Monday, 18 January 2016

Correcting the balance

I liked Corbyn’s suggestion last week of a new law to prevent the payment of dividends by companies which are not paying at least a living wage to all their staff.  Any reasonable definition of a ‘viable business enterprise’ ought to exclude any business which can only turn a profit by underpaying its staff.  Underpaying staff whilst paying dividends to shareholders is just a simple and blatant way of transferring wealth from labour to capital.
The response of the CBI spokesperson was a little over the top – not to say out of touch with reality.  He said "The idea of politicians stepping into the relationship between a private company and its shareholders would be a significant intervention, and not one that we would support" as though the idea of legislative regulation of that relationship was an entirely new and novel suggestion.  I would have thought that anyone representing the CBI would at least be aware that the various Companies Acts are full of provisions which regulate that relationship.
And rightly so, too.  There are rules covering the way in which companies are managed, and rules governing the rights of shareholders and the responsibilities of companies and their directors.  Other legislation also affects the relationship – health and safety legislation and employment protection legislation, to name just two examples, both restrict the unfettered right of businesses to behave as they wish in the interests of shareholder profit.
I’m sure they’d argue that statute enshrines the duty of company directors to consider first and foremost the best interests of shareholders at all times, and that that’s what they’re doing in opposing this suggestion.  But as the previous paragraph illustrates, that duty has already been curtailed in a number of ways; it’s a duty which takes primacy only within the limits of any other legislation, and all Corbyn is proposing is another limitation on that duty – and quite a small one at that.
I can understand why the representatives of capital would want to maintain as far as they can the current presumption in favour of the interests of capital.  But I do wonder whether they have really thought this through.  It looks like a very short term and narrow view of the interests of capital to me.
A successful capitalist economy depends on there being a sufficient number of consumers in a position to buy the products and services which businesses produce.  From the perspective of any individual company, it might well appear advantageous to pay wages as low as possible in order to maximise its own profits; but from the point of view of the economy as a whole, underpaying employees is a huge problem in the long term.  Such narrow short termism is one of the fundamental problems of capitalism as an economic system, and it’s part of the reason for cyclical boom and bust.
Capitalists need external regulation and legislation for their own good; the fact that they don’t recognise that themselves merely reinforces the need.  So, on this one, I’m with Corbyn in principle.  Sadly, I think the chances that his own party would ever allow him to implement such a proposal are even less than the chances of him getting into power.


Anonymous said...

Great. But business is mobile. Just ask the guys in Port Talbot.

What we need is a decently educated workforce that encourages better paying employers to set up businesses here in Wales.

Why don't we just try our hardest to make this a reality and forget about everything else.

John Dixon said...

Business is mobile - yes, but in the context of the post, I'd express that as "capital is mobile". But then, the point of the post is that capital makes the rules. And the threat is often more important than the fact; the threat of mobility often leads to governments caving in to the power of capital.

I wouldn't disagree that we need the best-educated workforce that we can have, BUT having an educated workforce doesn't mean that jobs will arrive. Underlying your point here, there seems to be an assumption that the government's responsibility starts and ends with making sure that there is a workforce ready to serve the needs of business.

On both of these points, there's a huge ideological gap between us. You seem to believe that we are here to serve capital - I believe that capital should serve us. Economies and markets are not things which exist independently of human society; they are the creation of human activity. It's up to us to decide whose interests they should serve, but capitalism has created an ideology around itself which has succeeded in fooling most of the people for most of the time.

Anonymous said...

No, I think you miss the point.

Firstly, in my book there is no great socialist God overlooking us all and making sure we are all living happily. If our parents chose to have kids we kids remain their responsibility for evermore. No if's and but's about it. Similarly, if we chose to have our own kids the same applies. To underplay or undermine such responsibility is where all our problems in life start. Compare us with any one of our continental cousins and you'll see that over the English Channel the State has no role or responsibility in 'matters of family'. No housing is provided and no welfare (or not until strict criteria have been met and very stringent age criteria). Individual families have to look after each other. No-one else is going to do it.

Now, if a continental family decides to have offspring the number one priority is invariably to educate the offspring as well as possible. Through education comes opportunity and through opportunity comes the possibility for work. Maybe not local work. But work somewhere. Good work. And with this work money can be saved and sent home to the rest of the family. No-one starves. Surely this is just how life should be.

But here in Wales we outsource everything to do with our kids from day one. And we outsource to the most incapable people possible. Just look at who we expect to be responsible for educating our children? And they, in turn, outsource our old age to equally incapable others. It's a mug's game that we play because we are not well educated.

No-one owes anyone. And no business owes 'society' anything. If we want jobs we must find them or make them ourselves. And to find them or make them we must be well educated, well motivated and mobile.

There is no role for government in normal everyday life unless we live in a socialist state. And we don't. We never have done. That's what we need to understand.

John Dixon said...

I don't think I missed the point so much as identified it perfectly when I said that there is a huge ideological gap between us. Everything you have written above confirms that. The problem is that what I see as your ideological perspective you seem to see as the natural and immutable order of things; your beliefs have become 'facts' which are unchallengeable. There's no debating with that sort of perspective.

Democritus said...

