MESO-ECONOMICS, NEW PUBLIC ENTERPRISE

AND ECONOMIC PLANNING

bY
Stuart HOLLAND,
Fellow of the Centre for Contemporary European Studies,
Sussex University

In 1973 new public enterprise became a major issue in Britain for

the first time in more than a decade. This was largely a result of the
proposals for extending the public sector forwarded in Labours
Programme 1973 and various Opposition Green Papers which accompanied it.
In 1974 it is crucial that the new dimensions opened in last years
debate are shown to be rather more than less relevant to Britains economic and social welfare. This is not simply a party issue. It is a
question of avoiding a dellation in the economy matching interwar
dimensions, and harnessing our economic resources in a new democratic
planning.
The extension of public enterprise is a chalalenging task for various
reasons. The major rise in the import cost of oil is the most immediate.
The problems here are well enough known. At previous rates of consumption the increased prices since October 1973 have raised the cost
of oil to some third of the value of total imports.
Mr. Gordon Richardson raised the respect for his governorship of
the Bank of England in stating on January 15 that years of relative
austerity stretching perhaps to 1984 could be expected as a result of
the deficit. 1
The scale of any deflation to correct such a deficit wouId be
enormous. Excluding oil&as did Mr. Richardson in his statement, gives
a {deficit pquivdent to 4 per cent of national product. But if the
payments imbalance is not reserved during the next year, the deficit
including oil could total more than 6 per cent of national product
1 Deficit threatens austerity up to 1981. The Times, 16th January 1974.

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STUART HOLLAND

(depending on rates of consumption and any price reductions in bilateral oil deals). Compared with a deficit in 1964 which amounted
to less than one and a half per cent of national product, it is clear that
we cobld approach early thirties levels of unemployment through government-imposed deflation to cut back on imports unless we transform our
management \of the economy. The OECD made no bones about the
consequences in commenting in December last year that the possibility
of social and political tensions emerging from real or imaginary changes
in the distribution of income cannot be ignored.2
Beyond Keynesian Demand Management.
The higher cost of oil will give a vicious twist to the rampant
inflationary spiral. On retail prices this broke ingloriously through the
ten per cent barrier last year. Major lay-offs and redundancies are
on the cards for those firms which survive the crisis. But many smaller
firms face bankruptcy through a zero or negative growth-rate so long
as their costs rise through inflation. Their employees will face not just
short-time or temporary lay-offs but quasi-permanent unemployment.
Such a crisis should be sufficient to cause sleepless nights for the
Treasury Keynesians. Devaluation offers no easy bolt-hole. A 20 per
cent devaluation since the Smithsonian Agreements has both accelerated
inflation and failed to reverse the payments deficit. Granted the raised
price of oil imports, there would be a strong case for revaluation if only
we had some means of raising exports other than relying on the
exchange rate.
In December 1973 The Times offered its personal solution to the
crisis by recommending a ten year investment programme of 20,000
millions in British industry. This was to be implemented through a
National Investment Board which would enter into agreements with
individual firms and industries, raising money which would be lent to
industry through a new government bond and taxati0n.s
In itself this amounted to a severe indictment of the Keynesian
orthodoxies that if demand is properly managed by indirect means,
direct intervention in supply is unnecessary. The Times should be
congratulated for the similar rationale behind their proposals and
Labours proposed National Enterprise Board, and Planning Agreements
with leading companies. However, despite the virtual identity in name
between their National Investment Board and Labours National Enterprise Board, the difference between The Times and Labours proposals
remains crucial.
First, The Times assumes that private enterprise has failed the
country through llack of finance for investment. But this is a short2 OECD: Economic Outlook, December 1973. The OECD judgement preceded the major
increase in oil prices frum 1st January 1974.
3 Should we invest f#),ooOm to modedse British industry?, The Times, 19th December
1973.

