Office workers, 2014. Trollbackco / Wikimedia

One of the most depressing constants in industrial life in the UK is the life cycle of the average British business. They are frequently born from the minds of one of the country’s exceptionally well-educated workforce in the high-value manufacturing or software sector, before being built up through the efforts of skilled employees. Sadly, their contribution to the economy is often then hijacked by large, usually overseas, investment firms and conglomerates buying the business. At best, the decisions that affect hundreds of workers and the economies of whole towns are now taken in boardrooms in New York or Shanghai. At worst, the company is asset-stripped for its patents, techniques and talent before being wound up. In between this runs the spectrum of profit relocation (or tax evasion as normal people call it), layoffs, the imposition of hostile working practices and decline of quality. Even the largest and most successful of British businesses aren’t immune to this. When Cadbury’s was taken over by Kraft, the entire board resigned and their replacements subsequently shuttered dozens of factories across the world in a cost-cutting exercise. ARM Holdings, who make the microprocessors found in almost every mobile phone, were taken over by Japan’s SoftBank and then saw their Chinese arm sold to fuel Xi Jinping’s government’s strategy of acquiring foreign technology firms to jump-start China’s indigenous high-tech industry.

Of course, the biggest losers in a takeover are often the people who work for the merged firm. Kraft reneged on a promise not to relocate production to Poland when Cadbury was taken over, resulting in the loss of 400 jobs. When Tata Steel sold their long products division, the workers were forced to give up their final salary pension scheme and accept a pay cut in order to retain their jobs. This is an all too common story in the world of British Industry.

Labour’s plans to force large British employers to create workers’ profit-share funds is a noble attempt to return some of the profit from a firm that would otherwise go to the shareholders. However, the idea has limitations. Firstly, the policy only applies to larger businesses, and it only applies to British businesses. This creates perverse incentives to relocate to other jurisdictions and deliberately avoid having enough staff or raw turnover to trigger the condition. But what if there were another way to return the profits of a firm back to the employees, while at the same time discouraging the borderline criminal behaviour of overseas investment groups?

Professor Virginie Pérotin of Leeds University conducted a review of the literature on workers’ co-operatives (where each employee owns an equal share of the firm) on behalf of Co-Operatives UK in 2016. This found that businesses run as a co-operative were more productive, just as large, had higher job satisfaction rates and at least as resilient as more conventionally organised businesses. Perhaps more importantly, they tended to fire fewer people during recessions, instead reducing profit to ensure employment (even if they also tended to hire fewer people in years of growth). This makes intuitive sense. Someone who has a real financial stake in their business is more likely to suggest improvements and work to enhance the operation of the firm than someone on an hourly wage. People are also much less likely to advocate firing their co-workers due to their personal connections and are more likely to tough out rough years than to decide that the balance sheet isn’t quite green enough and close-up.

Despite the benefits of the co-operative business model, they’ve tended to be rare in the UK outside of their more famous incarnations in the Co-Operative group and the John Lewis Partnership (which, arguably, is set up as an Employee Share Ownership model rather than as a true co-op). This is partly because the default approach for many tech companies is the Silicon Valley “move fast and break things” model of business, and partly due to the fact that, simply, many people don’t really know a lot about worker co-operatives. In this respect the co-operative model can be used to help resolve the problem of malicious mergers, while helping propagate itself in the wider economy.

Any future Labour government should commit to passing legislation requiring firms that wish to either float on the stock market or be sold to a third-party to be first offered to the company’s employees at market rate to be re-established as a co-operative. In this manner the owners of a successful firm could still “cash out” and either retire or move on to the next big thing, but they wouldn’t be able to lightly sell up to investors without giving their employees a chance to step in.

To fund this exercise, given that going concerns are not cheap, the government should use its ability to borrow money below the base rate of lending to establish a state-run mortgage firm to back employee buyouts. Employees offered the chance to buy out their owners would be able to apply to the firm for a loan, with the money secured against the firm itself. This would operate in the same way as a home mortgage, with due diligence conducted on the company’s financials and operations to determine that the company is a valid going concern and to double check that the value of the business is concordant with the amount being requested. The term might be from twenty to forty years and the interest could be set at a few basis points above the government bond financing the purchase, to ensure that the state would be able to recoup its investment. The firm would be able to negotiate all the usual payment modifications associated with a commercial property mortgage: overpayment, underpayment and payment holidays to help the firm through boom and bust. If the company defaulted on the loan the state would then take possession of the assets and sell them to recover its investment. The company would also need to be based in the UK and be taxed on its profits at UK rates. Any attempt to evade the exchequer would render the loan invalid.

Of course, not every takeover would be viable and not every company would survive the term. But that already happens. And those that did would be more likely to become enduring and fruitful contributors to the local and national economy in a way that firms taken over by far-away shareholders are too often not: improving productivity, providing stable employment and enriching the working lives of their employees.

If we’re going to take back control, let’s start with our workplaces.