WTNML – Trade Unions and the new economy

9th January, 2012 6:12 pm

Ask most politicos what the most defining idea of Ed Miliband’s leadership is to date, and most will undoubtedly refer to the “squeezed middle”.

Ignored at first, mocked later, and now embraced, the concept exposes one of the government’s weak spots, and has the potential to fit perfectly into the new consensus which has developed at the top of all the main political parties – the belief that the current and upcoming political scenery will be one defined by fiscal constraint. Whatever the merits of that consensus – and lets not forget there are arguments on either side – it is becoming increasingly clear that Labour members need to start thinking about how social justice can be delivered “when there’s no money left”. No easy task for a party whose political strategy in government largely rested on investment and redistribution via state spending.

But like I said, this concept only has potential so far. Beyond the broad critiques of modern capitalism that we heard in Ed’s conference speech, there is little detail on how a future Labour government would amend the poor performance of wage growth for the vast majority of British workers. If the squeezed middle critique is to be translated in to a successful policy, we need solutions.

The tale of the squeeze is becoming a familiar one. Since 2003 11 million workers have seen no increase in their wages. If we look at the last 30 years, the share of GDP going to the wages of the bottom 50% of earners has decreased by more than 25%! This same period saw an aggregate 2% increase in the share of national income held by the wealthiest 10%.

Besides the macroeconomic shift from the Keynesian post-war settlement to the Neo-liberal consensus of Regan and Thatcher, that period has seen another shift – a dramatic fall in the number of people who are members of trade unions. Over this period we saw a drop in trade union membership from around half of the working population, to barely over a quarter. There is a clear correlation between the fall in trade union membership and the falling share of output which goes to the wage packets of low to middle income earners.

If you look at the rich nations which consistently top the league tables for economic equality, high levels of unionisation amongst the workforce is a common feature (Sweden – 68%, Norway – 54%, Denmark – 66%, Finland – 69%). This isn’t surprising. In a capitalist economy where large sections of the private sector have geared themselves towards the bottom line of profit maximisation and shareholder value, the downward pressures on wages are ever present. Trade unions are the natural countervailing force to that.

The percentage of a workforce that are members of a trade union is important, but more important is the ability of that union to actively pursue its member’s interests. As any trade union official knows full well, employers only take note if there is a reasonable threat of effective action from a disillusioned workforce denied their due desert. As such trade unions fulfil a vital democratic function within the market economy, which left to its own means, overwhelmingly favours those with economic power. The problem for all those low to middle income earners over the last 30 years is not just the fall in the level of trade union membership, but that simultaneously the trade unions have been systematically undermined in their efforts to secure rising living standards by legislation which was, and still is, offensive to the most basic concepts of democratic civil society.

In the 80’s whilst the Tories were introducing the most draconian changes to trade union law in nearly a century, a young barrister named Anthony Blair aptly noted that;

This renewal of the Tory attack on unions brings into sharp focus the increasing unfairness of union law in Britain.”

He was right, but sadly upon reaching government some years later he did little to reverse the fundamental alterations to union law which formed the core tenets of Thatcherism. If we are to deliver economic justice for the squeezed middle, then strong, effective trade unions have a vital role to play.

I know what many will say. This isn’t a policy that will help build the new, more equitable economic model that we need, but an attempt to return the economy to the strife of industrial conflict seen in decades past. And on the surface that would probably be a fair criticism. Stronger trade unions will be vital in building a more balanced settlement between labour and capital, but alone it will be ineffective in creating successful long term reform. Because we don’t just need space in which unions can organise more effectively, we need a renewed focus on a sustainable distribution of rewards from both unions and business which in the long run will be in the best interests of both.

That relationship will be one where both sides recognise that a more equal distribution of rewards can be achieved by business models which value more than the bottom line. Business models which demonstrate a narrower gap between top and bottom can increase the productivity of a workforce which not only feels more valued, but feels engaged in the decisions surrounding the distribution of the fruits of their labour.

There are elements of the business community that will resist such the shift to the kind of economy Ed Miliband has spoken of (some already acknowledge its inevitability), and that is something a government can not easily solve with legislation. But it is something that governments can enable the workforce to set in motion. Because along with the development of new institutions that aim for a more long term, equitable economic settlement, business will need to feel the pressure of a well organised workforce, backed up by threat of effective action, to start to embrace the new economic model. In that sense the new economy will be built by employees, as well as by government and businesses.

Throughout our history reform has always been preceded by a build up of disillusionment with the status quo, and a perceived threat of unrest from dominant interests (think Corn Laws, broadening the franchise etc). The only alternative to the shift is business as usual. The continuance of the status quo, where rewards remain distorted and employers remain dominant with no incentive to consider the needs of a workforce that has no effective power to help shape the change we need.

If the next Labour government wants to solve these problems without centralised, command and control economics, then reforming employment legislation so that it reflects a more balanced relationship between labour and capital will have an important part to play.

For example, employers must be stopped from using the courts to overturn the democratic decisions of trade unionists on spurious grounds such as minor errors in the reporting of ballot results. We need new rules which prevent employers from circumventing recognition procedures by recognising non independent unions with managerial support. And we need a fresh approach to collective bargaining that broadens the scope for bargaining outside of the narrow focus on wages.

There are many more aspects of trade union legislation that could be altered to encourage a more balanced approach between economic interests. A Labour government committed to such aims should establish a Royal commission, setting its remit in line with the principles discussed here, and a view to ensuring British law is in line with conventions of the ILO and European social charter. Many recommendations already exist, not least the brilliant work done by John Hendy QC, but a commitment to the properly defined remit of a commission would allow an array of experts and stakeholders to develop detailed proposals that will suit the new economic agenda.

But trade unions must use the resulting freedoms to organise towards a more reciprocal relationship with business, so that we may deliver for the squeezed middle, but also so we can begin to build the good economy. Business and trade unions can maintain an adversarial relationship, or they can develop a partnership for shared prosperity. Such change will, as Ed Miliband has said, challenge powerful vested interests. Levelling the playing field in the power structure between the two is essential to ensure that quest is successful and best of all it is a policy which will require no substantial spending commitment whatsoever.

Got an idea for what Labour should stand for “When there’s no money left?” – email us. We’ll be conducting a poll of the best entries, and the winner will present their idea to a “Dragon’s Den” at the Fabian New Year conference.

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