Responding to the Myners’ strike
Thanks to Duncan, Steve, Michael and Colin for their advice ahead of my gig last night at the Corporate Governance Circle. I was responding to a forthright speech to the always engaging and direct Lord Myners (who, gratifyingly, had also read the post and comments). I knew less about the subject – ‘Institutional Investors – are they the weakest link’ – than anyone else in the room but I think I just about got away with it.
My key point was to link the debate about corporate governance and stewardship to the emergence in 2012 of Personal Accounts. If these succeed – and the RSA has proposals which we think would help to ensure they do – they will create a huge source of regulated funds with the scope to impact directly on how British business is managed and indirectly on the behaviours of other institutional investors.
Although he expressed it in the most positive of terms, Lord Myners’ basic point was dispiriting for those seeking to improve the quality of corporate governance. He told the assembled investors that they already had the power to influence the companies in which they are invested. In typically robust style, he suggested that if company annual general meetings didn’t exist, someone would now be calling for them as the solution to all our problems: ’Hey, why don’t we have meeting every year where the whole board has to attend and at which shareholders can ask any question they want and table resolutions over key aspects of governance?’ ‘You have the power’ said the Lord ‘but the reality is that you choose not to use it’.
I had gone into the meeting thinking the big difficulty in this policy area was the principal – agent problem but I came to see that it is actually a collective action issue. The diffusion of ownership in almost all large funds – driven by modern portfolio theory – means that typically no fund owns more than one or two percent of a company. Why then should they be the ones to take on the onerous and risky business of holding companies to account? Interestingly, no one in the room denied Lord Myners description of the problem or offered a solution.
This morning David Pitt-Watson (who leads on our Tomorrow’s Investor project) and I met with Tory Work and Pensions spokesperson Theresa May to discuss our project and hear her views on personal accounts. She said some very interesting things to which I will return in a later post. But on the way back to John Adam Street I quizzed David on the issues of investor influence. The RSA proposal is for a low cost pension fund delivered through personal accounts but we also claim this fund could have a benign impact on corporate governance and stewardship, helping for example , deliver George Osborne’s vision (elucidated in a speech yesterday) of a more long term investment culture. ‘But how can we be both cheap and influential?’ I asked.
David assures me he has an answer and that it is in the forthcoming Tomorrow’s Investor report. I am looking forward to reading it
George Osborne: new ideas and new questions
Just come away from the Great Room after responding to a speech by George Osborne - you can see a short interview with him below. The Shadow Chancellor concentrated mainly on the case for new and better forms of oversight and intervention in financial markets.
My response covered three points:
I welcomed George’s interest in behavioural economics (the RSA is, after all, the leading public platform for thinkers in this area). But I suggested that once we recognise that individual short term choices don’t always add up to the best aggregate outcome the discussion about ‘nudging’ takes us into even bigger debates about the relationship between affluence, economic inequality and well-being. Although David Cameron opened up the well-being debate a few years ago, this is still challenging territory for the Conservatives.
Second, I asked about how the Conservatives are now thinking about the role of the state. The state can be big or strong in three different ways. It can employ lots of people and provide lots of services, it can collect and redistribute a lot of money, or it can pass a lot of laws that intervene in people’s lives. Take one example: we might address the growing crisis of social care by the state expanding public provision of care, by the state taking more tax giving this to people with care needs who are free to spend how they will, or we could pass a law forcing everyone to look after their grannies. Ideological anti-statists will tend to oppose each of these forms of state power.
The Tories advocate nudge-type policies which seek to shape behaviour. George suggested in his speech today that the Bank of England might have a general power of intervention over and above any regulation, or that the Government might break up the big banks. It seems that the Conservatives are recognising that Government needs to be more interventionist while presumably continuing to be sceptical about the state, for example, as a mass provider. I suggested it would be interesting to hear about how today’s Conservatives conceptualise the state we need for the world we are moving into.
