A reminder of social democracy’s ambitions in times gone by.

Earlier this week I started reading Capitalism Unleashed: Finance, Globalization and Welfare by Andrew Glyn (Oxford University Press, 2006). I’m not in far enough to offer any thoughts on the book as a whole, but there is a passage at the end of Chapter 1 that shows just how limited the ambition of current social democratic parties is.

On top of the seemingly inexorable rise in government spending came proposals from the Labour movement to restrict the prerogatives of capital within its own sphere — private business. A range of plans emerged in the later 1960s and 1970s going well beyond the customary collective bargaining issues of jobs and working conditions. To give a flavour of what was involved a brief discussion follows of German co-determination, Swedish wage-earner funds, the British Labour Party’s ideas for planning agreements and finally the French Socialist government’s plans for extensive nationalization in the early 1980s.

In Germany workers had achieved a system of co-determination in the early 1950s with equal representation of employees and shareholders on boards of iron and steel companies. They secured lesser representation within other companies but had the right to appoint the labour director responsible for personnel affairs. In the 1970s there was strong pressure to increase co-determination rights, which resulted in an extension to cover employment contracts and training, and in 1976 the proportion of worker representatives was increased from one-third to a half for larger companies (though with a shareholder-appointed chair having a casting vote). These extensions were strongly resisted by employers, politically and in the courts. German co-determination may have had fairly modest effects on managerial freedom, but a comment in 1984 by a prominent American economist, Armen Alchian, shows how it was viewed by advocates of shareholder sovereignty: ‘The campaign for … codetermination on boards of directors appears to be attempts to control the wealth of shareholders’ specialised assets … a wealth confiscation scheme’.

Co-determination was feared for its potential to limit managerial prerogatives and thus transfer value added to workers, in the form of security or better conditions. The Swedish scheme for wage-earner funds proposed by the trades unions in 1976 had potentially more radical implications:

Firms above a certain size (fifty or a hundred employees) should be required to issue new stocks corresponding to 20 per cent of annual profits and … these stocks should be owned by funds representing wage earners as a collective group …. Such a reform … would also counteract the tendency towards increased concentration of wealth and complement industrial democracy legislation …. Under this scheme the higher the rate of profit, the more quickly collectivisation would occur. The committee calculated that it would take thirty-five years for the wage-earner collective to acquire forty-nine per cent of stocks in a firm operating at a ten per cent profit rate.

Rudolph Meidner, the chair of the committee which drew up the proposals, said in an interview, ‘we want to deprive the capitalists of the power that they exercise by virtue of ownership’. The committee also envisaged that wage-earner ownership could chivvy firms into following government industrial policies. Dividends would be used in part to finance ‘adult education, wage-earner consultants and various other programmes to help wage-earners, and union activists in particular, take advantage of the new labor laws and exercise their ownership role. The gradual transfer of ownership would thus be accompanied by a new competence within the ranks of the union movement.’

It is important to appreciate just how seriously their proposals were taken at the time. In a lengthy dissection of the ‘Rise and Fall of the Swedish Model’ in the Journal of Economic Literature, a very prominent Swedish economist Erik Lundberg argued in 1985 that the wage-earner funds represented a decisive move away from the Social Democrats’ tradition of pragmatism, which had previously seen radical proposals for socialization or central planning abandoned rather quickly. ‘At the present time the socialist goals are more serious and against the background of a crisis in the functioning of the Swedish economy, the plans are more appealing, at least to a strong minority of Social Democrats’. He noted also that ‘the bourgeois parties have refused emphatically to accept the proposal for collective funds in any form. The Opposition includes the entrepreneurial organizations of private corporations, as well as those of small firms. Their antagonism is complete’. The opposition was largely succesful and only a highly diluted form of the plan was implemented, but the point to underline here is that the project was viewed by business with great alarm.

In the early 1970s the British Labour Party formulated an interventionist strategy aimed at industrial modernization. the 1973 Party Conference adopted a plan for the next Labour government to compulsorily nationalize 20–25 of the largest manufacturing companies, around one third of manufacturing output. The idea was to take over a leading and profitable firm in each sector and use it to introduce new products or processes forcing, through competitive pressure, the other firms in the industry to follow suit. The other firms would be obliged to sign planning agreements with the government detailing their plans for output, investment and employment which were to be consistent with the government’s overall economic objectives. In the event the programme was watered down before Labour came to power and no major firms were nationalized and no serious planning agreement signed.

Labour’s plan was neither well worked in terms of how the leverage acquired over the private sector would be used, nor did it have the political support and resolve to push it through. However it was still seen as a serious threat by the employers. The Confederation of British Industry told the Labour Prime Minister that ‘there was absolutely no room for compromise or negotiation about further state intervention in industry and further nationalization’.

During the Labour government’s 1976 negotiations over a loan from the IMF, the left wing of the Labour Party, led by Tony Benn, pushed unsuccessfully in the cabinet for import controls and other measures as an alternative to spending cuts and deflation. They hoped to maintain economic expansion and help secure the election manifesto objective of a ‘fundamental and irreversible shift in the balance of power and wealth in favour of working people and their families’.

Two years after the fall of the Labour government in the UK the French Socialist government of François Mitterrand came to power in 1981 with the plan to double, from 11% to 22%, the share of nationalized industries in industrial employment by taking over five major groups in electronics and chemicals. the largest two steel groups, 39 banks (bringing the share of public ownership of banks to 90%) and a major firm in a number of other sectors. As in the UK, the plans called for these nationalized groups to spearhead industrial modernization, within the context of five-year ‘plan contracts’ between the management and the government.

The extent to which the nationalizations threatened private capital should not be exaggerated. Shareholders in the big five industrial groups received compensation described by the Financial Times as ‘far too generous’, and Mitterrand reassured business that wanted the economy merely ‘a little more mixed’. The Minister for Planning was credited with the view that the market is ‘all embracing and irreplaceable. Nevertheless the nationalization plans did reflect the belief that private industry was incapable of adequately modernizing the French economy and that this process needed to be strongly state-led. In the event the nationalized firms, many of which were loss making, were given large amounts of capital by the government and they carried out major programmes of rationalization of their activities, which paved the way for their return to the private sector.

Capitalism Unleashed: Finance, Globalization and Welfare by Andrew Glyn (Oxford University Press, 2006), pages 18–21.