potlatch

what do banks and prisons have in common?

I've published an article at openDemocracy, as part of the Uneconomics debate, in which I attempt to stand back and take a wide-ranging look at the policy dilemmas posed by the banking system. There is, I suggest, a serious problem in that the state has become an under-writer for a wasteful and ineffective risk management system, on which it cannot now easily turn its back. In that respect, the financial system has become like the prison system: a poorly calculated strategy for reducing risk, which may have the exact opposite effect, but which the taxpayer has become entangled with. As I argue:

Nearly five years after the dawning of the financial crisis, we can now identify one of its possible long-term legacies: the implicit association between the modern state and large financial institutions has become an explicit one. It is no longer possible to specify exactly where the state ends and the banking system begins...

We are living with a situation in which billions of pounds of public money is still being effectively siphoned into the pockets of private individuals, via quantitative easing and other forms of support for the banking sector. The on-going hand-wringing over the 'fairness' of bankers' pay tends to ignore the graver public insult, that billions of pounds are being removed from the banking system in the form of bonuses, which the taxpayer will have to provide if the system collapses again. Gordon Brown cites figures ^↑ showing that if bankers had reduced their pay by a mere 10 per cent between 2000-2007, the banks would have had £50bn more of capital available to them when the crisis struck, which is the same amount that the government injected into RBS and Lloyds-TSB in October 2008.

There is a structural problem here that has still not been dealt with. If this situation is to change, the government will need to take risks with its modus operandi of risk management. While regulators and policy-makers view the future via traditional risk management techniques, they will effectively endorse traditional risk management institutions of the City of London. Only with an ethos of experimentation can anything genuinely new be anticipated and valued.

You can read the rest of the article here. Comments might be better placed underneath the article itself, rather than on this blog.

Erik Olin Wright lecture on Worker-owned Cooperatives - 23rd May - Oxford

I'm organising and chairing this event with Erik Olin Wright in Oxford on 23rd May. All welcome!

 

Worker-owned Cooperatives: A niche in capitalism or a pathway beyond?

A lecture by Professor Erik Olin Wright, University of Wisconsin

5pm-6.30pm, Wednesday 23rd May, 2012

Lecture Theature, Department of Politics and International Relations, Manor Road Building, Manor Road, Oxford

Worker-owned Cooperatives have an ambiguous relationship to capitalism as an economic system. On the one hand, worker coops constitute a distinctive organizational form that occupies a small niche compatible with a well-functioning capitalist economy. On the other hand, worker-owned and managed firms violate in fundamental ways the class character of capitalism by being organized on democratic egalitarian principles. This contradictory relationship between cooperatives and capitalism poses an important question for critics of capitalism: To what extent could worker cooperatives ever constitute a significant component of an alternative to capitalism?

This lecture, hosted jointly by Oxford University's Centre for Mutual and Employee-owned Business, Public Policy Unit and Centre for the Study of Social Justice, will explore worker-owned cooperatives, as a case of what Wright terms 'real utopias'. It will feature a response by Prof Stuart White (Politics) and be chaired by Dr. Will Davies (Centre for Mutual and Employee-owned Business).

No registration is required. Please email william.davies@kellogg.ox.ac.uk for any further details about this event.

new ownership reports

Jonathan Michie and I have authored a report for the Wales Co-operative Centre, on the risks of business succession (especially in very small businesses), the social costs of succession failures and how employee buy-outs can avert these. You can download the report here. In other ownership news, check out the final report from the Ownership Commission, which Jonathan was a Commissioner on and I provided some research assistance for.

new report on employee ownership: All Of Our Business

My new report, All Of Our Business: Why Britain needs more private sector employee ownership, is published today by the Employee Ownership Association. To accompany it, I had an article in The Sunday Telegraph yesterday laying out its main arguments. And today, Nick Clegg seems to be taking this agenda seriously, as part of the (overdue) political movement towards questioning ownership and control in the private sector, and not just the public sector.

The central argument of the report is this:

[The report identifies] two rival philosophies of economic value, that businesses can embody. The first privileges the power of ‘exit’, and rapid turnover of all stakeholders, including shareholders, management and employees. Its proponents argue that this philosophy breeds efficiency, dismantling obstacles to innovation and profit. But in the last four years, it has become mired in a legitimacy crisis, as it appears to lead primarily to the personal enrichment of those who enforce and facilitate this model.

