We've just spent the last 43 years resisting the imposition of continental style corporate governance upon British companies. Now that we’re leaving the EU’s embrace, new Prime Minister Theresa May is advocating that we adopt them anyway. This is not, to be polite about it, a sensible move.
Earlier this week, May vowed to put workers on the boards of big companies, and to curb excess corporate pay. Promising to put the Conservative Party “at the service” of working people, it sounded like her vision for a fairer society was shaping up nicely.
Sadly, however, she has shown that she does not actually know what she’s talking about. We were told in the same speech, for example, that if you’re born poor, then you die younger. Nonsense. It is true that poor people die younger than the rich, but there is such a thing as economic mobility. Absolutely no-one tracks lifespan by economic status at birth; it is status at death which is reported.
Then there’s wibbling about job security and how wages haven’t grown since the crash, when the unemployment rate following the financial crisis is the great proof that Britain’s labour market finally works. We would have expected vast unemployment – perhaps 4m people out of work – from a GDP crash of that size. But exactly and precisely because we had worked for decades to create a flexible labour market is why, when wage growth stalled, productivity fell instead.
None of these things are desirable, of course, but it’s better that income stands still for 65m than 4m get no income at all.
May tells us that we need to increase productivity; sure we do. As economist Paul Krugman points out, it’s pretty much everything in the long run. But an industrial strategy to improve it is something out of the Heath/Wilson playbook. It fails to note that it is markets which actually deliver that source of increased wealth.
The proposals on corporate governance come from the same age – the last time anyone took such ideas seriously in an Anglophone country. Workers and consumer representation on company boards is something we have spent the intervening years desperately fending off, as the EU thought of various ways to make us comply. To impose it of our own free will now we’re leaving is evidence that someone isn’t quite up to date with the economics of such things. The sole purpose of a company is to generate profits for the shareholders; nothing else and for no one else.
And there’s further evidence of not really understanding UK business. To talk about FTSE 100 pay is all very well, but does May realise that 75 per cent of FTSE 100 revenues come from outside the UK? A number of the 100 companies have near to no operations in this country at all. And some of them are not even incorporated here, and so are not even subject to UK company law. The FTSE is a list of companies traded here, not a reflection of anything important about the British economy.
What is particularly troubling, however, is the claim that this is a break with the past. It isn’t: it’s a revival of past ideas, ideas that we know do not work.
It took us a long time to work out that genial, even paternalistic, management of the economy in favour of some vaguely defined communal joys just doesn’t work. Indeed, the past 50 years have shown us that there are really only two economic models which do work. We can have a red in tooth and claw free market economy with high taxes and high redistribution a la Nordics, or a red in tooth and claw free market economy without the high taxes.
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We have generally been working towards that second model under the various Conservative administrations since 1979 – and Blairism was really an implementation of the first. But the crucial and underlying lesson of it all is the red in tooth and claw bit. That’s the essential ingredient which keeps either variant working. Bringing the supposed cuddliness of so-called community values does not.
In essence, May’s economic pronunciamentos are offering the unappealing opportunity of “Forward to the 1970s!”. Our second female Prime Minister aims to undo the settlement of our first, Margaret Thatcher.