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NEW PUBLIC ENTERPRISE PLANNING

circuited analysis, It is not access to finance which has been lacking,

but conviction that the government can manage macro-economic
demand. The investment programmes of (major companies frequently
take longer than the lifetime of a government, let alone a Chancellor of
the Exchequer. If a major company steps out of line and expands
investment over the increase expected in industry as a whole it will risk
ending up with spare capacity and a thumping loss unless it can dispose
of the surplus abroad, which will be increasingly difficult in the other
industrial countries which are trying to reduce imports to cope with
increased oil prices.
Second, leading private firms in manufacturing industry are not
significantly infhenced by the already massive State handout of public
funds. Investment grants and labour subsidies for regional development
constitute the biggest standard injection of public money to the private
sector. Yet in recent evidence to the Commons Expenditure Committee
Unilever submitted that we are unable to produce evidence from our
own experience that the Regional Employment Premium has increased
investment of employment in the Development Areas.
Cadbury Schweppes submitted that neither labour nor capital incentives played a major role in location decisions. GKN stated that
the attraction of the incentives has so far been inadequate. Tube
Investments said that there are not many projects where regional
policy is of critical importance to the strategic decision (to locate).
Univac stated that we would have gone to a Development Area regardJess of the grants offered and Dunlop frankly admitted that it made
a surplus from regional aid which was useful for investment elsewhere. 4
Third, the elsewhere is increasingly abroad rather than in Britain
at all. As the Burroughs Company submitted in the same evidence, it
along with all other companies, is locating in Taiwan, Brazil, Mexico,
the Philippines and Hong Kong, where the cost of labour is very low.
When asked how low, the Financial Director of Burroughs replied that
such foreign labour costs were about a quarter of those in Britain, and
agreed with a member of the Commons Committee that an employment
premium would have to be very substantial to locate here (in Britain).
This is true enough. On labour costs alone, it would have to be
raised to 75 per cent. And this does not take account of the massive
gains which companies secure through transfer pricing between their
multi-national subsidiaries, by which they charge themselves high
import prices to the UK and thereby syphon income away, from the
Inland Revenue for expansion abroad. The several thousand per cent
profit earned by Roche on librium and Valium may have been exceptional, but under present policy we have little or no way of knowing
4 See further Stuart HOLLAND:
Multi-nationalCompanies and a Selective Regional Policy.,
in House of Commons Expenditure committee, Regional Deveiopment Incentives (Minutes of
Evidence) HMSO, 13th December 1973.
5

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STUART HOLLAND

what scale of funds are being syphoned abroad by the multi-national

leaders. These companies have a monopoly of information on their own
profit and cost structures which imposes lockjaw on the allegedly iron
teeth ,of the taxman. This worsens the balance of payments as the
mdti-national trend accelerates. At the same time it reduces the tax
revenue available for public sector investment and wages, whether in
public enterprise or housing, health, education and social services.

The New Meso-Economic Sector.

The lesson from this evidence is clear enough, If a future government increases cash handouts to leading companies it will not overcome
the hesitation of their management to undertake a broad wave of new
investment in this country. The 2,000 miltlion a year advocated by
The Times would melt like snow through the transfer pricing of multinational companies and mainly end up in investment elsewhere. At the
same time this syphoning of cash abroad would worsen rather than
improve the balance of payments, since it works through the self-charging of high import prices, as mentloned previously.
The problem poses no less of a challenge than that which Keynes
tried to meet when faced with chronic unemployment between the wars.
But it is a problem which cannot be solved either through Keynesian
demand management or through greater cash handouts to firms in the
hope that they will increase investment. Some new projects would
materialise as a result of the handout policy, but nothing like sufficient
to solve the investment crisis in Britain or to focus new energy-minimising investment on a major expansion of exports. In general, like
Univac, the firms would accept the increased volume of public funds
to subsidize what they would have done regardless of the grants
offered.
This problem is critical granted the trend to domestic monopoly
which has accompanied the rise in mufti-nationalisation of capital.
Fifty companies now account for a quarter of our visible trade. Most
of them are major multi-nationals. The top hundred manufacturing
companies account for some half of manufacturing net output, against
only a fifth in 1950. Before 1980, on National Institute projections,
they may control more than two-thirds of manufacturing. In contrast
with this massive concentration in the top hundred the rest of manufacturing is divided between literallly thousands of smaller firms. These
malller firms in the shrinking lower end of the market are still operating
in something like the manner of textbook micro-economic theory. They
are national rather than multi-national in operation, and still are influenced by Keynesian macro-economic policy. But in between them and
the government there has now emerged a new meso-economic sector of
giant companies.
These new meso-firms impose a blindfold on the Inland Revenue
and client enterprise in the public sector through a monopoly knowledge

