Who Wants to Build a Left-wing Private Equity Firm?

On Saturday, we were lucky enough to participate in a workshop with a group of 16-17-year-old politics students, discussing the critical issue of whether the rich really do deserve their wealth.

As the conversation turned towards discussing corporate profits, one student, who had kept quiet throughout the workshop, suddenly put up their hand and offered a heartfelt interjection, “ Surely, we need people to make profits. Nobody sets up a business not to make money – that would be ridiculous. And without profits, no one would create businesses. And without businesses, where will we get the things we buy or the jobs we need to live? So, isn’t it a good thing that people get rich making profits?”

Unbeknown to us, at some time during our discussion, The Observer published an interview containing perhaps the most transformative economic policy proposed by a potential Chancellor of the Exchequer in our lifetimes. It could have been a direct answer to the student’s question.

The proposal, put forward by John McDonnell, is radically simple: large privately-owned businesses (with over 250 workers) would be compelled to deposit a small, annual share of profits in the form of equity into a worker‐controlled fund. Over time, workers would slowly own a greater share of their workplaces and receive an ever-expanding piece of the profits. Share by share, business by business, the UK will be put on a steady path towards worker democracy.

The benefits of greater worker democracy are deep and far reaching. It provides an answer to some of our most pressing issues: low productivity? Give the workers a stake in the profits and performance of the company. Extreme wealth inequality? Redistribute capital in the form of new shares. Automation eliminating jobs? We own the robots, so we can work less hours for the same pay! Even business lobby groups – such as the Institute of Directors and the British Chamber of Commerce – say that employee ownership could be a good idea.

Yet, we cannot achieve worker democracy simply by focusing all our energies on winning a Labour victory. In addition to the deep mistrust of Labour in our communities, such a strategy forgets a crucial point: this policy is only on the table thanks to actual changes already made by people experimenting with alternative models of ownership.

In fact, the idea of slowly transforming businesses into worker-owned cooperatives through share funds comes directly from the trade union movement. In the 1970s, fearing a backlash against the welfare state, Swedish Trade Unions concocted a plan to permanently entrench the power of workers in the economy: force businesses to pay a small share of profits into wage earner funds and in only a few decades these funds would have a majority control over the entire Swedish stock market! Alas, this never came to be. Swedish capital fought back and watered down the reforms, turning them into little more than an small tax on access profits.

More recently new successful models of ownership have sprung out of local resistance against austerity. In 2011, Preston council faced the largest central government cuts in the country. Deciding to take matters into their own hands, it pioneered a community wealth fund and directed public institutions to procure from the co-operative sector. When the co-operatives didn’t exist, it simply created them to fill in the gap.

Such local alternatives will be the backbone of any transformation of the macroeconomy. And as many barriers exist to building worker democracy, there need to be a lot more of them. For example, the New Economics Foundation have argued that in order for the co-operative sector to grow, “support for innovative financial instruments tailored to the local co‐operative economy” is desperately needed.

In Deptford this Saturday, we are working with local residents to do just that. The aim is to set up a a democratic, ant-gentrification fund – what we are calling the People’s Private Equity. Instead of the usual smash and grab model of private equity, the fund would purchase existing companies and reconfigure those assets along egalitarian, internationalist, environmental and worker control-oriented lines. We hope to include people from a geographically situated community from the start so that the fund lives up to its inclusive agenda. Yet we are also looking to Britain’s former and current (neo-)colonies to create a truly international network that equalises wealth between, as well as within, national economies.

The aim on Saturday is to discuss how to launch the Deptford anti-gentrification fund.  The area is on the front line of gentrification. Some locals argue that Lewisham’s almost exclusively Labour councillors have been central to the social cleansing taking place in the borough. In fact, many people involved in the fund are highly critical of the Labour Party for this reason. Those of us who have lived in the area since we were born can no longer afford to live there and are moving out. We have witnessed huge changes, specifically over the past five years. The food on offer locally has become much more expensive. New businesses offer only luxury goods. There has been a decrease in services for those in need, which has meant levels of poverty are more visible and felt more deeply by those affected.

The fund will act like a pincer movement against gentrification. From below, we need to understand where money in our communities needs to go. From above, we need to create financial instruments that will enable us to take finance by the horns. It’s no easy task, but with strong community solidarity, sufficient links to the post-colonial global south and a supportive macroeconomic policy from the Labour Party, there is everything to play for.

Dani McDonald co-founded the Deptford People’s Project, a community group that aims to bridge the gap between the existing community and new residents coming in on the wave of gentrification.

Ben Tippet is an economist helping to launch People’s Private Equity.