Democratic Business series: The Return of Ownership?

Spring 2023 #41
written by
Jonny Gordon-Farleigh
illustration by
Carl Godfrey
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How to really make the economy ‘fairer’

There have been innumerable political and economic failures since the 2008 financial crisis, but its particular legacy in underlining the lack of confidence in our current economic model and inspiring new approaches to civic transformation remains in force. In its long shadow, an ever expanding sector of business federations, think tanks, and social change agencies have been patiently building support for redesigning business ‘purpose’ across the UK economy.  

Post-crisis reactions

In the immediacy of the crisis, impassioned calls from civil society for governmental reforms to our financial system – from limits on bonuses to fair tax policies – were part of demands for higher levels of corporate accountability. Amid a “regulatory void”, policy entrepreneurs created a competitive market in corporate oversight, sustainability standard setting, and ethical certifications. Such voluntary schemes were mostly a response to the lack of government action to introduce any meaningful legislation to prevent the causes of a future crisis. 

Another reaction to the financial and political crisis were efforts to ‘unleash the innovative capacities of local economies’ through the promotion of small-scale initiatives and campaigns for community power. Within these movements, local businesses became a new territory for providing social value, increasing stakeholder engagement, and reinvesting profits. Either in an uneasy relationship or in direct conflict with the coalition government’s vision of the Big Society, approaches like these were often characterised by anti-corporate attitudes, a distrust of institutional bureaucracies, and a strong belief in the capacity of civic entrepreneurialism to reverse national trends in the economy.

This civic revival inspired a post-crisis wave of institutional reform. Local government and city-regions – at least for the first time since the 1980s – started to focus on how institutional powers could be used to transform local economies. Many of these institutional strategies – a ‘bureaucratic insurgency’ of elected and civil activists – focused on non-extractive economic development, as the devolution of social welfare functions from national government without funding pressed local government to look for new efficiencies.

One specific approach – progressive procurement – offered a way for local government to use its programmes, services, and assets to directly tackle the roots of inequality, primarily as an alternative to 'inward investment' and to redirect public money towards local job creation and social suppliers. In the home of Community Wealth Building, the Preston Model – a US policy import – came to represent this approach of retaining local wealth through the supply chains of its ‘anchor institutions.’ 

Within this broader ‘institutional turn’, the question of ownership within business and the economy started to recapture the interest of new economic think tanks, social policy entrepreneurs, and local government leaders, with pro-worker and community policies being proposed as a practical means to address disinvestment and the lack of economic growth. At the national level, this trend even influenced significant changes in policy platforms, through the promotion of ‘democratic public ownership’ and ‘worker ownership’ under Jeremy Corbyn and John McDonnell’s leadership of the UK Labour party, and earlier moves to support less radical concepts, such as employee ownership, from the Conservative Party under David Cameron and his successors. 

With political purchase across party divides, new public policy brands and economic concepts were created to be broadly relatable to a range of ideological positions. From ‘inclusive’ to ‘alternative’, and ‘plural’ to ‘beneficial’ ownership, these umbrella terms are now being interchangeably used across public institutions, foundations, and think tanks, and are even prominent in local economic plans, metro mayor manifestos, and government strategies in the devolved nations.

Illustration by Carl Godfrey

A culture of clumsy proxies

Public policy development over the last generation has taken place in what has been largely described as a post-political environment, with many progressive think tanks advocating for ‘pragmatic’ strategies to encourage responsible business behaviour. Given how shareholder-owned businesses have so fiercely overpowered local and national economies in recent years, these muted ambitions are, to some extent, understandable. Consequently, though, these approaches first initiated and then reinforced the current separation between ownership and social outcomes within the policy agenda.

These policy entrepreneurs also made a speculative bet that a new – ’business intuitive’ – language could create a friendly policy environment. However, according to policy artefacts from the period, particularly in the formative years of the New Labour government, the most immediate result was the marginalisation of more democratic forms of business ownership in favour of a new variant of social enterprise, primarily focused on reforming private business models to account for ‘social impact’, opening up the third sector to investment, and promoting soft commitments like ‘employee involvement’. Fast forward to the years after the financial crisis, and inspired by the policy programme known as the Big Society, there was another aggressive push to make charities more business-like under the pressures of “more efficient philanthropy”, and new purpose for the heroic figure of the social entrepreneur.

The legacy of these policy developments has created a culture of clumsy proxies – from ‘good’ to ‘different’ – that fail to really confront the basic characteristics of business or make any meaningful interventions to reverse the current ownership crisis. Most pressingly, it not only reflects the setback to efforts to promote economic democracy in UK workplaces and communities over the last generation, it has also created an extremely complex sector that is failing to articulate the role and value of business ownership to civic society, business, and government.   