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of their own multi-national costs and profits. They can occasionally

be challenged by assiduous work in the Monopolies Commission - as
evidenced by the excellent work on Roche-but in general they keep
clear of its powers by setting prices at a level which enables less
efficient firms in the lower end of their industries to survive.6 They
declare profits to the Inland Revenue which are either in line with, or
even lower than, some of the smaller firms.
But the difference in profits accruing to the new giants from their
producer power, massive scale economies and multi-national access is
syphoned out of the country through transfer pricing. In other words,
they not only take investment and jobs abroad but avoid the powers of
State agencies such as the Prices Commission by setting prices here
which (reflect the costs and profits of the least efficient firms in the
system. As with transfer pricing -which increasingly includes commodities and raw materials as well as semi-finished products -this
aggravates the long-term trend to inflation: it both raises the cost of
imported goods and the price of f i n d products. The old price leadership of the competitive model has been stood on its head. Previously,
new entrants to markets could bring prices down and still give their
owners or shareholders a normal return in the way of profit. But
the new price-making power gives the meso-leaders abnormal profits. 6
Any competitor trying to force entry to their markets must either be
foolhardy, plain lucky or itself a leader elsewhere in the world economy,
backed by comparable financial resources of the kind necessary to tide
over the no-entry or elimination pricing tactics which the established
firms will adopt. 7 The new price leadership is therefore assyrnetric and
one-way; up only rather than both up and down. This not only has a
direct inflationary impact correlated with the trend to monopoly but
also results in lost national sales and output through the decrease in
purchasing power. The meso-leaders are therefore partly hoist on their
own price petard.*
5 This is a massive extension of what Edith Pmrose identified as the price umbrella
offered by large to smaller firms. Edith PENROSEThe Theory of the Growth of the Finn,
1959.
6 Those who claim that leading Hrms are earning n o d p d b or suffering a profits
squeeze need to explain how some half of their massive expansion of market dhare has been
accounted for by takeovers rather than internal gmwth. They also have to acarunt for that
internal growth itself, at declared profit levels which in many c~plt(l are lower than those
for the smaller firms which they are squeedng into the bottom third of manufacturing. Cf.
further P.E. HART,
M.A. U ~ N G.. WNSER: Mergers and Concentrations in Brftkh Industry,
NIESR, 1973, and HMSO: Report of the Committee of Inqufry a Stnull Firms (Bolton Report),
Cmnd 4811, November 1971.
I Cf. J.S. BAIN: Barrfers to New Competition, 1962. and Pa010 Snos-LAslrrr: Oligopo?y
and Technical Progress, 1962 (revised edith 1969).
8 A US Anti-Trust Division report has shown that 27 out of 28 independent econometric
studies in the States found a significant correlation between the market power of leading
companies and inflationary price increases. Cf. MJ. G m , B.C. MOOREand B. WMSERS~IN:
? h e Closed Enterprise System, 1972. For estimates of lost GNP thxigb high prices in the
States totalling 6 per cent see F.M. S~HERER:Industrial Market Structures and Economic
Performance, 1970.

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STUART HOLLAND

The Public Enterprise Response.

