How to improve economic accountability – and efficiency
By Peter Tatchell
NowhereIsland – Resident Thinker – 13 February 2012
Don’t accept the world as it is. Dream about what the world could be – then help make it happen.
We expect political democracy. Why not economic democracy too? Imagining a society where the economic system was in closer democratic alignment with the political system is not impossible at all. In fact, it’s easy – and obvious.
Extending the economic franchise make sense. It is a simple matter of democracy and justice, which would lay the foundations for a more equitable and constructive partnership between everyone who contributes to wealth creation and the provision of public services.
Just for a moment, pause. Forget about society the way it is. Imagine a social alternative with economic participation, accountability and decentralisation. Wouldn’t that society be less prone to corporate irresponsibility, financial crisis, inequality and alienation?
A form of economic democracy is possible. We simply need to imagine it and then work to make it a reality. All it takes is the will and creativity to envisage a new system of economy.
Our current economic model is a form of dictatorship, characterised by an absence of democracy, participation, transparency and accountability. Employees and the wider public are frozen out of economic influence and decision-making.
In the existing economic system, which too many people take for granted and assume is inevitable, big business rules. The leaders of industry, commerce and finance have almost total power. They run their enterprises on quasi-totalitarian lines. All decision-making is concentrated in the hands of a tiny, privileged elite of major shareholders, directors and managers. In contrast to the ‘one person one vote’ principle that characterises our political system, in our economic system the corporate top brass have all the votes. They alone determine how companies and public institutions operate. Employees – without whom no wealth would be created and no institution could function – are powerless and disenfranchised.
These, then, are the flaws of the existing economic regime. So what would constitute an alternative economy? I don’t have all the answers, let alone a blue-print, but I can suggest some fragments of what an alternative might begin to look like. Although not a future economic system per se, these ideas are, perhaps, the embryo of a long gestation from what we have now to what we could have in the future.
One important check and balance on the abuse of economic power would be to make corporate negligence and recklessness an explicit criminal offence. This would ensure more responsible economic management and act as a deterrent against those who would gamble with the economy for personal gain. Bankers and company bosses should not be able to wreck whole economies and squander people’s jobs, pensions and savings with impunity. They ought to be held personally liable for damaging corporate decisions, in the same way that doctors and other professionals can be held liable for negligence. The threat of legal penalties – including financial pay-back and prison – is likely to result in more prudent corporate governance.
Another safeguard against the abuse of economic power would be mechanisms for greater democratic participation and accountability in economic decision-making. This could involve the requirement that all medium and large-sized companies – and public institutions like the NHS – have on their management boards one-third employee-elected directors and independent directors appointed to represent the interests of consumers. Having employee directors, building on the success of the German works council model, would incline an organisation to greater workplace fairness and more harmonious industrial relations; resulting in employees showing improved commitment and productivity, which is good for the economy. Not being driven so strongly by the profit-motive, employee and consumer directors could push for workplace policies that are more socially inclusive and responsible. They could also act as watchdogs and whistleblowers against corporate irresponsibility; thereby helping prevent the implementation of harmful boardroom decisions.
To break up the unhealthy concentration and centralisation of economic power, employee mutual societies could be established and given control of their members pension funds. This would decentralise and democratise investment decision-making and give it a stronger social dimension. The £900 billion invested in UK pension funds accounts for a third of the stock market; a potentially massive counter-weight to the economic clout of big business. Employee-controlled pension funds, under expert financial management, could be invested in ways that help make the economy more people-centred and public welfare-oriented. Hopefully less inclined to invest in the arms trade and clothing sweatshops, they’d probably be more open to investment to meet social needs, including renewable energy, new medical technologies, affordable housing and quality public transport.
A further way to devolve and democratise economic power would be to have a mechanism for employee share ownership, collectively held and administered on behalf of all staff by employee mutual societies. Private share capital companies would be obliged to assign to these societies a proportion of their annual profits in the form of a new share issue. The great strength of this scheme is not only its democratic and social justice elements. It also incentivises and rewards employees for economic success. The more productive and profitable a company, the more shares it would be required to issue to the employee mutual societies and the sooner they would gain significant boardroom influence through their share ownership. This mechanism would give employees serious encouragement to increase productivity, which benefits them, their firms and the whole economy. It’s a win-win for everyone.
As well as redistributing economic power in favour of employees and the wider public, these four elements of a new economic governance would reduce the likelihood a re-run of the current economic crisis by a combination of decentralising economic power, democratising economic decision-making, improving corporate social responsibility and strengthening the accountability of businesses to their employees and consumers.
This transcendence of elitist, concentrated and autocratic economic power would result in a future society with a more democratic, cooperative and accountable economy. Imagine and create. Why not?