Keynesian economics are a con

Too modest by half

John McDonnell’s ‘radical’ plans to overhaul company ownership forget about the state - Jim Grant argues that the state will not forget about John McDonnell

Of all the problems with John McDonnell’s proposal for employee-ownership funds,1 the first one to jump out is that it is a little unexciting under the circumstances.

With Westminster aswirl with talk of suicide vests and dirty tricks, accusation and counter-accusation being hurled around the Tory benches, a series of vague aspirations about corporate structure are a little weak-tea. There is also a particular eddy in the hurricane, which is hardly irrelevant here - the screeching hysteria over supposed anti-Semitism in the Labour Party. Yet clearly enough the time is approaching for eye-catching policy statements, or attempts at the same. The government does not look terribly likely to last just at the moment; and, however many crocodile tears are blubbed in the lobby about Boris Johnson’s ‘offensiveness’, he is surely right that Theresa May’s Brexit plans are more of a hindrance than a help to her.

She herself knows it - we have only recently had her plan to shake up the railways, whose perpetual dysfunction since privatisation has become the Anfortas wound of British neoliberalism, unhealed despite endless tinkering and plainly on the brink of collapse. (Apparently some polling wonks have suggested that Jeremy Corbyn’s gesture in favour of renationalisation might be enough on its own to deliver him to No10 - probably an exaggeration, but still quite something.) Having succeeded in dragging May and her unmerry men onto their turf on the railway issue then, this starts to look like another gambit to force the Tories to confront social democratic corporatism on principle.

McDonnell proposes that companies be required to set up a fund in which shares would accrue, which would be owned collectively by the business’s employees. They would not own the shares individually, and would not be able to sell them, but would be paid dividends, and exercise control in proportion to the fund’s holdings.

Pitching it to The Observer, McDonnell emphasised the radicalism of the proposals, but surely a part of their ‘cleverness’ consists in their modesty. What we have before us, in reality, is a variation on the policy of workers’ representatives on the boards of companies, a form of industrial cooperation found in Germany and some other countries. Variants of this have already been touted by McDonnell, and even - tellingly - Ed Miliband in the run-in to the 2015 election. The novelty, such as it is, is the combination of that centrist social democratic warhorse with the extension of share ownership, which is a Tory theme. (Readers will remember George Osborne’s attempt at a similar scheme, which saw him declaim to a befuddled parliament: “Workers of the world, unite!”) And the current batch of proposals are lifted wholesale from a report from the Institute for Public Policy Research - a think-tank of a traditionally soft-Blairite orientation, which has perhaps drifted left under the pressure of events.2

Another indicator of ‘moderation’ on this front is that - for white-collar workers and professionals, at least - some token equity is commonly on the table anyway, without the inducement of government. It is worth looking at this a little more closely, since the existing arrangements among the professional middle class highlight some difficulties.


It is first of all worth noting that equity is offered very commonly as an alternative to a higher salary or some other benefit. An alternative not in the sense that a prospective employee is free to choose, but rather in the sense that company stock is used as a sweetener to an otherwise unattractive offer. There are situations in which this trade-off is quite explicit. We will take as an exemplary case technology start-up companies - exemplary because professional software engineers are presently in an extremely good negotiating position, thanks to an underserved labour market. (It is also your humble correspondent’s line of business.)

Equity is a big thing in start-up land - the dream is to work for the next Facebook and make off like bandits. And the trade-off mentioned above is commonly understood to be part of the deal. Young companies with little investment are typically unable to compete on salary with established firms, so generous options are offered to early employees instead. (Later employees will be given much stingier shares.)

The first major problem is a simple fact of life. Most start-ups fail, making those options worthless. So even good equity offers are essentially lottery tickets - which, remember, employees are expected to take instead of actual money in the pay cheque; money which they could perhaps use to buy more reliable investments.

The second problem, more pertinent to our present discussion, is that the game is rigged. The tricks are manifold, but there are two main ones. Such companies typically have two or more stock classes. Employees, apart from very early (and lucky) ones, will get common stock. Investors will get preferred stock. That means that employees will not get a penny from an ‘exit’ before Wall Street and the City have been paid in full. On top of that, the options granted will be highly illiquid. It is hypothetically possible to exercise them at any time and sell the shares on the secondary market, but buyers are hard to come by for all but the most dazzling unicorns. In practice, one must wait for a ‘liquidity event’ or ‘exit’ - a merger, acquisition or public offering - at which time vast armies of lawyers and accountants will conspire to rob blind anyone who is not personally paying them. (That means you, J Random Programmer.)

