Dear Prime Minister
The two most striking non-Brexit-related announcements of your premiership so far have been the promise of an industrial strategy and action on runaway executive pay. Let pass here the eye-popping ability of governments in general, not just yours, to switch something as important as industrial strategy on and off overnight – no one would quarrel with your criticisms of ‘anything goes’ capitalism or your desire for a ‘Britain that works not for the privileged few but for all of us’. You are of course right that something is wrong. But, pardon me for saying that I don’t think you gauge the extent of the wrongness, or the nature of the reforms needed to get it right.
For a start, excessive pay and an unbalanced economy aren’t separate problems: they are the symptom of a deeply dysfunctional ‘business as usual’. You don’t actually need an industrial strategy in the way it’s usually understood, and action geared solely to cutting outrageous pay will miss the point by a motorway-wide margin. What you do need is for companies, and your government, to do the jobs they are supposed to do. It’s not just corporate derelictions that are responsible for the misfiring economy – just as implicated is the compliant, toadyingly ‘business-friendly’ behaviour of of your government departments.
You will be well aware of the exemplary cases of Sports Direct and BHS, which just happen to be a perfect embodiment of much of what’s wrong with both business and its rotten relationship to government today. The collapse of BHS and the plight of the workforce at Sports Direct have absolutely nothing to do with globalisation, job-eating robots, immigration or any other of the impersonal forces usually trundled out to carry the can for bad news on the wages and working conditions front. They are entirely the result of discretionary decisions made by Sir Philip Green and Mike Ashley, with the connivance of governments like yours that have done nothing to block the path that leads to their exploitative business strategies.
Green is now blasted from all sides, including yours, as the unacceptable face of capitalism. But don’t forget that while he was knighted by a Labour government (for God’s sake) under Tony Blair, it was your predecessor, David Cameron, who, no doubt impressed by his tax-efficient methods and financial-engineering skills, invited him to advise his administration on cutting government spending. As for another adviser, it’s unclear what the government’s ‘business tsar’ is actually for, but his or her identity is a dead giveaway of what ministers think business is, or should be about. In this context, Cameron’s recent reconfirmation of Sir Alan Sugar as ‘enterprise tsar', a crusty old dinosaur whose chief claims to fame are a floppy-disk-era also-ran personal computer and being the UK face of Donald Trump in the appalling TV show 'The Apprentice', needs no further comment. Similarly, your choice of new business spokesman will tell us a lot about both your attitudes to business and your intentions.
When you come to draw up your industerial strategy, you may want to cast your eye, among other things, over an important recent post by Stanford’s Professor Jeff Pfeffer. He notes that the main reasons for disappearing full-time jobs, stagnating pay and economic security – in other words the things that indirectly led to your sudden elevation to this office – are actions by governments and companies. Companies have a choice between ‘high road’ (high trust, high commitment, low turnover) and ‘low-road’ (low trust, low commitment, high turnover) employment policies. High-road policies are hard work and more expensive to set up, but pay off in the long term. The low road, being transactional, is easier and cheaper (in the short term); and it’s the one that the US and UK economies have been travelling for decades – not least because they have been tacitly encouraged by governments that have weakened organised labour and employment rights, and, especially in the UK, subsidised sub-living-wage pay (as at Sports Direct) with in-work benefits.
If you really intend to curb such practices, you will have to stop listening to the self-serving business advisers you have used in the past and radically alter the incentives that govern the employment behaviour of those who run all of our big companies, not just BHS and Sports Direct. It’s not an issue of giving more power to shareholders, as you seem to suggest – we’ve been trying that for the last 40 years and it doesn't work: as Michigan’s Professor Gerald Davis notes, shareholder capitalism is now largely incompatible with full-time employment.
Peter Drucker always argued that public corporations were too important for the health of the societies that licensed them to be controlled by any one constituency. How right he was. Shorn of responsibility to anyone except shareholders, public companies no longer have either the energy or the will to provide the economy’s motive power. They have abandoned their historic function of investing in new markets (too risky), new capacity (too time and capital consuming), or good jobs (too expensive) – this despite a plethora of long-term opportunities in energy, transport, housing, and healthcare, all of which would yield a positive return and benefit future generations into the bargain. To add insult to injury, they do their best to avoid paying the taxes that fund the informational and physical infrastructure that they depend on to operate. None of this, note, is an aberration: it is sanctioned in the company law and governance codes that successive governments have appproved.
A functioning industrial policy, a balanced high-road economy and a more equal society have nothing to do with ‘picking winners’ or a ‘pay policy’. Instead, the ingredients are, in Mariana Mazzucato’s phrase, an ‘entrepreneurial state’ that invests in the fundamental research whose outcomes, though huge, can’t be directly predicted; a private sector strong on ‘animal spirits’ that actively accepts its role as a creator of new resources for society as a whole, including full-time jobs; and confident government departments that play their own creative part in nurturing the infrastructure and holding the balance between the sectors in a plural economy.
If your government can bring those elements together, it will be an achievement whose importance dwarfs even that of engineering a soft Brexit (in fact it would make the latter much less urgent). It’s a big ‘if’; but there is not much wiggle room, and if the bold and painstaking work of institutional renewal is not done now, then the best we (you) can realistically hope for is a continuing slow descent along a low road which leads nowhere. The worst – well, I leave that to your imagination.