Only new public enterprise can counteract this new meso-economic
trend in the modern capitalist economy. Keynesian demand management has been undermined. Cash handouts and exhortation no longer
raise investment where the management does not consider such investment warranted. Good behaviour codes or government directors on
the board largely give the new meso-leaders a public relations front for
what they would do anyway.@ It is not so much the scale of the finance
recommended by The Times which is wrong, as the manner it should
be employed to ensure that the new meso-economic power can be
harnessed in the public interest.
The case for new public enterprise mixing it with the top hundred
leaders was one of the basic arguments in the contentious Labour Party
Green Paper on a new State Holding Company -the National Enterprise Board.
Labours manifesto commits a Labour government to new controls
over leading private enterprise in the meso-sector -the Planning
Agreements system -and to a powerful National Enterprise Board
with the structure and functions set out in Labours Programme 1973.
The manifesto also cites those main functions specifically in its
description of the use to which it will put profitable sections of industry
or firms where a public holding is essential to enable the government
to control prices, stimulate investment, encourage exports, protect
workers and consumers from the activities of irresponsible multinational companies, and to plan the national economy in the national
interest.
Anyone will realise that not all of these criteria for a pujblic holding
are equally quantifiable. For instance, interpretation of the export
capacity of a firm or its ability to counteract a foreign multi-national
company demands an assessment of the management and operating
capacity of the firm over time. The most appropriate company need
not be number one in an industry, which may well prove to be a potential
lame duck of the first order. It may be company five or six which has
been growing fast with a well coordinated team, and is faced with
obstacles to further expansion. These might include barriers imposed
by bigger companies, obstacles to a merger imposed by previous governments, uncertainty about the expansion of demand from its principal
client companies, uncertainty about the future of government prices
policy, and so on.
In all these areas, public ownership would help managementwhether conventional or worker-controlled -to fulfil its expansionary
9 Even as tough minded a State repnsentattve 88 Lord B e d h g was unable to advert
the government effectively on the impending collapse of the Rolls-Royce -211
project. See
further his own evidence on the llmits of tdirectors on the boards of pnvete
companies in sixth Report from the Expendim Committee. Public Money in the Privafe
Sector, vol. 111, HMSO, 1972.

NEW PUBLIC ENTERPRISE PLANNING

153

objectives. Barriers imposed by (larger companies depend on their

greater access to finance to ride out a new challenge than that available
to the challenger. To prevent entry they will either temporarily reduce
prices, or hold prices stalble during an inflationary period and thereby
reduce potential profits for the challenger. Only a glutton for punishment would play this game (reducing ones own cash flow meantime)
when the challengers lender of last resort is the government itself.
Precisely because the challenger is a public enterprise rather than a
private firm, the monopolistic entry barrier would not be likely to be
lowered in the first place.
The same benefits from public ownership accrue in the case of
removing the disincentive of government anti-monopoly action in selected cases where the government wishes a #leadingfirm to expand through
merger in the public interest. If the firm were privately managed, the
government would have no real knowledge of the structure of its costs
and profits. In a private firm, all the resources of management are
directed against the Monopolies Commission. But in public ownership,
both management and workers will be made aware that their future
depends on fulfilhg government demands for information on the real
nature of costs and profits. Any board member neglecting this does
so at his peril if the Monopolies Commission ,later discovers, as in the
Roche case, that profits have been misrepresented.
For such reasons, the liberal capitalist dilemma between increased
cdmpany size and increased power over prices and profits can be
resolved through new public enterprise. Increased size can mean the
translation of scale economies into lower real prices. In some cases
this would mean a restrained rate of increase in nominal prices rather
than price cuts. But in other cases, where the private company brought
into public ownership had previously been channelling profits abroad
through transfer pricing, the new public ownership of the company could
result in significant price cutting. This could be a major instrument in
a Labour governments anti-inflation policy.
But if new ownership of leading companies can give a direct instrument for anti-inflation policy, it can also mean that the government
does not have to rely on private companies own figures on the structure
of their costs and profits. It can compare them (as the Italians do
through their State Holdings) with its own public enterprises. This
kind of leverage will be essential if Labours Planning Agreements
system with leading private firms is to advance on the present prices
policy, which means co-ordinating price increases rather than ensuring
price reductions. By taking a leaf from the French version of Planning
Agreements, a Labour government dealing directly with public and
private firms on the basis of more accurate knowledge of costs would
be able to discriminate selectively between cases of real innovation
which needed temporary mark-ups to cover development costs over

