The Corner

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Labour: Control, Then Command

Labour Party leader Jeremy Corbyn speaks at a campaign event in Blackpool, England, November 12, 2019. (Phil Noble/Reuters)

With a little under three weeks to go until Britain’s general election, the Conservatives enjoy enough of a lead in the polls to deliver a modest, but good enough, majority, even if a volatile electorate, the chaos of Brexit, and the local distortions introduced by First Past The Post voting on a constituency-by-constituency basis, are making many commentators more cautious about the outcome, as, in my view, they should be.

Meanwhile, the full horror of what Labour has, should it win, in mind has become apparent with the publication of the party’s manifesto. Economically, it is, predictably enough, a prescription for the pauperization of Britain, but, as an exercise in power politics, it’s pretty smart. It further defines Labour as a party of the hard left, a definition that should confine it to the margins, but will not. The party still has a large reservoir of ‘tribal’ support, which has now been boosted by the involvement of radicalized young voters and the lumpen-intelligentsia. Labour may or may not prevail this time, but, with this identity and with policies that are more about securing and maintaining power than prosperity, it only has to win once.

Meanwhile, the law firm, Clifford Chance, has taken a look at one of Labour’s proposed new policies, the introduction of “Inclusive Ownership Funds”. The whole report is well worth reading, but Labour’s focus on the ownership of companies that it does not propose to nationalize outright is worth noting:

Labour is proposing that all large companies (those with more than 250 employees) should be required to transfer shares into an “Inclusive Ownership Fund” (IOF). Each year, for a decade, 1% of shares would be transferred into the IOF, until a 10% holding was reached. Smaller companies would be able to set up IOFs voluntarily.

The shares would be held and managed collectively by representatives of the employees. Dividends received by the IOF would be distributed to the employees up to a maximum of £500 each per year, with the balance paid as (effectively) tax to HM Treasury (with the stated intention that it would be spent on public services as a “social dividend”).

Scraps for the peasants, cake for the state: In this respect, at least, there’s nothing new about Labour is suggesting.

How those IOFs exercise their power within companies will be an interesting question, to say the least. Then there’s the little matter of the losses that this expropriation will bring in its wake (my emphasis added):

At least £125bn of losses will be borne by UK investors, of whom a significant number are pension funds (see box: The impact on UK pension schemes) US investors will bear around £100bn of losses….These figures undercount the impact on UK investors, as so little data is available on privately held UK groups. (disproportionately be held by UK investors). These amounts dwarf the amount that employees will receive each year…

Clifford Chance notes that the IOF’s ownership stake in any company would be capped at 10 percent, but would it stop there? The author of the reports looks at the precedent of Sweden’s Meidner plan from the early 1980s:

It was eventually adopted in 1983 by the ruling Social Democratic Party, but in a much watered-down and semi-voluntary form (disowned by Meidner himself). It was eventually abolished entirely in 1990. As a result, whilst the Meidner Plan was briefly considered as a model by socialist parties across Europe (particularly in Italy), it was never implemented.

Meidner…proposed  that the ownership percentage would increase over time until, eventually, the employees controlled the business. It is, of course, possible that could become Labour’s long-term objective.

You think?

Something tells me that British financial markets (not to speak of the pound) will not look very pretty if Labour wins (or even looks like winning). If Labour does prevail, expect the rapid introduction of capital controls.

The road to autarky has to start somewhere.

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