Third, echoing my blog yesterday, I asked how economic policy might contribute to building civic capacity; how can we better fuse enterprise and the pursuit of profit with social good and civic renewal?
George gave positive, if rather broad brush, answers to each of these questions so maybe we can get him back to the RSA again soon to elaborate further.
How George Osborne’s speech could have been even better
George Osborne has done a good job of filling in for David Cameron while the Conservative leader is on compassionate leave. His speech to the Birmingham Chamber of Commerce on Friday was not only rich in analysis and policy but sought, as all important political speeches should, to get people thinking.
As was widely quoted, he linked the failure of the banks to a more general social problem of excessive debt and inadequate saving:
‘Our banks hold a mirror up to the worst excesses of our society. And the unsustainable debts in our banks are a reflection of unsustainable debate in our households’
The speech wasn’t just rhetoric. It contained not only policy ideas but also, bravely, the suggestion of a tax increase:
‘…I believe the time has come to look again at the generosity of interest deductibility in our corporate tax system….by reducing the tax breaks on debt we could potentially fund a significant reduction in the headline rate of corporation’
Given the strength of the speech, especially in comparison to some of the recent speeches I have heard from Government ministers, it is churlish to criticise but, hey, churlish is my middle name (actually it’s Gertrude, but that’s another story).
There were two things that Osborne could have done to make a very good speech into something really special. The first would have been to recognise how the Conservatives themselves were part of the culture of ‘borrow now pay later’. Not only did they consistently call for more deregulation of financial services, but in the midst of the housing boom they advocated inheritance tax cuts that would have fuelled it even faster. More fundamentally, the Conservatism of the 1980s and 90s was in thrall just as much as New Labour to the City culture which underlay the excesses from which we are now all suffering.
Secondly, Osborne could have reflected – as Nick Clegg did to his credit yesterday – on the broader failure of governance that creates politicians so unwilling to tell the public hard truths, such as, for example, you shouldn’t buy a house if you haven’t saved at least some of the cost first.
In his peroration Osborne says
‘ The Conservatives are ready to tell people these home truths and the country is ready to hear them’
Great. But the shadow chancellor needs to tell us more about how a Conservative Government would keep itself honest when the pressure is on to make voters happy today whatever the costs for people tomorrow.
Can humans respond to crisis? More or less …
The economic crisis is an opportunity to think afresh about the good society. To learn from this disaster and to avoid the next crisis means not just deciding what we think but understanding how we think.
Phillip Blond has every right to call himself very influential. Writing just a few days ago in Prospect, the self styled ‘red Tory’ advocated turning the Post office into a people’s bank – which Peter Mandelson has now apparently agreed - and the break up of massive private sector corporations, which is in keeping with George Osborne’s suggestion yesterday that wholly or part privatised banks be dismantled when they are fit to return to the private sector.
But the part of Phillip’s engaging article that caught my attention was this line:
‘The current political consensus is left-liberal in culture and right–liberal in economics. And this is precisely the wrong place to be’
Until recently I was fond of describing the last three political decades in the West through the following aphorism (although I never could find the source):
‘The right won the economic argument, the left won the social argument and the centre won the electoral argument’
Blond turns this on its head. Whatever the substantive view of his argument, there are three broad categories of response: first, he is wrong; second, he is right; third, he is right (or wrong) but only in relation to how things are now.
It is the third of these possibilities I find most interesting, the implication being dialectical: three decades ago we may have needed to liberalise social attitudes and to free up markets but now we need to reassert common values, hierarchal authority and the need for business to serve the interests of society.
At our joint seminar with the neuroscience folks at UCL on Friday we had a presentation from Professor Nick Chater. His research supports the thesis that the human brain has a very limited capacity to organise immediate perceptions in relation to an objective index. Instead, he argues, when we are asked to compare perceptions along an axis (such as brightness or loudness) we have only five categories: basically, much less, a little less, the same, a little more and much more. This may help to explain some of the idiosyncrasies in the ways human beings value things, for example the way comparison (over time and between people) seems more important to us than absolute measures.