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STUART HOLLAND

an initial period, and mark-ups which just amounted to increasing this

years profits by a given percentage increase in price.
In trade, the government could both use its new public enterprise
for import substitution and export promotion, and through its own enterprises secure better information on the scale of transfer pricing by multinational companies. The government could also reverse the present
pattern of transfer pricing for some of the transactions of British-based
multi-nationals which it took into public ownership. To do this it could
increase the book value of exports to their subsidiaries abroad, in some
cases on a major scale. If determinedly pursued this could prove the
best short-term gift to the British balance of payments since the discovery of major under-recording of exports by the Board of Trade
under the last Labour government.
The planning of linkages between leading public and private firms
would be one of the priorities of any Planning Agreements system
worthy of the name. Previous Labour planning did two run-offs
through leading companies in six years, but even then failed to use the
information it secured as a serious planning instrument. Most of the
National Plan was formulated on the basis of an inter-industry linkage
table dating from a study made in the 1950s. But the input-output
technique used by the DEA was an economists equivalent of the philosophers stone. It could not be co-ordinated with the knowledge
gained from firms themselves, which ultimately meant that neither the
inter-industry nor intra-industry information could be used. As one
of the experts concerned wrote later: The industrial information could
not be readily interpreted in terms of the parameters and variables of
the (input-output) model we were faced with the difficult choice of
either ignoring this mass of information or making arbitrary judgements
on final demand or input-output coefficients... We tended to do the
latter except where the industrial estimates were demonstrably
absurd.lO (My emphasis - SH)
In other words, the brains of the DEA were reduced to guess-work
and hunch in a technique which was supposed to provide the forecasting
on which planning could be based.
IronicalJy, one of the gains from the monopoly concentration in
manufacturing is the extent to which securing advance infomation on
corporate planning from leading companies can now make a reality
of inter-industry linkage. The difference would be that instead of
trying to wed past information on linkages with advance information
from companies, the inter-industry planning would be based on the
large leading companies, and agreed modifications of their programmes
once they were submitted to the planners. Because of the meso-economic trend, the top half of the industry boxes in the input-output table
could be filled with information from only a handful of firms. Interindustry linkages could be based on such leading companies, with

...

10 W.F. GOS~UNC: Input-Output in the United Kingdom, 1970.

NEW PUBLIC ENTERPRISE PLANNI NO

155

pressures on them to make advance contracts with each other for a

high proportion of the inputs of their respective investment programmes.
Such advance linkage would also facilitate the forward planning of
economies in fuel use, diversification from oil to other fuels, waste
recycling and so on.
In general such planned linkage between leading public and private
enterprise firms could promote precisely the broad wave of sustained
investment through manufacturing which has been missing in British
industry since the war. 11 The leading public enterprise firms would
set a new pace in investment, scale, technology and price. This could
simultaneously raise productivity and lower the rate of inflation. Once
public enterprise leaders had set the pace on new projects or restraint
of prices, other firms in the meso-economic sector could not afford to
delay in fallowing suit, or they would lose market share to the new
leaders. This process would not happen automatically in all cases.
Some companies might decide to close down operations rather than
face really competitive conditions. In this case the readiness of the
government to bring them into public ownership to encourage the
others would be a crucial test of the seriousness with which it intended
to implement a new planning strategy focused on expansion. It would
test whether the government would run the economy, or the companies
ruin it through further investment hesitation, capital out-frlow, tax
evasion and damage to imports through transfer pricing.
However, the area in which increased use of planned linkage between
public and private enterprise could probably have the most dramatic
effect is regional development. UN evidence some years ago showed
that those regionally mobile sectors with the highest job expansion and
growth of value added were those with the lowest transport costsbroadly manufacturing industry as a whole but, within manufacturing,
modern engineering and para-chemical products. 12
Evidence has also been already cited showing that the new mesofirms in manufacturing are not significantly influenced in their location
decisions by government regional handouts, while they are influenced
by the pull abroad of massively lower labour costs and the transfer
pricing potential which is offered by foreign tax havens. Our present
IDC control net fails to catch the multi-nationals, and leaves even
medium sized firms free to choose their own location anywhere in the
scheduled development areas. 13 Besides, the bulk of any public money
spent on a Development Area to date will end up being spent mainly
11 The argument for promotinp: such a bmad wave through a new mix in the emnomy
gives a real chance for less developed -tries
to make a d t y of Nurkne balanced growth
in the face of multi-national challenge. Cf. Rngnar Nvnrsa: The Conflict Between B h e d
Growrh ond International Specfatisation, Lectwu on Eun~omicDevelopment, Istanbul, 1958.
12 United Nations Economic Commission for Europa: Criteria for the Location of Industrial
Ilant, 1%1.
13 In the previously cited recent evidence to the Conmuma Bxpsnditure Cammittss IBM
admitted that it told the government that it would either expand at Havant or p abroad.
The government gave it an IDC to expand at Havant.

