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Diary Note /0022
Sunday 3 February 2002

For earlier Notes, follow
Diary Note Archive left

STOP PRESS One month later > NY Resolution > weight now 18st 4lbs > weight-loss in January = 16lbs > check
out 9 January

Enron: Missing the Point

Acres of newsprint are being devoted to the personalities of the Enron collapse – Lay, Wakeham, the auditors and others, just as with Ernest Saunders and Gerald Ronson in times of earlier scandal.

But there is no sign that anyone is confronting the real issues, or that the real culprits are being fingered. For the truth is that most corporate scandals occur simply because company law is defective. The thieves are let into the kitchen. The real issue is that the systems themselves are at fault: the individuals merely exploit the loopholes. And the real culprits? They are the politicians – me and my Party, the Labour Party – and every citizen who stands idly by and fails the challenge the system. Including hundreds of thousands of other politicians in power, the world over. For my part, I certainly feel guilty about it, don't you?

Every jot and tittle of company law has been enacted as a statute, by some legislature, somewhere. There is no such thing as a common law company: they are all creatures of some deliberate state statute, somewhere. And globally, there are perhaps 220 different company law state jurisdictions (more than the membership of the United Nations, because every state of the United States has its own company laws).

What a legislature gives , a legislature can take away. All these legislatures are capable of remedying the defects of company law. In the UK, the Government has over the past four-years conducted a massive inquiry into company law reform, but has produced a mere mouse of a report. There are plans to enact reforms in Yr 2002/3, but there is no sign that any of the critical issues will be addressed by the DTI.

. That is because the very defects themselves have become the golden keys of corporate power. Any major reform would significantly erode the powers of the corporate sector. These are the key problems.
Concentration of power – company law envisages a checks-and-balances system, in which shareholders delegate authority to Directors, who represent their interests in controlling the staff. Shareholders are intended to act as a check on the Board, and the Board intended to act as a check on the staff (including “management”). The Auditor is appointed by the shareholders to report objectively on the company's affairs, monitoring both Board and management. That was the Victorian scheme. Nowadays, however, all those roles have elided into one, concentrating huge unchallengeable power in the Board of Directors. Auditors are no match for a wealthy, powerful Board, upon whose goodwill they rely for their own wealth. More - the office of “Chief Executive” (or “Managing Director”) has emerged, concentrating power still further.

Abuse of rights – legal rights, including property and employment rights, are vested in the abstract “company” in exactly the same way of they can be vested in natural persons – companies even have property rights under the European Convention of Human Rights – yet in the exercise of those rights, companies act under no moral constraints (how can an abstract non-existent “person” be morally constrained?) - with the result that companies are in practice much more ruthless in the exercise of their powers that any natural person would ever dare to be – the heart of Scrooge was eventually touched, but no corporation has a heart or moral sense - unlike individuals, companies should be placed under a new general legal duty to act reasonably, in the exercise of all their “rights”

Unwarranted secrecy – the Courts have always treated companies as “private” systems, emanations of private property, and therefore entitled to exercise all the controls open to a private individual, keeping all company affairs secret, refusing access to all company records – thus entitled to shred company documents at the drop of a hat. Huge swathes of public business have passed into the murky mists of corporate secrecy, with the extension of PFI.

These principles should be reversed . By Parliament. All those of us who are “in politics” (and I consider myself to be a politician, albeit without a job…) should feel deeply ashamed that we preside over such defective systems of regulation, when we are able to remedy them. The blame lies with the gamekeeper, not the poacher.

Because without corporate secrecy , the problems of Enron would have been discovered many moons ago. Without the phenomenon of absolute executive power, the wretched Wakeham would not be in the position he is now. I feel sorry for Lord Wakeham, because no external non-executive Director can ever double-guess the all-powerful Executive Directors, if they are bent upon duplicity or mendacity. The chaperon, you see, is always paid handsomely – and kept away from the bedroom.

Heart league-tables
"will lead to fewer operations"

This is my kind of headline. Labour needs more reporting like this, which highlights positive health news [check out NHS should be about health, not sickness 5 January ] What about reminding the reader what proportion of the public never suffers from any heart condition, in spite of eating, smoking and drinking? That would be good for the feel-good factor. If you come across any examples of positive-health thinking, will you let me know? I am starting a collection.

