Pension funds and insurance companies, who invest the life savings of a large number of ordinary people, are major shareholders in large corporations. It could be argued therefore that through their investments, many ordinary people do in fact already have a stake in large corporations. But they don’t at present have much say in how fund managers exercise their rights as shareholders. It might be sensible to ask questions about the accountability of fund managers to their investors, as well as asking questions about the accountability of large corporations to their shareholders. Ordinary people are the end of the chain, but their voices are lost in transmission.

I suspect the OP also had in mind accountability to other stakeholders as well, such as employees, and I’m not ignoring this. But having engaged shareholders who actively seek to promote the best interests of the people they represent would be a good start.

As we know the previously despised small business sector is the on e which is vital to growth as it is there that innovation takes place and it is there that expanding companies usually are by a sheer process of entrepreneurial life cycles. Can you answer me this question in any way that is likely to make sense outside the tenets of occupy:

” I,an entrepreneur, invest my money, take considerable personal risks, usually invest my life, creative genius and waking hours into starting a business. At what point do I hand over the running of this Company to the people I have subsequently employed? How will you enforce this and do your imagine there might be any perverse outcome to this interesting idea.? “~

In the absence of any answer we`ll just quietly ignore you shall we ?

We Are Legion: The Story of the Hacktivists

http://www.youtube.com/watch?v=gn9-80ObGA8&feature=player_embedded#!

Remember… Anonymous Celebrates the 5th of November

http://www.wired.com/threatlevel/2011/11/remember-remember-anonymous-celebrates-the-5th-of-november/

@3

.

The problem is that I don’t understand what you mean by economic democracy: do you mean handing over a firm to its workers (in whcih case the firm will be run in the interests of those workers- not neccessarily aligned with the interests of the rest of us- so for example workers in a chemical plant have no need to prevent its wider pollution because its wider society that picks up the tab) or to another group of people like the self selecting anonymous- that sounds more like oligarchy than democracy- or to the entire people- in which case you are just handing it over to the state.

Furthermore how do you guarentee that the firm will continue to behave in teh good ways that capitalist firms do today: take risks, innovate and invest in new products. Firms do so today to make money for shareholders- but a firm owned by salaried employees might well be more conservative so that they protect their salaries for example.

I don’t think you have thought through these issues and your article really doesn’t deal with any of them.

“If a firm is currently a genius psychopath with no regard for anything but shareholder value …”

Businesses being forced to “maximise shareholder value” and disregarding all other human considerations such as ethics and morality is surely one of the key constructs that has to be altered if we are to have any tolerable future as a civilisation.

At present isn’t it the case that business can just hide behind shareholder value and get away with whatever anti-social behaviour they like (so long as it’s legal) saying; “nuffing to do wiv us guv’nor, we’re just maximising shareholder value, it’s the law!” ?

Isn’t one of the major problems that exec’s have been fucking the shareholders in order to enrich themselves?

@5 – Is John Lewis and Waitrose conservative?

@1 Frances_coppola: I think that’s definitely a constructive idea – although in some ways the boat has already sailed on that one. Back in the 80s and early 90s pension funds and insurance companies used to own a significant portion of shares – in 1993 they had a combined 53% of total shares owned. As of 2008 pension funds have 13% and insurance have 13% as well – obviously a much smaller figure. (see: http://news.bbc.co.uk/1/hi/business/8482601.stm ) It’s worth looking at though I’m not sure myself what that could practically mean in terms of action.

@2 and @5 – You’re right, I’ve not deal with what a practical solution would look like. Though Sunny edited it out (quite reasonably) the original version of this article http://theredrock.wordpress.com/2011/11/05/five-arguments-for-economic-democracy/ did make it quite clear that it was the first in two parts.

The first part is reasons in principle why more people ought to have broader control of our firms in a democratic manner. It’s not really concerned so much with what measures we could achieve this by – this i because as @5 rightly points out, in reality there are a lot of ways to achieve this end and they each have their own problems and advantages.

They need to be discussed and that’s what pt. 2 (being written at this moment) is for. I hope it’ll be up on LibCon as well. This is just to establish that it is something that we would *want to do in principle* – how we might do it comes in pt. 2.

I’m quite a fan of Peter Tatchells proposals (with the possible exception of share issue based transfers, which probablly bear a little more thought as to possible unwanted effects.), so please take this as constructive criticism.

