Creating a stakeholder economy may require stick as well as carrot

Twenty-two years ago the leader of the opposition Labour party had a big idea. It was to create a "stakeholder economy" in Britain.

This would be an economy "run for the many, not for the few", he told us. "We [must] shift the emphasis in corporate ethos from the company being a mere vehicle for the capital market to be traded, bought and sold as a commodity, towards a vision of the company as a community or partnership in which each employee has a stake."

But Tony Blair's stakeholder economy was only a sigh on the breeze. New Labour under Blair did plenty of things that irked bosses - from the windfall levy on utilities to the minimum wage - but he never sought to diminish their authority in the boardroom, to curtail their ability to make decisions without consulting rank-and-file workers. As the economist Chris Dillow argues, the inequality of power relations in the workplace was New Labour's great "blind spot".

Fast forward two decades and the shadow chancellor, John McDonnell, is making rather similar noises to those made by Blair all those years ago. "Labour's programme of workplace reform will restore the balance between employer and worker - extending the opportunity for employees to share collectively in the benefits of ownership of their company," he told the TUC conference yesterday.

However, unlike Blair, McDonnell (whose aspirations to replace Jeremy Corbyn are increasingly unconcealed) is prepared to get into some policy specifics. He says that Labour is exploring "ownership funds" for private companies with more than 250 people, where staff would be given shares in their employer, funded by a portion of the firm's profits.

This is similar to a proposal in the report from the IPPR think tank's archbishop-blessed Commission for Economic Justice last week. Indeed, it arguably bears a resemblance to existing government policy. In 2014 the coalition government created a tax incentive for business owners to disperse ownership among staff in Employee Ownership Trusts.

The Institute of Directors suspects Labour's plan would "cross the line between encouragement and coercion". Perhaps they see this as part of McDonnell's self-declared goal of "generally fermenting the overthrow of capitalism" as opposed to gently nudging it in a kindlier direction. But let's park the issue of personalities and concealed agendas and first consider the merits of the policy.

An independent report for the government in 2012 cited evidence showing that employee ownership is associated with reduced absenteeism and happier, more engaged workers. But it's not just nice for the workers. Mutualisation seems to be beneficial to the overall business too, with such companies exhibiting better business performance, more innovation and higher levels of economic resilience. Indeed, the fact is that it has become something of a cross-party political orthodoxy that giving people an ownership stake in the organisations for which they work would be good for the overall economy.

One of David Cameron's early ideas was for "John Lewis-style public services", inspired by the high productivity of the employee-owned department store. The party's 2015 election manifesto promised a "right to mutualise", albeit only in the public sector. In 2012 Nick Clegg called for a "John Lewis economy" and said workers should be given the ability to request shares in the companies in which they work. "We don't believe our problem is too much capitalism: we think it's that too few people have capital," said the then deputy prime minister. Theresa May has not banged the drum for mutuals per se but, at least until the business lobby got to her, she wanted to put workers on boards to "put people back in control".

Given all this, any attempt to paint Labour's ideas on mutual promotion as outrageous, knuckle-headed, 1970s-style socialism, is in danger of failing the laugh test. So the question is not whether mutualisation should be encouraged, but whether it should be given a serious nudge, as Labour seems to be suggesting.

A workforce characterised by increasing levels of part-time working and self-employment may not look like favourable ground for a mutualisation drive. Part of that casualisation trend seems to be driven by company bosses making a national insurance saving by hiring workers as independent contractors rather than conventional employees; one can envisage that kind of practice being curtailed in an environment with greater employee influence.

And the trouble with the dangling carrot approach is, as we have seen, inertia. There has been no discernible proliferation of mutualisation in the years since the government introduced its tax breaks.

While there are lots of mutual friends in theory, often little tends to happen in practice. As with wealth, those with corporate power tend not to be keen on its redistribution. Perhaps if we are to inch closer to that Blairite vision of a stakeholder economy we will need an element of stick after all.