Take a stake in the jobs market

Stakeholding is Labour's big idea: but does it borrow too heavily from a German model that would be unworkable in the UK? It will only work if it is adapted to suit an Anglo-Saxon market economy, argues David Soskice
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The Independent Online
As Margaret Thatcher realised, serious politics requires simple, powerful ideas. Stakeholding is a strong candidate.Yet the discussion so far 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; de-regulated labour markets; an education and training system in which companies play little part; and companies that have highly competitive, arm's length relations with each other. Yet the main proposals for a stakeholder society are borrowed from a quite different system, 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 stake in their companies, through enhanced security, participation and skill development. This is a characteristic of large companies in northern European economies; it is 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 making them competitive. But "company stakeholding" works in those economies because they have a quite different institutional framework.

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 that is 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 it looked to French planning; in the 1970s and 1980s to Scandinavian social democracy. Now it looks to Germany and stakeholding. Yet the more we understand other systems, the clearer it becomes that taking any one part of a system (such as company stakeholding) away from the rest of the system is unlikely to be fruitful.

The first requirement of the company stakeholding framework is long-term financing. German companies, large and small, benefit from the availability of long-term finance. This is critical to the security 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. The German ability to provide long-term capital depends upon implicit agreements among large shareholders that are co-ordinated by banks. In Britain these close and long-established links between companies seldom exist.

The second requirement of company stakeholding is an effective system of 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 that have trained them, the incentive to train diminishes sharply. In Germany labour markets are tightly regulated, which makes poaching more difficult.

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 promotes identification with the company's success as well as restraint in the use of employee power.

Even if it were possible to establish the institutional framework for northern European company stakeholding, it is not clear that it would be desirable. Economies whose efficiency derives from companies being able to take a long-term perspective often exclude women from serious careers in the private sector. 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.

While the northern European framework provides a comparative advantage for high-quality manufacturing, the more deregulated Anglo-Saxon frameworks have an overwhelming comparative advantage in internationally competitive services, from banking to airlines and the entertainment industry.

Despite these reservations, stakeholding remains an attractive concept. It implies security and inclusion. 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 make stakeholding so potent 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.

How can the concept be applied in a useful way in Britain? There is one area where stakeholding can cut with the grain of liberal market economies: 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. Employees' skills may not equip them for employment mobility.

What would having a stake in the labour market, as opposed to in a company, look like? 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 difficult 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 have been able to get into an environment in which appropriate general skills are acquired. If we are frank about it, those 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.

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 intraining 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 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 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 more than half in the US. So here, at least, our model should be liberal America rather than social democratic Germany.

A longer version of this article appears in the current issue of the magazine `Prospect'.