Is this true also of human affairs? Instead of human societies reaching higher levels of wisdom as we learn from past mistakes, we simply move from wanting more of one view of the world until it becomes excessive, at which point we want less of it and more of something else. The human race does advance but only through a succession of failures, which can sometimes turn into disasters.
There is nothing new about this kind of gloomy dialecticism, indeed this world view is neatly captured in common parlance (for example, ‘plus ca change plus c’est la meme chose’). But in cultural theory, psychology and neuroscience we may find a richer insight into how we might find less painful and dangerous forms of learning.
Cultural theory is one of a family of theories arguing that human decision making is neither, on the one hand, explicable on the basis of a single logic (as in the model of homo economus) or, on the other, impossibly complex and indeterminate. Instead social problem solving derives from a limited array (in most theories between three and six) of basic responses, each of which is largely defined in terms of its antagonism to the others.
The social dialectic (which may underlie Phillip Blond’s call for a reversal of the conventional wisdoms of the last three decades) could be partly rooted in the collective expression of our cognitive predisposition to a limited array of comparative responses to the social world: ‘What we used to want more of, we then had too much of, and now we want less of.’
The point here is not to succumb to some kind of historical, much less neurological, determinism. Instead it is to argue that our capacity to learn from the past and plan realistically for the future is (in this year of Darwin) enhanced by better understanding of the predispositions and limitations of our species.
Why the old ways won’t work for Labour
I will return later today to cultural theory, thinking a bit more about how it can provide a practical tool to managers and policy makers. But first something a bit more mainstream.
After a conversation about more substantive and RSA related topics, a Labour minister asked me this week: ‘what do you think of the political situation’. This is what I said.
The underlying realities are reasserting themselves. Labour has been in office for eleven years, the economy is a disaster area and the Conservatives have been pretty successful at detoxifying their brand. All this suggests a reasonably comfortable Conservative victory at the next election with Labour’s best hope being that the vagaries of the electoral system mean this doesn’t quite turn into an overall majority. While we have over the last twenty years got used to the idea that when a party regains power it keeps it for three terms, we may return to the politics of the sixties and seventies when the major parties took it in turns to fail to address the UK’s long term decline.
The Conservatives are not very coherent on the economy. Their rhetoric distances them from most economic experts and the strategies of most other countries (including Obama’s USA), but their policies differ from Labour only at the margins of the huge sums now being thrown at the crisis. But the public naturally wants someone to blame for what is happening and the successful, and perfectly legitimate, Conservative strategy is to reinforce this tendency by continually attacking the Government, even when the Opposition doesn’t have an alternative policy (as George Osborne did about ‘Bailout 2’ on Monday).
In this context the conventional politics of claim and counter claim, attack and rebuttal, won’t work for Labour. The team that helped win for Labour between 1997 and 2005 is back inside the tent but, like generals, ageing political strategists are always inclined to fight the last battle.
Instead, Labour needs a radically different communication strategy. This might for example involve an explicit refusal to engage in party politics while the economic storm is raging. Brown’s message might be: ‘I am reconciled to the likelihood of losing the next election. Neither I nor my ministers are going to waste any energy on that skirmish when the big battle is to get through this crisis’.
Along with such a strategy the Government might push to the forefront some of its more emotionally intelligent communicators; people like James Purnell, Andy Burnham and the always effective Alan Johnson.
But instead of this an insider told me the other day: ‘we are basically on election footing now and will be for the next fifteen months’. And at the Fabian conference at the weekend there was even a strange tone of triumphalism about the crisis of global finance.
If Labour tries to win on the conventional terrain of party political battling it is likely to lose badly. To reframe politics in the way necessary means boldness of strategy, directness of communication and a willingness to move beyond the tried and tested weapons of past wars. Given this, I don’t suppose Mr Cameron has too much to worry about.
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