After the Prime Minister's warning shots on executive pay, and the Labour leader's striking, if inchoate, evocation of "responsible capitalism", it is no bad thing that the Deputy Prime Minister is also weighing in on the question of how to create a fairer economy. The ability of the free market to deliver improved standards of living is not in doubt. But the widening gap between the richest and the rest is straining the consent at the heart of democratic society and it must be addressed.
For Nick Clegg, there is also, he hopes, a direct political advantage. As the Liberal Democrat leader casts around for ways to define a unique agenda and prove his party is no mere lackey of its Conservative coalition partners, the challenge of channelling market forces to more equitable ends is a fine candidate. Indeed, Mr Clegg yesterday invoked no less a thinker than John Stuart Mill to emphasise the liberal heritage of his proposals to encourage employee ownership of companies.
The Deputy Prime Minister certainly sets out a cogent case. Drawing a line from the benefit of increased shareholder engagement in keeping management excesses in check, he expands the argument to using greater staff involvement to ensure that ordinary workers are also appropriately well-rewarded. All good stuff. But beyond the rhetoric, Mr Clegg's speech raises far more questions than it answers.
In the case of public companies, employees are already able to buy shares as private investors. If Mr Clegg is proposing that staff receive subsidised share options, he will have to explain how he will ensure that pay levels are not dragged down to compensate. And, if the aim is to give them a greater say in the running of the business, small shareholdings in vast listed behemoths will hardly answer. But Mr Clegg's ambitions are not limited to public companies: he also hopes to encourage privately owned companies in a similar direction through tweaks to the tax rules.
In both cases, the central question is one of risk. Staff with a significant slug of savings invested in their employer are left, at best, exposed to the vicissitudes of the stock market. At worst, they may be wiped out entirely if the company goes bust. Neither is there any guarantee that managers at partnerships are more competent or responsible than elsewhere. The most obvious example is the cataclysmically fraudulent Enron, which ran a vast employee stock ownership scheme. The demise of Lehman Brothers, a bank renowned for paying executives in share options, also gives pause for thought.
Mr Clegg's shining example is John Lewis, the upmarket department store which assigns shares to all 75,000 staff, accords them "partner" status and gives them an active role in running the business. There is, of course, much to be said in favour of the John Lewis model – so much so that the group has become almost a fetish in the wake of the financial crisis. But Mr Clegg must take care before applying the lesson too widely. Studies suggest that companies owned by their staff do indeed show both increased productivity levels and employee satisfaction. But it is naïve to imagine the cause to be about shares alone. John Lewis works because employees' ownership is part of a whole structure of devolved power, a structure which cannot necessarily be reproduced in every company or every industry.
In fairness to the Deputy Prime Minister, yesterday's speech was a deliberately broad-brush affair. His central, liberal, argument – that the problem is not simply "too much capitalism" but that "too few people have capital" – is a reasonable place to start. But he must be wary of over-simplification. Companies can only be like John Lewis if they go the whole way. Halfway measures may do more harm than good.
- More about:
- John Lewis
- Liberal Democrat Party
- Private Sector
- Stock And Equity Market And Stock Exchange