private capital control over natural monopolies and relied on weak and under-resourced regulators to enforce competition, it makes sense to bring back state ownership. However this alone will not democratise these enterprises, make them accountable to customers nor necessarily increase the power and reward enjoyed by workers. The probable solution is to localise the ownership of significant parts of utilities such as water and energy and put employees and customers in positions of genuine influence and control.

But that still leaves most other large businesses. Which is why Shadow Chancellor John McDonnell’s party conference pledge to develop Inclusive Ownership Funds for all firms over a certain size is so important and compelling.

Inclusive Ownership Funds were first proposed by the New Economics Foundation in our Cooperatives Unleashed report. We suggest that while cooperatives, mutual ownership and other democratic ways of running businesses and sharing out the reward should be much more common and widespread, employee ownership is the key to unlocking democracy in all businesses.

The benefits go beyond the firm itself. Inclusive ownership could keep wealth in communities.

The idea can be traced back to a plan developed by Rudolf Meidner and Gosta Rehn, two Swedish economists, who called for all companies with more than 50 employees to be required to transfer 20% of annual profits in the form of shares into worker-controlled funds. Like the Meidner-Rehn plan, NEF’s proposal is that Inclusive Ownership Funds are mandatory for all firms over a certain size (probably around 250 employees) and are asset-locked so that neither employees nor managers can buy and sell the shares.

The really key part of the proposal is that these Funds are collective and pay a flat dividend to all employees as well as giving workers a similarly collective say in business strategy.

Where employees and owners are one and the same, such as in cooperatives, evidence suggests profits and productivity as well as wellbeing and clear business purpose are improved. It’s therefore likely that Inclusive Ownership Funds would create better businesses as well as bringing ownership and control closer to home.

But the benefits go beyond the firm itself; one major effect of the current globalised model of capital ownership is that it sucks wealth out of communities. Inclusive Ownership Funds could help reverse this trend. A study by NEF’s consulting arm found that employees of John Lewis spent between 20% and 25% of their partnership bonus (18% of annual salary in that year) within the same local authority area as the shop in which they worked.

Inclusive Ownership Funds are no replacement for trade unions; if we are to see an end to wage stagnation and to have a proper debate about automation and the future of work, then unions need to be front and centre. In any case, McDonnell’s proposal, inspired by the NEF report, would limit the size of the funds and therefore the degree of ownership and control. But shifting the balance between society – famously not a Thatcherite concern – and global capital will take some intervention from government.

It is great to see one of the UK’s main political parties rising to this challenge. It would be even better to see others respond.