The second philosophy privileges the power of ‘voice’ and institutional memory, such that relationships between owners, managers and employees are sufficiently strong that information can be shared, and difficult economic times can be weathered. This can be difficult to realise in our culture of short-termism and distrust, but the argument made in this paper is that it is substantially easier in situations where the owners are also employees, and the employees are also owners. Employee ownership is a ‘commitment device’, which can save businesses from their own worst tendencies.

The employee-owned sector is not currently large enough to bring about a wholesale change in the character of the British business model, although the mutuals and co-operatives sector at large (which includes building societies, credit unions and consumer co-operatives) can make a significant contribution to alleviating many of the malaises of corporate governance, especially in the financial sector. They are also more numerous and high-performing than many policymakers appear to realise. The point that this report seeks to stress is that it is not only employees who suffer from a model of short-termist, earnings-obsessed business, but also shareholders, entrepreneurs and businesses, whose long-term interests are frequently neglected by the ethos of profit-maximisation. Eventually, society and public services are impacted negatively by business models and business culture that take such a narrow view of human psychology, as has prevailed in the UK over the past thirty years. The spill-over costs of bad workplace relations are now increasingly falling on the NHS. Viewed this way, it’s not clear that dominant notions of ‘efficient’ business practices are really as efficient as all that.

I'll try and blog a bit more about this in the coming days.

Update: British readers can hear Charlie Mayfield, Chair of John Lewis Partnership, and I discussing employee ownership on Radio 5 yesterday evening, at 2:24mins here.

the demise of football

Thomas Friedman famously offered the 'Golden Arches Theory of Conflict Prevention', on the basis that no two nations with a McDonalds within their borders had ever gone to war. Allow me to offer its successor: the 'White Goalposts Theory of Crisis Resolution'. This theory states that we will know that our present economic crisis is being resolved (rather than deepened), once a front-bench politician comes out and publicly attacks football, in terms of its business models, culture and economic norms, and not only for its sporadic eruptions of racism or corruption. My prediction, for what it's worth, is that this event will occur in October 2013, and that the politician in question will be Yvette Cooper, Leader of the Labour Party.

Football was once such worthless political currency that Margaret Thatcher publicly questioned whether England should be allowed to compete in the 1990 world cup, due to the threat of hooliganism. Euro96 was the turning point, although English hooliganism was still rife at the Euro 2000 championships. Since Euro96, no politician has had the guts to question any aspect of the game or its status within our media, public sphere or national self-image. The 'old' aspects of the game - racism and FIFA corruption - are routinely attacked, but the 'modern' game cannot be questioned.

But look how grizzly things are getting. I read last week that Carlos Tevez may be prepared to take a pay cut from his £250,000 a week job at Manchester City, on the one condition that his new club has it written into his contract that he remain the highest paid player in the squad. Wayne Rooney's behaviour regarding his Manchester Utd contract was criticised by many, but politicians repeatedly duck these issues, despite viewing consumerism, (some) advertising and (recently) X Factor as fair game. Energy oligarchs have removed whatever sense of 'level playing field' may have remained in the English Premier League, turning the top of the football labour market into a far less dignified version of what goes on in boardrooms, as players shamelessly strategise towards remuneration increases (hilariously still termed 'wages') through any means possible.

What precisely are we celebrating when we enthuse about football? Increasingly it is referred to as 'athleticism', in which case lets all start following Usain Bolt. If we have to turn our backs on the tediously-adored Barcelona at the same time, then so be it. It's a price worth paying. The football-obsessed sports shops in British high streets have nothing to do with athleticism or even physical exercise any longer. Just try buying some new laces, socks or functional trainers in JD Sports. You could come out dressed from head to toe as Michael Jordan, but there are much cheaper ways to get a fancy dress outfit.

Football is more interesting as a bellwether of contemporary capitalism, and should be criticised accordingly. Not long ago it was PLC ownership structures that looked like they were stripping the heart out of clubs, seeing them run 'for profit'. Now the problem is the opposite: they are owned by private billionaires, run 'for power', but at a vast loss. Roman Abramovich's takeover at Chelsea in 2003 thefore anticipated the broader trends that I've argued the present crisis will unleash.

Regulation School Marxists define a capitalist crisis as a situation where neither 'more of the same' nor 'less of the same' will resolve the situation. Our present debt crisis is a case in point. More debt makes it worse; paying off debt also makes it worse. Resolving such situations requires a fundamental revaluation - innovation not only in policy measures and mechanisms, but in the culture and values that underpin how government and business institutions operate.