But, it drives me crazy to see that old GDP-Revenues canard come up. They aren’t comparable in the slightest. Tim worstall has said it far more eloquently than I could; http://www.forbes.com/sites/timworstall/2011/06/28/gdp-for-a-country-is-not-the-same-thing-as-turnover-for-a-business/.

Come to think of it, Comparing GDP to Assets isn’t really on either.

“But instead of trying to limit firms’ behaviour, an alternative approach might be to get them to want to do different things.”

Of course. Change the incentives. Just what we classical liberals have been screaming for centuries. Change the incentives and you’ll change the behaviour because, as the first rule of economics insists, people respond to incentives.

Make labour more expensive and people will hire less of it. Raise taxes and people will work less. Subsidise unemployment and you’ll get more unemployment.

We’ve been saying this all along.

I`m not sure its true that raising taxes makes people work less Tim, most people have a mortgage to pay and work is not optional . I think it may have a more telling affect on risk taking especially viewed as an opportunity cost transaction set against, shall we say, a nice safe job in the Public Sector.
If you look at that sort of effect regionally , there are areas of the country where no amount of demand or development grants will ever re-start self sustaining local business because it is impossible to employ anyone at rates reflecting what they are worth to the business.

As a general principle I `m sure you are right

Good article, and I look forward to reading more detail. To me the biggest hurdle to overcome is globalisation – in a global/continental scale free market, I would have thought a company that gave increased power to workers would risk being outcompeted by international competition. People would use employee democracy to demand higher wages and better working conditions; this would entail higher costs, resulting in the company being undercut from overseas. John Lewis can cope with this to some extent – you can’t outsource actual high street retail to China, even if you can (and they do) outsource the production of goods they sell.

Tim W: “Make labour more expensive and people will hire less of it. Raise taxes and people will work less. Subsidise unemployment and you’ll get more unemployment.”

The article is about changing internal incentives within corporations. The article is not about (debatable) broader economic incentives created by benefits legislation or taxation.

I assume you’re trying to push the idea that because the poster disagrees with your ideas about wider economic incentives it is hypocrisy/inconsistent for him to believe in the effectiveness or existence of any incentives at all – which as an argument is really just a semantic game.

‘which as an argument is really just a semantic game.’

Thats just worstall all over though, isnt it.

Paul Newman: “I,an entrepreneur, invest my money, take considerable personal risks, usually invest my life, creative genius and waking hours into starting a business. At what point do I hand over the running of this Company to the people I have subsequently employed?”

For most start-ups, in an economy dominated by large businesses and where few “creative geniuses” start with a big pot of money to invest, the question they are likely to face first is at what point they sell control of their life, creative genius and waking hours to an international investor in order to obtain the necessary capital for expansion.

“raising taxes makes people work less Tim”….substitution effect

“most people have a mortgage to pay and work is not optional”….income effect.

Both effects are true for some people all of the time and all people some of the time. How they play out in aggregate is what gives us dynamic changes in tax revenues.

We know quite a lot about the effects too. Income effect is quite strong in the short term, becomes less so in the long. Substitution effect vice versa.

Substitution effect is stronger in married (or cohabiting) women with children than it is in the childless or males.

“Of course. Change the incentives”

Doesn’t quite work for the ‘death tax’ does it?

” most people have a mortgage to pay and work is not optional . I think it may have a more telling affect on risk taking especially viewed as an opportunity cost transaction ”

Absolutely, one of the key problems identified by the OECD report about labour markets and regulation that tim linked to on my thread last week, is that workers are generally risk averse about moving jobs. Some of this is about factors beyond the control of governments – people make friends with colleagues and attachments to places they work, plus moving jobs usually requires making an effort on the application process etc. But another factor is that the longer you have been in a job, the more rights and entitlements you have towards things like redundancy payments, plus the more likely you are to have developed a good relationship with your boss. This makes ideas such as extending the qualification period before you are protected against unfair dismissal from 1 to 2 years a really really stupid idea.

It also makes removing the support and entitlements people get from a welfare system a really really stupid idea, as people become more risk averse about quitting a stable job in order to set up a new business. Luis Enrique posted something a while back showing the highest level of start ups was in Norway, which illustrates the point I think.

So what policies do the allegedly economically literate conservatives propose? removing employment protection and cutting welfare services.

@11 Matt: Point definitely accepted, though I hope no one would dispute the wider assertion.