So, what are the consequences?

So, what is the alternative?

Returning to the crises of the last decade or so, one of the most remarkable outcomes is that for all the responses, inequality has not significantly reduced, and may have even increased on many measures. In other words, the ‘ownership gap’ – the distance between the ownership class and workers and communities – is still underpinning unfair market outcomes across the UK economy. 

If we really want to be serious about changing business, we have to confront the fundamental structure of ownership. The term ‘democratic business’ is not about the promotion of a single model, but a description of the powers that can exist in almost any legal structure. A really simple test for any government or infrastructure body is to focus on the basic characteristics of business – who owns it? who benefits from its value? and who makes the decisions? 

A democratic business is a corporate framework which offers members enforceable rights to assets (i.e. equity), to value (i.e. wages, surplus, etc), and to decision making (i.e. votes). Will the assets be held directly by members, a trust, or secured by an asset lock? What percentage of surpluses are reinvested or distributed to different membership classes? What voting rights do workers, investors, or other stakeholders have and how are they weighted?

While there may be variation of these powers across such businesses, it allows us to understand the underlying structure and largely predict its behaviour – in terms of benefit and risk – within the economy. While there is no guarantee of business behaviour, democratic rights in the workplace (particularly those pertaining to strategic, financial, and operational decisions) have a stronger tendency to reflect and protect more widely shared definitions of the public good than a small group of social founders or investors. 

While ownership matters, is it enough? Despite recent discussion of democratic ownership, the exercise of ‘control’ within business is too often ignored. Current policy recommendations from the sector are much more likely to encourage businesses to adopt soft commitments to ‘participation.’ But when businesses only offer a ‘sense of ownership’, we know that excluding the most important stakeholders from strategic decisions can lead to poor working conditions, unfair wage structures, and even controversial trade sales. For ownership to be meaningful, it must always include powers to directly influence the most important decisions about the business. 

Even as a set of legal frameworks, democratic structures are not decisive alone. There will always be the need for investment in democratic governance to ensure the use of these powers and a healthy democratic culture across the workforce. But where there are democratic rights, there is the opportunity for members to develop new constitutional innovations and redesign democratic management to meet the needs of the business and its stakeholders over time. While it is undoubtedly difficult to promote and operate democratic values in business, especially given their scarcity in the wider economy and society, it is equally true that promoting such values within traditionally undemocratic forms of organisation can be a powerful way of transforming other spheres.

As a wider business movement that promotes workplace democracy, there is also the opportunity for more strategic partnerships between federations and think tanks that can shift the focus away from benign campaigns – such as ‘a better way of doing business’ – towards more confidently asserting the benefits and value of democratic models. Now is the time if we’re to credibly respond to the current disillusionment within the UK workforce, consistently represented in rates of low job satisfaction, but more forcefully illustrated by the pandemic-triggered ‘great resignation’.

The focus on democracy also provides a much simpler message for civic society, business, and government. The soft language of policy development is even more confusing because it’s being adopted by large corporations who are advertising themselves as ‘local first’ or ‘for-good’. Given the general lack of public trust in business, recent controversies within ethical certification schemes, and the low capacity in understaffed regulators, democratic business may be one way to counteract such false claims (i.e. ‘purpose-washing’), especially if it is given visibility as a genuinely substantive and reliable standard which can be easily tested but much harder to superficially imitate. 

The good news is there has already been so much legal and cultural innovation within this business movement over the last decade. While democratic business may not be the end of the debate about the role of business in our economy, it can provide an important starting point for empowering workers and communities to use their workplaces to address inequality, and the other related crises of extractive business, from mental health to the climate crisis. 

The current demand for inclusion in the workplace should really lead to more democratic businesses.

Democratic business summit

As part of developing this conversation, Stir to Action and Power to Change – with support from Joseph Rowntree Foundation and Lankelly Chase – are hosting a one-day ‘democratic business summit’ on 1 November to convene those working to advance democratic business in the UK through business federations, funding bodies, local government, and research and policy.

This event is looking to provide an opportunity to explore open questions about the nature of our business movement, deepen our understanding of each other’s efforts within the sector, develop a more collective identity as an emerging force, and explore how new or existing partnerships can have a stronger influence on communities, business, and different tiers of government.

Jonny Gordon-Farleigh is  a co-owner and Director of Stir to Action, a national co-operative infrastructure body that focuses on strategic economic development projects, bridging the gap between policy and practice, and ensuring the future new economy is more diverse and representative.

Spring 2023 #41
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