The challenge of resolving a serious crisis is that it involves a degree of truth and reconciliation regarding the past. One often has to accept that critics (sometimes quite eccentric ones) are right, and even that they have been right for a long time. The demise of Keynesianism was as slow as it was because it involved coming to terms with the fact that full employment was no longer a useful goal of policy. This was a severe moral revaluation, not simply a technical paradigm shift. The enemies of Keynesianism (the monetarists) had to be welcomed in to the fold. This takes time and much pride swallowing. There is also some first mover advantage on these occasions, just as Britain seemed to benefit from giving up on the ERM, before its terms were loosened anyway.

To accept that football - or should we say 'Football' as an idea - may actually be part of the disease, and not a harmless supplement to our economy would take some pride-swallowing. The idea that 'talent' has its 'desert' in very large amounts of money is so ingrained, we so want it to be true, that we carry on adhering to it no matter how grotesque the spectacle it generates. The media maintains the pretence of separating Ashley Cole the 'talented' footballer from Ashley Cole the unruly working class 'yob' (as if the latter is just his unfortunate inheritance), ignoring the obvious liklihood that football is far more responsible for his noxious personality than his upbringing.

Those on the liberal-left are able to see through the rhetoric of bankers, when they demand that London remain a 'level playing field' so as to ensure that their industry's 'David Beckhams' are still attracted to work here. The liberal-left is able to debunk football as a metaphor. But why not go a stage further, and attack the whole sorry charade that's been making fools of so many people (me included) for the past 15 years?

Why must Jonathan Freedland write a sensible argument about extreme inequality in pay, but in the same article offer a justification for Wayne Rooney's £250k a week? Once you give in to the neo-classical vision of a labour market, that wages are simply a reflection of 'demand', then the door has been left ajar for the likes of Fred Goodwin. Why not just take the bull by the horns, and accept that the whole thing should just be shipped off to a vast in-door Nike sports complex in Dubai where it belongs? Is it not possible that the constant news reports of footballers attacking women, of fans being charged £50 a ticket and replica shirts being 'outdated' every 9 months, of Manchester Utd's Nani having a life-size marble sculpture of himself in his house do not happen inspite of the vast sums of money that are now at stake in this game, but because of it?

At some point in the future this will appear obvious. Soon after that, we will find it difficult to ever believe we tolerated, even celebrated, this circus in the first place - just as, by the 1990s, it seemed extraordinary to think that governments once targeted full employment. For the time being, any politician would shudder at the thought of criticising the game, as opposed to its undesirable 'externalities' or its metaphorical distortions. Which, according to the White Goal Posts Theory of Crisis Resolution, only goes to show how far into our current crisis we are: not even half way.

twitteratus

In my day-job, The Centre for Mutual and Employee-Owned Business is now on twitter! Follow ye, follow ye!

Policy Network mutualism report

Policy Network have just published a new essay collection, What Mutualism Means for Labour, containing various pieces, including a modified version of my previous piece for them, Bringing Mutualism Back Into Business. There's a nice piece in today's Guardian, covering the report, and Tessa Jowell's contribution in particular.

mutual activities

Tomorrow I'll be speaking at the Mutuo annual Mutuals Forum, which will see the launch of the 2011 Mutuals Yearbook (available for download). I've written a short introduction, trying to ram home the political significance of this sector in the current economic climate, arguing the following:

The current economic and political imperative is to promote ways of organising finance, risk, public service and enterprise, that are both dynamic and responsible at the same time. For a while, ‘social enterprise’ appeared to offer a third way, between state and market; today, we’re told that it is the ‘Big Society’. Regulators and policy-makers are seeking principles via which to distinguish the ‘socially useful’ parts of the private sector, from those which seek only to inflate private earnings as fast as possible. Mutualism adds much-needed clarity to all of this, by offering well understood, viable organisational structures, that are entirely alien to both Whitehall and the deal-makers in the City.

On the same topic, I'll be speaking at the ippr on 2nd November, at an event 'Corporate Governance Reform: Can alternatives to share holder capitalism drive growth in a new era economy?'. The other speakers are all much more famous than me, so either I'm going up in the world, or they're going down. It's very hard to tell in the current economic climate.

new gig

As of this week, I've taken up a new job as Academic Director at the Centre for Mutual and Employee-Owned Business in Oxford. That's about all there is to say for the time being. Email me here still. Rumours of a twitter feed remain as yet unverified.

the real problem with AC Grayling's New College

There is one important aspect of AC Grayling's New College that has been strangely ignored, which is a shame because it is arguably the most odious, whatever Terry Eagleton might say. The media has understandably focused on the fee of £18,000 a year, and the fact that this will turn education into an extreme luxury item; but as Chris Dillow suggests, the worth of an £18,000 degree will be considerably less than that of a £9,000 one from a good university, once it becomes plain that its full of dense Etonians.