  Now published > unusual Parliamentary record of my 220-mile walk from Swansea to London > Check it out

More and more Online

As you are online already, you may not be keeping an eye on those who are not. But this week the assessment agency RAJAR reported a steady rise in UK adult Internet activity. In Yr 2001, it rose to 36%, excluding children and teenagers. That represents an increase of 24% in usage, over Yr 1999. If that trend continues, then a clear majority of adult population will be online by Christmas 2003. Even allowing for a slowdown, the figure would be over 75% by the time of the next General Election…

Minimal Wages

Minimum Wage is again under fire, from poverty-campaigners and trade unions alike. The UK Minimum Wage stands at £4.30 per hour, the US rate about the same. Campaigns rage to raise it to £5.50, even over £6. Everyone is dissatisfied.

The Minimum Wage Act 1998 was, in retrospect, a mistake. It sounded good at the time (and it can still sound good). It was intended to underpin Labour’s radical image. But its effect in practice is very limited indeed. And as a side-effect, it wipes out an important sector of the labour market, reducing earning opportunities for some people, at some times. Students, parents, and older people are deprived of informal and occasional earnings opportunities, at lower rates of pay.

Just consider its shortcomings. First, it is merely a minimum hourly rate, not a minimum wage at all. It does not, and cannot, assure to anyone a “living wage. Nobody has ever argued that £4.30 per hour, even for 40 hours, is a living wage, if taken on its own. On the other hand, for a young person “living with parents”, or two/three people sharing a household, an even lower wage-rate might be quite satisfactory.

Second, it is dangerously out of date. In Europe, the device dates from the 1905/1914 period: in the UK it was introduced for certain categories of worker (the “sweated trades”, remember?) by the Minimum Wages Act 1909. It was a Liberal device to dish the unions. The system lasted until the early 1980s, when it was ditched by the Thatcher Government. Labour should have left well alone.

Third, the trade unions are unwise to back it, particularly in the light of its political provenance. For the unions, it is a lose/lose proposition. It concedes implicitly the failure of union action to achieve a decent wage-rate, passing the task over the Governments.

Minimum Wage has proved a busted flush. To avoid labour market disruption, market rates are everywhere fixed “low”. Yet employers commonly treat the rates as normal , as enjoying official approval. That further weakens the unions’ position. And most seriously, it hampers the development of more lowly-paid informal and occasional labour markets, for students seeking to supplement their grant, parents seeking to top up household earnings, older workers seeking a function in life, and company, as well as little extra cash.

The Minimum Wage game is not worth the candle. For the real poverty of families with children, quite other methods are in any event essential, as Gordon Brown has shown. Generous educational provision is one of the best ways of assisting poor families and their children.

I recognise that Labour under Blair will not be able to disown the Minimum Wage Act. Political pride would preclude any U-turn. But between ourselves, we should acknowledge that the Minimum Wage Act was a mistake. And there will be other Labour leaders, after Tony Blair.

Union? What Union?

George Bush sure terrifies me. He is said to be reflecting the belligerence of the American public, following 11 September, and that may well be true. But his January “State of the Union” speech was much more than that. It was a personal declaration of perpetual war, a vision of a world in thrall to the United States and the assertion of raw American military strength.

We cannot stand shoulder to shoulder with such a vision. It will fall to “Europe” to articulate a coherent alternative vision. After all, the Commonwealth, which is struggling even to deal with Robert Mugabe, cannot do so. Neither China nor Japan is capable of such leadership, nor is India, nor any Middle Eastern grouping. Russia is critically weak, with Putin holding on for dear life to American goodwill. The impoverished United Nations is too cumbersome, too firmly entangled in its own intricacies, and crippled by subordination to its wealthy US landlord.

That leaves Europe. Not Britain on her own. Much as I applaud Tony Blair’s international ambitions, 60m can never contest 300m. Different league. The only possible candidate is a wider “Europe”, sharing a common alternative vision and the courage to articulate it. And this cannot be a NATO matter, with the US already embedded in NATO. So in practice, the mantle falls on the European Union or its leading members acting together. That is the fateful logic of elimination.

Europe should not attempt to contest US military power. The world has no alternative but to acknowledge US military superiority, and there will be occasions when it can be constructively deployed. US military capabilities must be accommodated within a greater vision of a just and peaceful world.

We know what that alternative vision will be. It will be founded on the recognition of universal human rights, on equality, the redistribution of wealth, non-aggressive dispute resolution, and on peaceful international institutions, including an international criminal court and police institutions, and consensual powers of territorial intervention. For European politicians, the task is now to articulate it, to give it practical form.

It will be a long, long haul. But we must make a start.

 

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