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STUART HOLLAND

in the already developed areas because not enough supplier firms are
available in the regions. 14
But the specific location of new public enterprise in manufacturing
can be controlled in such a way that new jobs in pharmaceuticals,
engineering or electronics are brought to particular localities such as
Clydeside, Ebbw Vale or Shotton. Regional planning based on the
advanced programmes of leading companies can also ensure that a high
degree of linkage is assured between the incoming public enterprise and
private enterprise firms. This does not mean to say that the regions
should be condemned to the status of branch plant economies. Further
linkages can also be promoted -because the information between firms
the big league
and industries is available in advance-between
incomers and medium and small league locals, with a considerable
devolution of initiative on such linkage being given to new regional
development agencies. 1s

Through such means the Labour government could make progress

towards abolishing one of the worst of a capitalist labour marketlarge scale redundancy. Previously, the best that we could do was
euphemise this evil as aredeployment" or "shake-out". But with the
degree of precise control over location made possible through public
enterprise, and with a range of firms across the main manufacturing
industries, Labour in government could progress to ensuring that no
major film or plant during the coming crisis condemned its workers to
the dole.
Italian State capitalist measures have already shown this possibility,
matching the role of the big State Holdings as providers of new jobs
with a temporary salvage holding company called GEPI. This plays
a merchant bank type role, evaluating whether the failing plant or firm
can be put on a sounder footing. If so, it takes the necessary stepswhether improved management, changed products, bettered techniques
of production, or more finance {in return for a pubblic holding in the
company). If the company or firm cannot be salvaged, the big State
Holdings are called on by the government to bring new jobs to the
workers. Having made this strategic demand, the kind of jobs and the
kind of industry is left to the holdings in consu'ltation with the relevant
unions, and the planning authorities. 16
Meanwhile, in either case, the government maintains the labour force
of the company on full pay by a system throulgh which it pays up to
four-fifths of the wages bill, with the company footing the rest. This
is not a waste of money even in crude cost-effectiveness terms, since it
means that if the company is successfully salvaged it will have retained
its labour force intact, rather than have to recruit again from scratch.
14 See further A.J. BROWN:A Framework for Regional Economics in the United Kingdom,
NIESR, 1973.
15 Cf. Labour's Programme 1973 and Labour's Prc-Election Manifesto 1974.
16 Cf. Further Sixth Repon from the Expenditure Committee, Public Monty in the
Private Sector, vol. 111, op. cit., Appendix 23.

