Opinion: Is a “John Lewis economy” a liberal economy?

Nick Clegg hit the headlines last Monday in a speech at a CentreForum/City of London event calling for a “John Lewis economy” . John Lewis is employee owned where employees get a bonus each year depending on the performance of the group. Last year  this led to every employee getting an 18% bonus on their salary. But they do not hold individual shares in the company and so do not have the associated direct potential of building up substantial asset ownership .

I, along with most liberals judging by the reaction on Lib Dem Voice, warmly welcomed the substance of Nick’s speech as giving a distinctive liberal voice to the debate about responsible capitalism and  a real push to the causes of employee ownership and employee share ownership. As Nick and others have stated there is a clear link between employee participation and employee ownership or share ownership and company performance. But I was led to ponder whether  a “John Lewis economy” is a liberal economy.

What about a “Co-op economy”, where consumers own the business? Or a “Tesco economy” where USDAW, the shop workers union, praise the partnership agreement with Tesco as  giving staff “the opportunity to have a real say on pay, policies and other major business decisions through their staff forums and some of the best pay and conditions in the retail industry”? Or an “ASDA economy” where last year, employees who had saved £250 per month over three years in the company’s SAYE share scheme were entitled to payouts of £16000 ? Or a “Sports Direct economy” where a two year share scheme meant employees last year received on average a £44,000 bonus due to the company’s soaring share price? For both ASDA and Sports Direct employees these can be life-changing sums of money. And should we implicitly decry a more traditional family owned “Sainsbury’s economy” where until 2005 the Sainsbury family owned 35% of the shares and still own 15%?

Isn’t a “liberal economy” one where there is a rich diversity of forms of ownership, family owned business, traditional PLCs, mutuals, consumer co-ops and employee owned businesses competing with each other? A more diverse ownership structure for the economy will be a more robust structure. In some sectors some forms will be more prevalent than others. In some cases there may be a role for hybrid forms, e.g. Circle Healthcare where employee ownership and private equity “co-operate”.

We are far from such diversity at the moment, which is why there is a need to look to remove  unnecessary barriers to these other forms of ownership flourishing. There is clearly scope for a much bigger role for employee ownership and share ownership in the economy. But we also need to keep in  mind that a “John Lewis” structure is just one of many.

* Chris Nicholson was until March 2012 Chief Executive of CentreForum the liberal think tank.

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8 Comments

  • Richard Swales 22nd Jan '12 - 12:23pm

    That’s right. I would also add the XYZ Capital Managment economy, where there is no joint ownership structure, but average and lowest wages, even without the high discretionary bonuses, are far higher than in the right-on companies listed. Workers who sign up for a deal like that are not mugs even if we might think they should decide for something different and we are tempted to skew the tax system against them. Politicians should try to stop saying “I want people to want …” (or expressing effectively the same idea another way).

    Offering more off the shelf options and removing the barriers to people choosing different structures, in other words more freedom, is definitely the way forward. My only reservation from how the debate is going is that it’s slightly frightening that “more freedom” seems to be what we will get this time, but only because there is an expedience-based justification for it, rather than “more freedom” being justified intrinsically. More often it is easier to find an expedience-based justifcation for “more control” – this is why the fence between public and private keeps getting moved, and we keep finding new issues (such as whether we smoke, whether we drink, whether we tell people how much money we earn) on the other side of the fence, which is now moving rapidly across our front lawns up to the front doors of our houses.

  • Andrew Suffield 22nd Jan '12 - 12:44pm

    I would also add the XYZ Capital Managment economy, where there is no joint ownership structure, but average and lowest wages, even without the high discretionary bonuses, are far higher than in the right-on companies listed. Workers who sign up for a deal like that are not mugs even if we might think they should decide for something different and we are tempted to skew the tax system against them.

    I don’t see any real problem with that. It’s the lower end of the scale which benefits most from employee ownership, and the high end which benefits most from “investment incentive” structures. We need both – and hybrids in the middle.

    The big problems occur when investment capital gets involved in running the minimum wage economy.

  • John Carlisle 22nd Jan '12 - 2:47pm

    Chris, I take your point about the various business forms. However, there is a confusion between an economy and a business. Business operates in an economy or economic system, which could be laissez faire or socialist or even communist, depending on the political imperatives. So let’s differentiate between the two concepts and just look at a business – or even better an organisation, as successful businesses have all been run under the the three types of economies mentioned. Ford flourished in the USA, while British Leyland failed in the UK. Tata flourished under the Raj (not as much as it could have) and under the current Indian economy. China is full of companies that do well under a capitalist/communist regime. Japanese manufacturing keeps getting better for most.
    The question is what is the Business Model that helps these organisations succeed? Then the question is: what kind of employee system helps that model the most? And this is where the LibDems fall down. They do not have a clue. I have gone on my knees (metaphorically) to both Nick and Vince to get their heads around this. But to no avail.
    Just as you cannot build a car if you don’t know how the drive train really works, so you can’t fasten on to some business form unless you know exactly how the best businesses really work. Here is a simple clue: If you improve quality, the value to the user goes up while costs GO DOWN!
    Please, please let us work on this!
    Andrew, if by “It’s the lower end of the scale which benefits most from employee ownership, and the high end which benefits most from “investment incentive” structures” you mean company size then you need to understand that the cooperative, Mondragon, in Spain employs over 90,000 people and the largest construction company in Emilio Romagna is a cooperative. So I am not sure where you get your data from. What I am sure about is that the cooperative form, which includes both employee ownership and participation lends itself most easily to fairness (a cherished LibDem principle) in relation to employees, the community, customers and the environment.

  • Andrew Suffield 23rd Jan '12 - 8:22am

    if […] you mean company size

    No. Salary. Company size is almost exactly the other way around, because the larger a company is, the lower its median salary is likely to be.

  • toryboysnevergrowup 23rd Jan '12 - 10:49am

    As someone who has had the misfortune to have purchased a fitted kitchen from John Lewis (at my own expense btw) – I have to say yes – full of faults and fails to deliver what was promised.

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