Agree with John that in principle companies can certainly be compelled to comply with wages and incomes policies set by an elected government.
Semantics over what we mean by a 'Living Wage' and it's application to services (such as cleaning) often contracted out to 3rd parties aside however I see a world of difference when it comes to implementation between types of businesses and the profile of the people they employ. As I understand it this policy would mostly impact firms employing largish relatively unskilled workforces with a fair degree of turnover where the median wage of all non-managerial staff is not much more than the 'Living Wage'. The impact on a city hedge fund of paying their cleaners decently is minimal compared to the impact on a major retail chain for example because the introduction of a higher wage floor has a wider knock on impact on overall relativities in the workplace.
There is a 'corridor of uncertainty', to employ a cricket metaphor, in the minimum wage / living wage caper between providing an adequate income for those in low paid occupations and running increasing risks of choking off the creation of new jobs, particularly in emergent businesses - don't believe Uber has declared any profit yet; and their drivers are all self employed in any case!
Corbyn's proposal may or may not fly. I'll be interested in Usdaw's take ... but it's a long way from full public ownership of the means of production, distribution and exchange ...

Anonymous said...

It is bizarre how that when people hold deeply committed world views, they adopt strange constructs to explain it.

For example Anonymous ay 17:05 suggested- "Compare us with any one of our continental cousins and you'll see that over the English Channel the State has no role or responsibility in 'matters of family'. No housing is provided and no welfare (or not until strict criteria have been met and very stringent age criteria). Individual families have to look after each other. No-one else is going to do it. "

This is not accurate. Presuming that over the English Channel means France, Belgium and Netherlands, those three states have substantial housing and welfare provision. Does Netherlands not have the highest ratio of social/public housing in Europe? Is there not a law in France specifying that 20% of any new housing development must be HLM (rent controlled by the state)?

It is right to point out that family structures are extremely important in the three states I mentioned over the English Channel. Maybe even more important than in this state. I don't know for sure but I agree that there is a perception around French family life and solidarity within the family. But the role of the state in supporting families and households is possibly more pronounced in France than in Britain, and certainly more so in Netherlands or Belgium. These are of course countries with conservative governments. I am a socialist but on the continent it doesn't seem necessary for conservatives to take an extreme anti-state view.

I don't agree with John that there is no point debating with this perspective. Perhaps that's wishful thinking though.

John Dixon said...

Anon 11:55,

I'm not sure that "It is bizarre how that when people hold deeply committed world views, they adopt strange constructs to explain it."; I think that it is, rather, the power of ideology! People who "know" things to be true find it even easier than the rest of us to find "evidence" to support that knowledge, I fear. And if the "facts" are indisputable, it's difficult to have a very meaningful debate.


I accept the point that there is an apparent difference in affordability between a hedge fund and an organisation employing large numbers of people on very low wages; but in principle, the issue is exactly the same. If a business cannot afford to pay the cost of labour (or raw materials, or capital...), then there is a serious question to be asked about whether it is really a viable business at all. It's one thing for a group of people founding a business to decide that they will work for peanuts at the outset, in the expectation that they will reap their rewards in due course, but it's quite another to establish and run a business on the basis that they cannot afford to pay a proper price for the labour involved. It's a way of moving the risk from capital to labour - but the capitalists invariably want to retain exclusive rights on the rewards.

Democritus said...

It should be assumed that firms of all descriptions will endeavour to minimise their labour costs so far as supply and demand permit. In a competitive market economy the general outcome will be that firms who can produce cheapest gain market share. The social costs are externalised. This is why in addition to a decent welfare system a minimum wage floor is considered desirable in most advanced economies - so that at the bottom end of the economy, with labour cost competition eliminated the objective for firms becomes the most efficient deployment of the other factors of production.
In this country it has for some decades been considered ill advised for government to attempt to 'fix' incomes and wage levels beyond setting a minimum. In fact sectoral minimum wages (e.g. those fixed by the agricultural wages board) have been phased out. Those of us who recall the Social Contract of the seventies will recollect that it was intended to emulate the highly regarded German corporatist model of setting pay across industries as part of the effort to fight inflation. In this country however the target median average increase became seen as the floor and unions proved largely unable to persuade their members not to use all the tools of free collective bargaining then available to secure inflationary settlements which undermined the overall deal.
The dilemma is that when labour supply is tight there's no need to intervene to set wages. Where it is abundant then intervention can help (at least for a time) maintain the incomes of those already in work, but with a potential cost to those seeking work if less new jobs are created as a consequence. With an interventionist incomes policy as with thermodynamics action has an impact elsewhere and the more complex the economy the harder it becomes in practice for any government to set wages and/or prices that are fair and maintain equilibrium. The bottom of the market is different in that the existence of the welfare state itself provides a bit of a floor and it's clearly sensible to up that to an extent in order to minimise the contribution made by taxpayers to topping up rock bottom wages one way or another.
There is absolutely nothing whatsoever wrong with raising the minimum wage where structural unemployment is low and job creation steady or expanding. In these circumstances it is an excellent way of redistributing the benefits of overall growth toward the less advantaged.

John Dixon said...

Of course it's true that capitalists will seek to maximise their own share of the proceeds of production, and minimising wages is one (albeit short term) way of doing that. And of course it's true that the same people will argue that any and every attempt to regulate or control what they do will lead to economic disaster for everyone else (when what they really mean is slightly less profit for themselves). But economic systems - including capitalism - are a human construct. They work the way they do because humans make them so. There's nothing immutable or permanent about that; any human-built construct can be changed. In this case, change starts with imagining other possibilities; the power of capitalist ideology is that so many have been convinced that there is no alternative.

Anonymous said...

I suppose I was trying to ask, where has our friend heard that "on the continent" there is no welfare or public housing? Has he (or she) been told that by someone? Has he read it somewhere, or simply made it up?

John Dixon said...

Clearly, only our friend him or herself can answer that. When people comment as Anon, it's hard to know whether it's the same one or lots of different ones, but if, as I suspect, this is a particular Anon who has commented a number of times before, then making up 'facts' to suit an argument would not exactly be a new departure...