Why the Ratio matters so much

The bad news: chief executive pay in the FTSE 100 increased by 55 per cent last year alone, accelerating the creation of an inflationary class of ubermensch, with huge consequences for social cohesion.

The good news: a more effective, imaginative and flexible corporate form – the mutual – increased by 25 per cent in the UK economy last year.

Both these facts are relevant to The Ratio, the new report by myself and Andrew Simms, which suggests forcing companies – and especially those bidding for public service contracts – to reveal the ratio between their bottom and top pay levels.

We may not be able to legislate to drag the ratio back down to 1:20, which John Pierpoint Morgan said was the maximum reasonable level. But we can make sure the crucial ratio is published on the front of annual reports, were they might motivate shareholder activists who can do something about it.

But it is also time to be more positive about this. For too long, campaigns against corporate greed and ever-widening pay ratios have tended to be defensive and negative. They have been campaigns against rather than campaigns for equity, or anything else.

This needs to change partly because having a compressed pay ratio is not just a good thing ethically. Nor is it just a better way of motivating staff and providing greater equity in society, with all the economic benefits that will bring.

It is also a sign that a company is sensitively, fairly and imaginatively run, that its management and board understands the role that all their staff can play, and that collaboration inside and outside the company is as important to their success as competition.

It is a sign of a company that is more flexible, faster moving, more imaginative and more successful.

It is our contention that a more effective corporate form is emerging based on these ideas. Many of these will be co-operatives, but some will simply have a more co-operative spirit that understands the need to include staff and use their resources more effectively.

In time, these companies will push aside the kind of corporate dinosaurs that minimise the pay of their lowest and maximise the pay of their highest echelons, a sign of fatal inflexibility and short-term thinking.

They will do so because these companies will earn more money, waste less on leadership fantasies and will be more successful.

But this is not yet widely understood, either in the corporate or policy world, and there needs to be a campaign to speed the process along. The faster this process takes place, the more successful and imaginative UK business is going to be.

To get there we need to encourage shareholders to use their power to encourage more equitable pay structures, to vote down unacceptable remuneration packages and to use their power to remove, where necessary, the chairs of remuneration committees.

The transparent ratio and the Charter of Responsible Pay which we suggest in our report are both means towards this objective.

They need to take place within the context of a wider debate about corporate behaviour that emphasises the benefits and inevitability of change, rather than simply complaining about the injustice of the current situation.

Blair and Cameron Liberals? They just talked liberal

Julian Astle, Centre for Reform’s intellectual-about-town, has launched a hugely important debate in the Guardian. It is a critical question for all of us in liberal politics.  But I don’t think he’s got it right.


He suggests that, for most of the period between 1997 and today, Britain has been governed by liberals – which is why the coalition agreement was so easy to hammer out.

There are certainly elements of truth about this thesis, rather as Ian Bradley’s 1985 book The Strange Rebirth of Liberal Britain argued that Mrs Thatcher was a liberal too. Liberalism is the prevailing philosophy of the age – it would be strange if there wasn’t some overlap here.

But it is a slightly short-sighted view, in the sense that the outlines and the vision is blurred and fuzzy.

There is no doubt that ambitions like choice and competition, which drive Blair and Cameron (I am assuming that Julian's brief hiatus without liberal leadership refers to Gordon Brown), are both liberal in their objectives. Cameron’s Big Society is a liberal idea.

Cameron’s basic philosophies are not clear yet, but I share Julian’s suspicion that some version of liberalism beats somewhere in his heart, even if it is actually Liberal Unionism.

But I know the argument refers above all to the public service reform agenda, and – since we are theoretically about to get a glimpse of the Public Service Reform White Paper – let me set out why I think Julian is wrong, at least as far as the Blair years are concerned.

Because despite the liberal rhetoric, what we actually got – and what looks as if we will be offered again – is something fundamentally illiberal, because it is:

1. Centralised: the Blair years gave us huge public service institutions that were beyond any kind of local control and increasingly unresponsive. The ‘choice’ rhetoric about schools transformed parents into pathetic supplicants to the schools. Of course, you might say that this was Brown’s creation not Blair’s, but a quick glance at Michael Barber’s books reveals that Blair was behind the disastrous and wasteful targets regime. Liberals are localists.

2. Outdated: in practice, public services were handed over to the McKinsey conception of efficiency. As a result, we have – not liberal services – but increasingly impersonal ones, huge and hugely expensive call centre silos, competition from great lumbering corporate monoliths which leached the service ethos out of the system. Liberals put thrift and effectiveness ahead of narrow ‘efficiency’.

3. Inhuman: despite the rhetoric about personalisation and choice, our services are now less personal, more bureaucratic, less responsive and less human than they were a generation before, and the white paper looks set to offer more of the same. Liberals are above all believers in human scale.

Yes, Cameron and Blair use the language of liberalism. Cameron’s record remains ahead of him, but generally since 1997 we have had liberalism without the radicalism, liberalism without the people power, and – especially important this is going to be – liberalism without the humanity.

Whiggery, yes. A kind of old-fashioned social democracy, yes. But Liberalism, no – not even liberalism. How can anyone who deferred to power as much as Blair did, who failed to confront the issues that faced us – from Bush to the banks – possibly be described as a Liberal?

The genius of the bank share giveaway

Is it just me, or have the Lib Dems had a better week?  There is a sure-footedness about the party that suddenly seems to be more apparent, culminating in Nick Clegg's proposal that the government should distribute shares in the failed banks to every member of the public.