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It also gives the big holding companies certain knowlledge of the size,
skllls and suitability of the existing labour force for the jobs which
they plan to bring into the company. All of this is mutually agreed
with the government through a formalised forward planning procedure.
The governments advance knowledge of the State Holdings forthcoming investment, through its Planning Agreements, ensures that the
planners have leverage on the holdings in the case of any recalcitrance.
These are the kinds of gains through extensive new public enterprise
which Labour could be implementing in government. The more companies it quickly took into public ownership, and the more effectively it
used them to reinforce the Planning Agreements, the greater the results
it could deliver before its first parliamentary term was out. Granted
the scale of the current crisis, it could not promise in advance to abolish
minor redundancies within five years. But it could cope effectively with
the problems which may be posed in major redundancies such as the
laying off of 8,000 workers in a leading multi-national car firm, the
major closures which in the last analysis may prove justifiable in some
steel plants, and in other areas of employment decline. It could also
offset the temporary problems facing para-chemical producers using
derivatives from higher cost oil during the period before we can draw
on North and Celtic Sea reserves. North Sea oil is not heavy enough
to substitute the chemical base for imported oil, but will reduce the
direct import bill for total oil imports. In the longer run the government
could cope as effectively with minor redundancies and pockets of persistent unemployment of the kind which has brought such hardship to
the middle-aged worker with little hope of a future decent job.

Socialisation and Self-Management.

The Labour Partys pre-election manifesto talks of socialising the
public sector. As it puts it, we intend to socialise existing nationalised industries in consultation with the unions. We shall take steps
to make the management of existing nationalised industries more responsive to the workers in the industry.... The Liberal Party also has
argued for several years in favour of industrial democracy. The TUC
Interim Report on Industrial Democracy of 1973 recommended a two
tier structure for management boards in the public sector, with fifty per
cent of the supervisory board - the supreme decision making body of
the enterprise -appointed through union and TUC machinery. 17
How can industrial democracy prove compatible with the kind of
planning already outlined, where the government reserves the right of
control after bargaining with firms themselves on the strategic aspects
of their activity? Surely workers control means that workers themselves should determine the nature of investment, prices, location, contribution to foreign trade and so on, instead of private management or
central government?
17 TUC: Industrial Democracy, hta&nReport by the General Council, 1973.

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STUART HOLLAND

This is an opening debate in which those who work in leading

companies will increasingly participate. The problems of workers
control in Yugoslavia are already widely known. The general freedom
of workers controlled firms to determine the pattern of prices, trade
and location has contributed to a rate of inflation higher than in many
West European countries, a persistent trend to balance of payments
deficit, and a regional problem which has worsened during a period
in which the Italians -through State capitalist measures - have succeeded in reducing regional disparities.
The key to resolving the dilemma between central controls and local
worker autonomy lies in the distinction between strategy and tactics.
For small and medium sized firms there is no reason why workers should
not control effectively all aspects of company behaviour, subject over
the long-run to the constraints of the market. (In the short-run they
could be aided in re-equipment, buying sites and premises and so on
through a GEPI type injection of finance in return for a government
shareholding.)
Similarly, there is no reason why the constituent firms of leading
companies in the meso-economic sector should not be extensively worker
controlled without conflicting with the wider social and national interest.
But because they are bigger, and because their behaviour influences
the pattern of national pricing, trade and regional development, the
central government must be in a position to exercise leverage on such
strategic questions as prices, trade and location.
As with the Planning Agreements system in Labours Programme,
this does not mean to say that the central government shou.ld hand down
directives to the workers in the firm concerned. Worker-managed
companies, like companies under conventional management, have a much
better on the ground idea of markets, techniques and opportunities than
central planners. The process of bargaining on such strategic issues
therefore would run more as an extension of traditional bargaining
procedures than as central limitation from the outset of what workermanaged firms might or might not do.
Also, in the whole area of the tactics whereby worker-managed firms
fulfilled agreed strategic objectives, the firms would be left free to
choose what they did and how they did it. A parallel can be made
here with the distinction between strategy and tactics which works for
the Italian State Holdings. The government wanted the State owned
Alfa Romeo company to locate a major new car plant at Naples. But
the design, specifications, market bracket and precise volume of production of the new vehicle was left to the management of the company. 18
18 The scope for management bwgahhg into this process can be seen from the resistance
of the current chief executive of Alfa-Romeo to locating the next major initiative in the South,
to which considerable press coverage has been given. On the other hand, the same man
opposed the Alfa-Sud project which ia now at Naplea.