@12 Tim: As other posters have pointed out, it’s not really a classic case of incentives, and certainly not the external ones that liberals like to talk about.

Of course, if coming from a classical liberal point of view looking at it in terms of incentives helps you think about the project favourably then by all means do so…

You can really talk about anything in terms of incentives. Regulation is an incentive in itself – something being illegal is usually a pretty good disincentive to doing it, partly because it will carry a penalty and partly because there are other tangential benefits of keeping everything “above board”.

On the issue raised by the article, it’s important to remember that firms aren’t actually people, and that this is changing the decision making process within firms by putting different people in charge. So in fact you might even go as far as to say you’re not actually changing the incentives, but rather just changing the people who will be in the position to respond to incentives.

It doesn’t really matter though, it’s just a question of language. Since you clearly think about economic problems in terms of incentives, it will be blindingly obvious to you that this about incentives and it will be inexplicable that anyone could think otherwise (they are probably stupid).

@14 – The international dimension is definitely something to keep in mind – interestingly one of the reasons the Bullock Report (1970s call for state imposed co-determination in the corporate structure that at the time was rejected by the unions on the basis that they’d rather do it the non-state route with collective bargaining) was never resurrected was because the European Union was supposed to implement a similar Europe-wide system of co-determination through the Fifth Directive on Company Law. That never happened, though.

@ 16. jungle

” For most start-ups, in an economy dominated by large businesses…”

I don’t think large businesses do dominate the UK economy. Based on 2009 numbers SMEs employed 59% of the UK’s total private sector workforce, and accounted for 51% of UK GDP. Considering government will also account for a fair proportion of the other 49% of GDP, they do not dominate the economy. However, large business do disproportionately dominate lobbying of government through their size. The absolute last people that the government should consult about the future direction of the economy are the leaders of large businesses. Yet, it is to them government of all stripes always turn. Without fail they will make recommendations that will serve their interest rather than the wider economy. John Kay pointed out that the U.S. government in the 1970s compiled reports about the future direction of the computer industry and of course consulted all the contemporary large players. Everything the large players told them turned out to be wrong. The people they should have been speaking to was Bill Gates and Steve Jobs. However, they were still at school and government does not listen to schoolboys when they have large established businesses to give them duff advice.

“…where few “creative geniuses” start with a big pot of money to invest, the question they are likely to face first is at what point they sell control of their life, creative genius and waking hours to an international investor in order to obtain the necessary capital for expansion. ”

I don’t think getting the capital is the problem. Of course, to get the capital the creative genius will have to sell some equity in exchange for the capital. Lots of UK universities now encourage spin-out companies from their own departments where research and innovations are commercialised by their students and academic staff. There is never a shortage of angel investors willing to put capital into such good ideas. The problem after a few years is a familiar one to UK business. They lack ambition to grow the business and get tired working long hours. So when a large company comes along offering a lot of money to buy them out they sell up. Happens all the time with good small spin-out biotech firms who could grow, but they end up being taken over by large pharma companies.

Richard most people work for ordinary SMEs in established sectors primarily servicing the UK market. High tech stuff gets the headlines but its is not ever going to do the heavy lifting which comes from incremental innovation is ordinary competition
Finance is usually obtained informally or from the principle

Richard/ Jungle -
Most people work for ordinary SMEs in established sectors primarily servicing the UK market( 80% of trade is UK internal ). High tech stuff gets the headlines but its is not ever going to do the heavy lifting which comes from incremental innovation is ordinary competition
Finance is usually obtained informally or from the principle and at various stages finance is not hard to acquire if the model is viable.
You suggest actually relinquishing control and rewards to people who have done nothing but turn up to work. This seems to me to be a problematical concept
Why bother with the whole thing why in 70s parlance make the pie if everyone gets a slice anyway?

” don’t think getting the capital is the problem. Of course, to get the capital the creative genius will have to sell some equity in exchange for the capital”

I think you need to distinguish here between tech start ups and more general entreprenuership. The former will attract investors hoping for another amazon or google. In the latter type of start up….well venture capitalists simply don’t fund new cafes, salons and mechanics. Yet in deprived areas the vast majority of the population are simply unlikely to be trying to establish a tech start up, but there are many who would like to (and would largely be good at) run their own cafe, salon, car repairs etc. Regenerating areas largely depends upon people continually setting up these basic enterprises locally, but currently banks are not lending to people wanting to do this.