The neoliberal constraint

There’s something that troubles me about Labour’s otherwise admirable plan for greater worker ownership. It’s that it could fall victim to neoliberal* performativity.

What I mean is that there are two different ways to think about the plan. We could see it as a gentle step towards co-determination of a sort that’s common in Germany. Or we could instead see it as Sam Dumitriu does, as a “straightforward hike in taxes on profits” – perhaps even as a form of expropriation - which will raise the cost of capital and so reduce investment.

This is where performativity comes in. Words are not mere words. How you describe the scheme determines its effects. The boss who regards it as a mild reform is likely to try to make it work. The one who regards it as a threat to property rights and to his empire is more likely to up sticks. If Sam’s view is widely shared in boardrooms, his warning that firms will disinvest will be self-fulfilling.

Now, in mere hydraulic terms, Sam’s warning seems overblown. One Big Fact tells us this. UK share prices have under-performed the rest of the world for ten years, suggesting that the UK’s cost of equity capital has risen relative to that elsewhere. AFAIK, however, critics of McDonnell have been relaxed about this – and perhaps rightly so, as it’s difficult to establish that this has deterred investment and innovation**.

Hydraulics, however, are not the point. What matters is animal spirits. A rise in the cost of capital because of direct policy action might have worse effects upon investment than one caused by stock market falls for other reasons – especially to the extent that a Corbyn government will increase uncertainty anyway.

What I’m trying to drive at here is that neoliberalism doesn’t just describe the world, but shapes it. As Jesse Norman says, “markets are living institutions embedded in specific cultures”. Our culture is a neoliberal one, which affects how markets operate. For example:

 - Tax. If you regard higher tax as a price worth paying to live in a civilized society, you’ll be content to pay (moderately) higher rates. If, on the other hand, you regard it as theft then you are more likely to take steps to avoid it, either by working less, or migrating or dodging it by legal or illegal means. The shape of the Laffer curve depends upon tax morale and ideology. Neoliberal beliefs cause the revenue-maximizing top tax rate to be lower than it would be with social-democratic beliefs.

 - Regulation. If bosses feel constrained to act with a sense of propriety in accordance with public morality – as Adam Smith thought we were – then they are likely to abide with new regulations. If, on the other hand, they regard them as restraints on the right to manage, they’ll seek to game them or avoid them.

 - Politics. If you regard politics as just another marketplace in which the customer is king, you’ll defer to public opinion and thus downgrade expertise and representative government.

These are all ways in which neoliberal beliefs can be self-fulfilling. But they can also be self-refuting. For example, in the early 00s mainstream economists thought that securitization was a good way of pooling risks and thus of increasing financial stability. This emboldened banks to gear up, thereby causing a crisis.

My point here is a disquieting one. It is the case that many neoliberal ideas are plain wrong; neoliberalism, for example, might well have retarded productivity growth. It is not, however, sufficient to point this out. Neoliberal ideology – whether right or wrong – can create its own reality. Insofar as this is the case, it is a constraint upon what social democratic governments can achieve.

* Yes, I know some of you hate this word. But I can’t think of a better one in this context.

** Though of course, ascertaining cause and effect is damnably hard: is the All-share’s under-performance a cause of lacklustre growth, or the result of expectations of it?

Comments

[Kester]

We need a Georgist and Mutualist Labour Party. I think Labour has broken the lock of Thatcher's criminal Right to Buy policy. To boost turnout amongst renters a land value tax (also "location value" tax) of 100% (low on agriculture etc with utilities and high on properties in South East London) and basic income are needed. Because the supply of locations is fixed and its location value is created by communities and public works, the economic rent of land is the most logical source of public revenue. It is effectively business rates with buildings and improvements not considered. In the 2017 election, compared to previous elections, turnout by private renters increased (from 51% in 2010 to 65%) and favoured Labour to a greater degree, with the party achieving a 23-point lead over the Conservatives among private renters; the Conservatives maintained a 14-point lead among homeowners. It would encourage development on brownfield sites. There would be no tax incidence since the supply of locations is fixed unlike income tax discourages those from working.

Also banning all bank lending except capital development (enforced by UK courts gift of shareholder's funds if the lend prohibited) and 0% overdrafts as agency businesses from state for capital development lending "provi self employed lenders model" will help drive a wedge between the City and business. Bank lending restrictions depress the economy so a printed basic income is needed to counteract. Since there is no huge banking sector it solves the problem of "high powered money" inflation and you could monetarise the national debt. The banking sector is the direct cause of our national debt problem. Those 0% overdrafts for capital development lending need to be suggested to John McDonnell via SWL so he can boost the real economy and eliminate our national debt problem.

With no bank lending for shorting the natioanl currency liquidity will go fast and the 'currency crisis' complained by the founder of Momentum will go away. So three major problems for Labour have been fixed.

