Monday 16 January 2012

Socialism@Work from the Coalition

John Lewis is a very well regarded company. Its high end Department Stores and successful Waitrose food business have done the company well in the last decade or so. This was not always the case and the Company has had bad times too.

In the past few years it has benefited from many people who have kept their jobs in the recession having more disposable incomes as previously enormous mortgage payments have dropped from their monthly expenditures.

Now today, Nick Clegg is extolling that in fact, John Lewis, because it is owned by the staff is in indeed a better business. I do have some concerns here as to whether this is the case or ever sustainable on a grand scale.

Firstly, there used to be many Mutual Building Societies, these eventually all demutalised as the holders of shares wanted a short-term return. As it has turned out, due to rising costs of capital, mutuals that remained have done very badly in recent years and there have been numerous rescue mergers and busts. This are not rosy in this sector of stakeholder ownership.

Many companies too have big Save As You Earn schemes - Northern Rock and RBS amongst them. these too have not done their participants much good when their shares have been wiped out, often along with their jobs.

The idea of making a legal obligation on companies to offer their employees shares is its potential for risk concentration . You already get your salary from somewhere, now invest in it too, so that when things go wrong you lose everything.

This is an acceptable position if you are the owner/founding management and  you stand to get rich if it all goes right - indeed the risk capital put in will have been hard to get hold of. But if you are say a secretary and your shares are only a tiny fraction of the business at best, even in a winning situation you won't have done that well. Whilst in a losing one, you will have done your savings as well as your job.

Capitalism has many forms and employee partnerships can be successful and compete against normal shareholder companies very successfully. Mandating this as a way out of our current problems is not really the answer though. The idea of responsible capitalism is a very political one and one with strong socialist routes. I have worked with 'Works Councils' in German companies; these councils are not the reason for German business success. Germans work longer hours than anyone else, have better training and a positive work culture - these things are much more important than how a company is structured.

Finally, a theme I mentioned last week. Shareholder owned businesses have to access the private capital markets, not the public ones. Mutualisation, as such, would in theory shrink the capital markets of the UK and make it harder for pension funds and other long term investors to find good investment opportunities. I can imagine this is what the economically illiterate Lib Dems want, but is this really a public good?

15 comments:

Bill Quango MP said...

glad you mentioned thi CU. Was thinking about it myself.
At the start of the 2008 recession I posted about how Waitrose was in a potentially bad sector. Its very easy to drop from Waitrose to Sainsburys to Tesco. And despite much debate from supporters at Waitrose this is what happened. Morrisions and Lidl were the big winner in supermarket share.

What Waitrose did was to improve its offer and introduce a Waitrose value range, that lowered its everyday prices to match its rivals.

That is smart,reactive management, not socialised theory.
M&S did the same by introducing other non M&S brands for the first time.

Royal Mail is being privatised on a so-called John Lewis model.
But Royal Mail staff already receive bonuses and a special share profits scheme, that saw payouts of some £500 a year to each worker, until it was scrapped last year because RM claimed there was no money to pay it.

Sebastian Weetabix said...

I totally agree with your comments about German companies, having spent 11 years of my career working for a couple of them - they do work hard and there is generally a positive interaction between, workers, management & unions. But I think the structure does matter; I daresay the average CBI blimp would react with horror at the concept of worker's councils, but I thought it worked quite well - most people at the coalface have a pretty good idea of what is good/bad in a business and it helped keep management feet on the floor. It also forced management to think strategically & long term since it constrained their ability to act in a arbitrary fashion.

I'm not sure it would work if you had the likes on Bob Crow or Derek Hatton on it though.

Anonymous said...

What could be worse, a worker investing in their company pension funds or investing in their company shares, when they go belly up both investments are worth nothing for example the old General Electric Company a company valued at one time at £40Billion reduced to £400Million to nothing, all due to bad bad management

Anonymous said...

The benefit comes from not being shorted by hedgies or subject to milli-second "ownership" from progamme traders. The model of Western Capitalism has been broken by 50,000 to 100,000 banksters, so anything that defeats them is to be welcomed.

Anonymous said...

And as usual some lefty anonymous commenter comes on and spouts some bollocks.

And in case you feel this is an Ad-hom, I can explain why you're full of shit... But I think facts would get lonely in your head next to "Banksters" and the like..


JD

Anonymous said...

4:27 PM - I had shares in HBOS and Lloyds, so I think I perfectly entitled to talk about banksters.

Anonymous said...

To Anonymous above : shares in HBOS were effectively worthless. Shares in Lloyds were excellent until it was dragged into the HBOS morass by a New Labour-supporting chairman, Sir Victor Blank,at the behest of the Labour Prime Minister Gordon Brown.

CityUnslicker said...

I have some sympathy with the algo trading ruining investing - but that is anotehr topic about which you can read on this blog in many posts.

The point about share ownership is the risk concentration - of course companies go bust like GEC. But if your job AND your savings are tied to it that's bad. if you pension fund is in a tracker or commodities etc then at least your savings have not been destroyed to with your career interruption.

SB - Workers councils would not work well with out left wing unions. the antipathy from staff to management is very high. In smaller companies this has more merit perhaps - but then they don't need this layer of architecture. I note in teh US companies that have flat structures like Google and Apple are winning out anyway as that is how the next generation of people work - the world has been changed by the internet and social nextworks in just 10 years.

BlackRaven said...

Lehman's and Bear had two of the highest employee ownership percentages for any listed firms...

Nick Drew said...

Enron, too ...

dearieme said...

"I'm not sure it would work if you had the likes on Bob Crow or Derek Hatton on it though." The present German trade union system was introduced in a period when their Crows and Harttons had recently been shot or gassed.

Every cloud etc.

Anonymous said...

Not sure what the point of citing Enron, Lehman and Bear Stearns is. I imagine it is possible to mention the odd traditional company that has gone up in smoke, too. That's as pointless and unrelated as saying all investment banking is a Madoff style ponzi scheme, or everything that's red is a bus...

CityUnslicker said...

Anon - fair point re generalisations. However, share ownership is currentlybeing peddled as panacea. This is also an unproven generalisation.

Anonymous said...

Other Anon: "Not sure what the point of citing Enron, Lehman and Bear Stearns is "

The point is, I think, that single company share schemes fly in the face of conventional investment orthodoxy, which is, be diversified.

Quite a lot of employees at Enron might have thought they were very well provided for by their Enron stock holdings right up until the company crashed.

Anonymous said...

When my employers nearly folded in 2002 the price of my shares (from PAYE option schemes and profit sharing) dropped by 95% and I took a £40K hit.