I also think the notion of a 'private' university is not, per se, anything to fear, and on this Grayling deserves to be heard. Paul Mason's evocative phrase, used in his LSE lecture, that the 'Ross and Rachel era is over', cannot be ignored, simply by demanding more of the form of credit-fuelled and state-driven opulence that Britain enjoyed during Blair's second term. Who knows where the humanities will be housed in twenty year's time? Lets listen to Paul Gilroy, when he says:

Maybe we have to look to a younger generation, people who are either not academics, or have a very tenuous or marginal position in the academic world and are very skilled or adept at using elements of the new technology to build a different kind of platform than the one they would get inside the bubble of official commentary. People like Dan Hancox, and Kay Punk, and Richard Seymour – all bloggers of one sort or another. They may have a journalistic gig too, do a bit of academic life, and have 10 or 20,000 followers on Twitter. I think new technologies impact this idea of public intellectuals very directly.

Against this backdrop, the notion of listening to Niall Ferguson and Richard Dawkins blather on, at a cost of £18,000 a year, purely because they are publicly recognisable to non-intellectuals (which is purely because they get invited to blather on on Newsnight, purely because they are publicly recognisable to non-intellectuals), appears the equivalent of listening to Emerson Lake & Palmer in 1977. They're yesterday's people, and the only people who don't realise that are those who can't distinguish price from value. 

No, the really odious thing about Grayling's proposal is a term that gets lost between '£18,000' and 'private'. That term is 'for-profit'.

Consider the meaning of a for-profit university. Not for-learning or for-research, but for-profit. Actually, this term is always something of a misnomer. The central contradiction of capitalism from a Marxian perspective is that the extraction of surpluses depends on use value: something useful, productive, desirable must be invented or built, before money can start being creamed off. A for-profit car manufacturer must also, to some extent, be for-cars. It transpires in the case of Grayling's New College that even the financiers have interests and objectives that extend beyond accumulation of more money.

But if for-profit means anything, it means that financiers and owners are owed some form of surplus, and are entitled to take whatever surpluses happen to arise unexpectedly. This is quite different from conventional debt finance, in which we assume that the lender will receive some interest on the loan. 'Not-for-profit' organisations such as charities and Foundation Trust hospitals borrow money in this way from banks, but this is not to say that the bank receives the surplus. Surpluses, as Georges Bataille argues, are the central fact of all economy in the 'general' sense of the term. Feasts, wars, orgies, exploitation, sacrifices are all anthropological phenomena which dispose of that which is left over, that of which there is too much. Capitalism's solution to this problem, namely surplus value extraction from labour and distribution of it as profit, is only one of innumerable ways of dealing with the fact that value overflows, that our needs are often more than met. The surplus produced by universities, for example, typically spills over into the public sphere and the enrichment of human lives.

Following the Alan Greenspan-induced 'Ross and Rachel era' of opulent, overflowing credit, finance has returned to its traditional Scrooge-like mentality. There is scarcely enough to go round. And therefore to introduce a profit motive into universities, at precisely the moment when finance has already removed all of the surpluses from public use, represents an appalling insult to injury. To say that the lender and the owner have first dibs on any additional value that happens to be lying around, and to say that in a university, positions Grayling alongside Fred Goodwin and Bob Diamond as those who privatise all gain, then socialise all loss. This is the logic of 'drill, baby, drill' - that because the surpluses are running out, we need to privatise more of them - extended into the intellectual sphere.

So, yes, by all means privatise universities. After all, how many academics enjoy the state breathing down their necks via the Research Excellence Framework? And if you can find an education that is 'worth' £18,000 a year, and genuinely intellectual students who happen to want to spend this, then who, really, is to stop you? Private entities can serve public interests, and anyone who disagrees needs to put down their David Marquand book and consider where their treasured cultural artefacts come from. Where Grayling has suffered a complete failure of imagination is in jumping directly from 'private' to 'for-profit', thereby confirming our worst suspicions about the company that he, Dawkins and Ferguson are keeping, and the Thatcherite politics they harbour.