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The same was true of the instructions to the State Holding Company
IRI to take a controlling shareholding in three of the largest food
producing companies, threatened by US takeover. The government
wanted their production expanded, using southern Italian foodstuffs
instead of the imported foodstuffs which the American companies planned mainly to use. It also required that all of the new plant be located
in Southern Italy. This was fulfilled by the IRI Holding, which went
on to integrate the sales of the processed foods with a new supermarket
chain which it was expanding profitably after the takeover of two failing
private concerns. The type of food processed, the manner of canning,
packaging and distribution was all left to the company.
There are many other Italian examples of this strategy-tactics distinction, including joint ventures with foreign multi-national companies,
and entirely new initiatives in electrical and nuclear engineering, passenger aircraft, and electronics.
The virtues of the distinction can ,be seen by applying them to the
Planning Agreements system in Labours Programme. By this system
leading public and private enterprises would be obliged to submit their
corporate programmes to the government in advance for assessment of
compatibility with the new planning objectives - investment and export
expansion, new jobs in problem regions, etc.
This means bringing the management teams into Whitehall and
bargaining out the pros and cons of the companies and the governments case. The general initiative on the company programmes lies
with companies themselves, in view of market opportunities, rather than
with the government.
There is no reason why workers in large private and public enterprises should not be given the option of participating in this bargaining
through the Planning Agreements. Again, this need not undermine
traditional bargaining procedures in the companies, if this is what the
workers and unions prefer to extended workers control. If the unions
are in major disagreement with the management (whether public or
private enterprise), they can come separately to Whitehall and state
their separate case.

Transforming the Unmixed Economy.

These questions of workers self-management and industrial democracy are likely to assume front line importance during the decade
u p to 1984 in which the Governor of the Bank of England has frankly
promised increased austerity.
Against the background of the last decade the organised working
class will not be slow to learn the lessons from Upper Clyde Shipbuilders and other recent work-ins and occupations.
They will be likely to advance on these initiatives by demanding
public ownership under workers control rather than the dole and classic
unemployment.

160

STUART HOLLAND

The option before us is clear enough. Either we face the social

and political tensions presaged by OECD, or we can promote a new
climate of social justice based on extension of self-management and the
assurance of long-term job security in areas which otherwise would
be axed Iby deflation. 1984 is a decade from now, and ten years is
a standard enough forecast period. Mr. Richardson's warning may
have had no conscious Orwellian undertones. But both socialists and
liberal democrats should be aware that public enterprise without democratisation can be used by a strong central State to reinforce the role
of the State as capitalist. State capitalism is itself but a step from
corporatism, and corporatism but a half step from fascism -however
grey rather than black its national shirt. If we wish to fill the gap in
democratic management opened by the meso-economic trend we must
face these issues now and pressure for change through genuinely democratic public enterprise.
But it also is crucial that new public enterprise shoulld be substantial
and range through the heartland of modern manufacturing industry
which at present remains almost exclusively in private control. A
National Enterprise Board of half a dozen firms will get us nowhere
slowly. Meantime, deflation plus inflation wikl cut like a knife into
the economy, with serious strains on the credibility of either a Labour or
a Conservative government.
Put differently, the British economic crisis is not simply short-term
and concerned with oil. Nor is it simply a cyclical crisis of the balance
of payments. It is a compound of these problems with the longer term
trend to monopoly and multi-national capital in the private meso-sector.
At present this sector dominates the economy. The public sector is
concentrated in basic industries and services, and advanced technology
industry. In other words, it is only partly true to talk of a mixed
economy in contemporary Britain. Public and private enterprise are
separated between loss making or high risk sectors and profit making
sectors with virtually no risk to the leader firms which dominate them.
We have an unmixed or apartheid economy rather than a mixed system.
To transform this public-private apartheid demands a new mix of
the unmixed economy. If we are to be able to fulfil the kind of democratic planning outlined in the previous argument this new mix means
public enterprise represented in each of the main industries and services
at present dominated by private enterprise leaders. To reverse their
present dominance of production, distribution and exchange means more
than a cautious or lame duck intervention. Without a critical minimum
of public ownership in the main industries and services, no government
will control the new giant firms or be able to harness their resources
in the public interest.