[Kester]

https://en.wikipedia.org/wiki/Land_value_tax

"A supply and demand diagram showing the effects of land value taxation. As the supply of land is fixed, the burden of the tax falls entirely on the land owner. There is no change in the rental price and quantity transacted, and no deadweight loss."

[UserFriendly]

The UK already has one of the lowest corporate taxes in the OECD, adding 1% to it shouldn't do much. If there is a capital strike there is always currency controls, which would have the added bonus of throwing a monkey wrench in all the UK's tax havens.

[TickyW]

If Earnings Per Share and Dividends Per Share fall as a consequence of McDonnell's proposal then I for one would welcome it.

If shareholders want to move their funds abroad in response then they are free to do so - their departure won't make much difference to real investment (i.e. new spending on productive capacity) in the UK.

So good riddance to the wealth extractors! Go elsewhere and take your exploitative practices with you.

[Dave Timoney]

I think one way of thinking about McDonnell's speech is that it is part of a bid for hegemony. What matters is less the nuts and bolts of the policy proposals, which would probably change once in government anyway, than the emphases on common ownership and the responsibility of business to fund public services. As such, this was an example of social democratic performativity.

The exasperated tone of Sam Dumitriu's response suggests that the likes of the ASI recognise that this is an attempt to shift the Overton Window that might in turn mitigate the constraint of neoliberal performativity. The media has generally seen McDonnell's proposals in terms of the war of manoeuvre when he may be engaged in the war of position.

[TickyW]

Have just read Sam Dumitriu's diatribe which just contains unsubstantiated assertions and irrelevant comparisons. It smacks of Project Fear.

[mariorossi]

I don't really understand how you could consider this plan worker ownership. Workers wouldn't own the shares in any significant way. They have no right to sell the share or to keep the dividends after they leave the company.

Ownership creates powerful incentives since it lets you capture long term benefits of any improvement. In this scheme workers wouldn't receive long term benefits since the payout is conditional on them working for the company. Unless you expect to work at the same company for a long time, it's not worth your time.

To be honest, I think this is just a gradual corporation tax hike. We already have different tax rates between small and large corporations and we'll get basically another tax rate for companies above 250 employees.

Switching from dividends to share buybacks would circumvent this scheme entirely anyway. What happens if the company is acquired? From the sound of it, the government would get most of the money since any one off dividends would likely breach the £500 limit.

If you add conditionality to private property, you haven't got private property any more.

Right to buy gave you an asset at a discount on day one. It was the equivalent of land reform. This scheme gives you a small positive cashflow as long as you work there. They are not in the same league.

[TickyW]

"If you add conditionality to private property, you haven't got private property anymore"

There are several instances I can think of where ownership does not give control of an asset. A house may be purchased with a restrictive covenant. Land may be purchased that requires planning purchase before the owner can develop it.

[Effem]

Pretty sure US equities would explain most of that equity gap. It's not a story about the UK, but about the USA.

[Jim]

"There are several instances I can think of where ownership does not give control of an asset. A house may be purchased with a restrictive covenant. Land may be purchased that requires planning purchase before the owner can develop it."

In both cases you retain the ability to sell the asset for cash, and ownership cannot be ended unilaterally by another party.

This share 'ownership' scheme is ownership in name only, there are virtually no benefits to worker of the ownership, just the £500 dividend payment. No right to sell, no right to keep the shares if they stop working at the firm, no right to vote as they see fit at the AGM.

The 'workers share ownership' is a scam to cover the fact that its a de facto nationalisation of 10% of privately owned industry. All the control over those shares will lie with the State, not the workers, as will the majority of the financial benefit. After all we can't have the masses getting their hands on some wealth, they might stop voting for leftist parties.......

[TickyW]

@Jim

My understanding is that the workers do get a vote at the AGM

[Jim]

"My understanding is that the workers do get a vote at the AGM"

Not individually. Collectively yes, the direction of which will most likely decided by a mate of John McDonnell.

[Ralph Musgrave]

I find the very word "neoliberal" thoroughly irritating, and never use it. It refers to the idea that market forces should be dominant, but even the most right wing Tories accept that there are areas where market forces should not dominate, e.g. in relation to kid's education or the sale of alcohol.

Thus the devil is in the detail: i.e. exactly where should market forces dominate. Ergo statements like "privatising railways is part of the neoliberal agenda, thus railways should be nationalised" is a fatuous statement. The important question is: exactly what are the pros and cons of nationalising railways and other sectors of the economy.

[G]

Is this the same/similar too the following?

1. If you push any group - rich, poor, CEOs, miners etc - too far they will rebel, making things worse for everyone else and perhaps themselves too. Examples - workers striking, evading/avoiding tax

2. Culture and beliefs affects what too far is for different groups.

[Mark Wadsworth]

This plan (however flawed and counter-productive) won't make any difference to how corporations behave.

They are - in theory at least - run from the top in order to maximise profits or shareholder returns. Senior managers couldn't care less who the shareholders are.