Now, there has been some predictable moaning about this idea.  It is true that it may get in the way of a radical division of the failed banks into their constituent parts, but there is no logical reason why that should be inevitable.  The City is sceptical of course.  But there have been other comments that it is too reminiscent of the big Thatcherite privatisations which ended with everyone selling off their stake as soon as possible for a quick profit.

I don't think that is true.  There are three major advantages about the plan that I can see.

First, it bypasses the City and their exorbitant fees, which they would normally earn in a privatisation.  That is almost enough reason to be in favour in itself.

Second, unlike the BT privatisation, people will not be able to sell their shares off quickly, because their value will need to reach a floor price to cover what the government paid out for the banks in the first place.  That might be some considerable time.

Third, these shares will be available to everyone and not just a wealthy minority.  The combination of the time lag and the large numbers of people who will suddenly have ownership rights over the banks could - though it will not necessarily - provide for popular democratic movements to use those votes to rein in excessive pay and other risky behaviour.

The Thatcherite privatisations involved a minority who did not exercise their ownership rights.  This plan will involve a majority and the possibility of popular control.

Longing for authenticity

I’ve just been on the Radio 3 programme Night Waves – there was also a fascinating interview with Margaret Drabble and feature on the revitalised Watts Gallery; I’m going to listen more often. But my task was to play the sceptic about the idea that anonymous online relationships and blogs somehow more allow for more authenticity.

I was invited because of my book Authenticity, which is eight years old now but still relevent (well, I would believe that).
And I was also happy to do it, because this debate is part of the cultural zeitgeist at the moment – yet it is ever so important to retain some distinction between virtual and real. Otherwise the powerful corporate world will try to fob us (or at least the poorer among us) with virtual teachers and doctors, claiming that there is really no difference.

One of my fellow contributors said to me afterwards that, even in the online world in the mid-1980s, they had resorted to ‘burger nights’ where everyone got together in the flesh, so to speak.

“In a virtual world, people will long for reality even more,” said the philosopher Robert Nozick, and he was right. Thank goodness.

Why the NHS reforms are not radical enough

I know I should feel excited, even vindicated, that the Lib Dems have exerted their influence to make the NHS proposals a little less terrifying.  And I do - don't get me wrong - I do.  But I am afraid that the result looks far too like the status quo, when the NHS desperately needs a little radicalism if it is going to survive.

This is what I wrote on the New Economics Foundation's blog.

Localism and the machines of loving grace

The first documentary by Adam Curtis (All Watched Over by Machines of Loving Grace) a couple of weeks ago was fascinating and timely. It went from the novelist Ayn Rand, via Alan Greenspan, to the doctrine that everything can reach a self-correcting ideal if it is just left alone, watched over by “machines of loving grace”.

The trouble is that the whole idea is being misinterpreted (see Rachel Sylvester’s column today in the Times, behind a paywall) as somehow the philosophy of localism. Not Liberal localism, it isn’t.

The hands-off approach described by Rachel Sylvester and Adam Curtis is more like Woodstock meets Milton Friedman. In practice, it is precisely what New Labour believed in all areas of life and tried to organise, the loving machines watched over in turn by McKinsey consultants and provided by a range of IT consultants, hard men who did well out of the New Labour years.

Lib Dem localism does not mean laissez-faire. It doesn’t mean doing nothing. It means doing a great deal, but doing it locally where it is more likely to work. It doesn’t mean hands off; it means a great deal of work.

The question is then, what is the role of the centre? Because Whitehall and Westminster without enough to do soon get into a panic and feel they need some levers to pull, as they are doing now. The answer is that the role of the centre is to inspire, to catalyse, to lead, to regulate what can destroy local life.

This is precisely the opposite of their current skills. Westminster and Whitehall have few leadership skills and a great deal of regulatory ones, which they inevitably bring to bear on the wrong things – light touch regulation for the big banks; great rafts of rules for people who want to run a local barbecue.

So don’t think that localism means doing nothing. Quite the reverse. It means shaping the world, but in a more effective way than has been done so far.

Time to wake up about nuclear

Here I am in a French hotel room, watching BBC World – it gets just a little exhausting after a while – and who should come on but the Lib Dem Euro-MP Chris Davies.

I have a great deal of admiration for Chris, who usually gets it right. But not this time, and in the unlikely event that he reads this, I wonder if I might ask him to think again.

The worst moment in the combative discussion was when he laughed theatrically at the German Green spokesman who claimed that 60,000 people had died as a direct result of the Chernobyl accident. “Green nonsense,” he said.

Now I joined the Liberal Party in 1979 because it its brave stance against the development of nuclear energy. It is far from clear to me whether that figure of 60,000 – which did not come from the Greens – is accurate or not. It certainly is no subject for such mirth.

Nor is it clear to me that nuclear energy, a capital-intensive and extremely inefficient, centralised solution, will actually reduce greenhouse emissions, since the business of extracting uranium, building the infrastructure and looking after the waste on a permanent basis are all highly carbon-intensive.

And the party remains anti-nuclear, no matter what compromises Chris Davies or Chris Huhne have made. These things are important because, as I have argued elsewhere, the revival of nuclear energy in the UK has the potential to be a far greater threat to the long-term credibility of the Lib Dems than student fees. And I desperately want us to be on the right side when battle is joined.

The decision by Italy and German to phase out nuclear is a wake-up call for us, and here I do agree with Chris. If the Germans mean it, and pour investment and imagination into creating a low carbon economy, how can we be against it?

But then of course, they will be that much further along the road towards a green economy – and deriving the huge efficiencies that will come from kicking the fossil fuel addiction, without pouring money into the nuclear black hole – decades before we do.

It is time we woke up instead of being cynical for the pleasure and edification of the producers of BBC World.