Add it together, and contracts are often drawn up in such a way that the stock offers are basically fraudulent; it will be vanishingly unlikely for anyone apart from the founders and investors to get any money, and the legal naivety of the average employee will be exploited in order to make them believe they are getting something of value. This, in fact, is widely understood. We engineers are generally paid well enough that we can breezily joke about how worthless these options are and go about our pleasant bourgeois lives; but there are typically many others in lower-paid, lower-status white-collar jobs in the office - HR, finance and what have you - making a great deal less, and having it topped up with the same Monopoly money. For admin juniors on £25k it really is a bit of a shafting.

There are clear differences with the IPPR-McDonnell scheme, of course. The shadow chancellor, as we have seen, wants his ownership funds to be held in trust, rather than granted to individuals as such, and presumably envisions an elaborate legal regime to make sure of it. Any serious legal obligation on this point would be an opportunity to stop the sort of fraudulent practices mentioned above. In that respect, it would certainly be better than the present situation - especially if extended beyond the smashed-avo-gobbling hipster-yuppie set.

Yet the lesson of existing arrangements is surely that the devil is in the details. Almost by definition, details are a little thin on the ground for now; but we can be quite certain that the world’s lawyers and bean-counters will pull out every stop to undermine any legislation that dilutes the day-to-day power of the capitalist class. There is also the small matter of the governance of these funds. If they are supposed to give workers a seat at the boardroom table and a say in corporate affairs, then who gets to take up that seat? A trade union rep? An elected delegate? Elected by whom? Again, we suspect that the bureaucratic engineers of the other side will have a great deal of fun getting patsies in charge of things.

There is a more profound practical objection. It is best framed strategically. The approach of the Corbyn/McDonnell leadership is to fight exclusively on the ground of economic reforms, with other issues receiving little more than feel-good bromides by way of front-bench attention. The Tories, it is argued, are weak on bread-and-butter issues due to their commitment to neoliberalism. That is where to beat them.

Tacitly assumed in this outlook is the idea that neoliberalism is a sort of accident. It is the ideological blinkers of the Tories, or perhaps their personal distance from everyday concerns, that leads them to their policy choices, and the British people to the baleful consequences.

The root of the matter, however, is more serious. That is the small fact that the political regime as such is one of capitalist class rule. It is not the being of the professional caste of politicians that determines their consciousness so much as the interests of the British bourgeois state. The swarm of minor practical objections we raised earlier have as their hidden basis the fact that the civil service and judiciary are systematically biased in favour of employers, and against employees. This is not merely an obstacle to socialist change - remember that Franklin D Roosevelt had to threaten to pack the supreme court before the New Deal could become reality.

A scheme like McDonnell’s, then, is liable to have a coach and horses driven through it by lawyers and bureaucrats, because British law is a thoroughfare built to measure for such passengers. Factor in Britain’s international role as first among tax havens, and we discover that opaque, owner-friendly corporate structures are our very stock-in-trade, which McDonnell does not seem overflowing with ideas to replace.

The stubborn refusal of Corbyn/McDonnell to get ‘sidetracked’ onto the question of the state - abandoning symbolic commitments to republicanism, British and Irish; grovelling before fabricated allegations of anti-Semitism; even the ‘studied ambiguity’ over Brexit is of this sort - is thus perhaps clever tactics, but stupid strategy. Let us imagine that it was a huge vote winner. What happens when the draughtsman’s office makes a Swiss cheese of chancellor McDonnell’s big idea? When the lawyers rip it apart, and the Sir Humphreys and Dame Henriettas of Whitehall refuse to defend it, and the law lords strike it down?

The idea floats around the far left that this sort of thing has an educative effect - for all we know, John McDonnell still tells himself that sort of story to reassure himself of his virtue - but the greater part of the evidence suggests that, in the absence of a pre-existing understanding of the class nature of the state, demoralisation will be the result.


1. www.theguardian.com/politics/2018/sep/08/john-mcdonnell-labour-proposal-workers-ownership-funds.

2. www.ippr.org/research/publications/prosperity-and-justice.