Capital idea for shared ownership

This book comes with endorsements from Ralph Nader, Jack Kemp, Mikhail Gorbachev, Bill Bradley, Madsen Pirie and Denis MacShane. Support from such a wide range of commentators immediately makes one suspicious that the volume has either been widely misunderstood or contains nothing but anodyne statements of "common sense". In his foreword to Democracy at Risk (the sequel) Jeff Gates notes that the earlier book adopts an "apolitical, policy wonk tone". However, it is clear that Conservative enthusiasm for the ownership argument as presented here is misplaced. Gates is now firmly a man of the left and ran on the Green ticket against the "Demopub and Republicrat candidates" (his description) in the 2000 race for the Georgia senate seat.

The book is well researched and ranges across a broad field of economic and social issues. It will be of interest to all those concerned about the growing inequality in all Anglo-Saxon societies as well as enthusiasts for employee share ownership and all those looking for policy instruments to encourage greater corporate social responsibility.

Gates is particularly concerned about the growth in inequality in the United States over the past 20 years. He refers extensively to the stagnation of incomes for the majority and the massive enrichment of the top 10 per cent. He worries, rightly, about social cohesion and the consequences for democratic institutions. So far this is a commonplace critique of US capitalism, but the analysis is unusual because Gates locates the cause of inequality in the increasing concentration of property ownership - "capitalism that creates too few capitalists". This is out of kilter with more conventional views that suggest that international trade and/or technological change can explain much of the growth in inequality. More recent research suggests that institutional factors cannot be discounted. Those countries with the narrowest dispersions of earnings generally have strong trade unions and high levels of collective bargaining coverage. Some of the blame for increasing inequality in the US must also lie at the door of supply-side reforms that delivered huge cuts in personal taxation for the most affluent.

Gates began his career in public life working for Senator Russell Long of Louisiana, the chair and then senior Democrat on the Senate Finance Committee. Together they piloted the first legislation through Congress providing the legal base for Employee Share Ownership Plans (Esops). It is from this experience that Gates builds the case for The Ownership Solution and "a capitalism that creates more capitalists". There is a strong current of old-style Southern populism in his argument combined with a progressive concern about trust-busting and a Jeffersonian belief that widely dispersed property ownership is a hallmark of citizenship, independence and "self-government". Gates is right to challenge us to consider how societies can remain prosperous, maintain an active citizenry and, at the same time, avoid concentrations of power, ownership and wealth that undermine social cohesion and democracy. The most obvious question is: will the policy proposals outlined here achieve the desired results? It is by no means clear that the coalition of interests needed to make the ownership solution politically viable can be assembled. In particular, the forces ranged against the proposal will be formidable once it is more widely understood that Gates is making a fundamental challenge to the existing distribution of property.

Second, the notion that more dispersed ownership is the solution to our economic and social ills is a little overdone. The United Kingdom has experimented with different forms of Esops for many years but there has been no significant shift in the distribution of wealth or power. Privatisation of state-owned industries was intended to create a "shareholder democracy", yet the result has been an increase in the volume of assets held by institutions.

For some workers in the UK, Esops have simply been a transitional phase in a movement from public to private ownership. This phenomenon was particularly prevalent in the privatisation of municipal bus companies, many of which became Esops. All these organisations are now public limited companies. Experience in the US suggests that there is often a disjunction between ownership and control. In many Esops, workers have no greater influence over corporate decisions than would be the case in organisations with more conventional ownership structures.

The challenge therefore is to reconnect worker ownership with corporate control - and Esops are only one vehicle through which this might be done. A further possibility is for unions to encourage workers with access to the new All Employee Share Ownership Plan (Aesop) to pool their shares and act collectively at company annual general meetings. This would create an opportunity for worker shareholders to scrutinise management performance, challenge executive remuneration packages and appoint a member of the board.

The lion's share of equities is now held by institutional investors: principally pension funds handling workers' retirement savings. Funds rarely vote their shares at company AGMs or, if they do, generally follow the line recommended by the board. A recent announcement by the chancellor of the exchequer will require pension-fund trustees to treat the power to vote at AGMs as an asset of the fund subject to the usual fiduciary duties. This creates a great opportunity for unions to establish a network of member-nominated trustees who can demand higher levels of accountability in corporate decision-making. It would also be wrong to underestimate the importance of other institutional changes that could have a significant impact on corporate culture. In the UK, the government's company law review is examining the case for changing directors' duties to require consideration of a wider range of stakeholder interests in corporate decision-making. All these measures, combined with the influence of a growing trade union movement, could establish some powerful countervailing forces to the relentless maximisation of shareholder value.

So ownership is only part of the solution. Encouraging employees to become active shareholders is important, but promoting active voting by pension funds and securing legislative change in corporate governance are likely to be of more significance in changing corporate behaviour and achieving the objectives that Gates seeks.

John Monks is general secretary, Trades Union Congress.