Ed Milliband's little big idea

While it is easy to lampoon Ed Milliband and the speech he gave to his party conference, he had one big idea that is worth looking at: that of bringing moral values into government's dealings with business, to reward the good and punish the bad.

On the face of it, what could possibly be wrong with that? It is better to have more training, more R&D, better cared for workers, a social conscience, environmental sustainability. Let's reward the companies that go the extra mile to deliver these things, and punish those that merely follow the rules. Companies that merely tick all the boxes and play the rules to their advantage are not giving back to society in the way they should.

Ed was subsequently challenged to give some examples of what he is talking about and failed abysmally. Southern Cross was mentioned as a company that wasn't giving back, but of course that was in the process of it failing as a business. Let's punish failure with higher taxes? The problem is that it isn't obvious who the good guys and the bad guys are. If you can't even say which companies you think ought to be punished for existing, how are you ever going to write laws to fairly judge the predators from the producers?

The challenge here is to turn good intentions into good policy. Ed's project has been tried before with almost no success under the banner of stakeholderism. Stakeholderism held that workers, suppliers, consumers, the wider community and the environment all had a stake in a business, not just the shareholders, so businesses should be run with all these stakes in mind. But put workers, suppliers and consumers on the board and you get big conflicts of interest. So little policy was ever developed to implement this vision beyond saying "you really ought to think about this stuff". I have written about stakeholderism before, and it all still applies to Milliband's new compact.

While it is possible and necessary to regulate for such things as environmental standards and workers rights, it is logically impossible for a regulation to meaningfully say that you must go the extra mile, beyond ticking all the boxes, because every regulation is precisely one of the boxes to tick. So you can't legislate for virtue.

And while tax breaks for R&D, support for apprenticeships and so forth are reasonable attempts to improve incentives, they don't reward virtue, they are attempts to steer self interest towards more public spirited goals. If Ed's vision means another avalanche of schemes and tax loopholes aimed at rewarding virtue, it will be met head on by an avalanche of tax accountants for whom virtue is not the pressing concern. This is no new vision, this is very much Gordon Brown's signature move of trying to micromanage behaviour through the tax system, giving us one of the most complex tax codes in the world and record levels of tax avoidance.

And let's not forget that creating jobs and providing goods and services are a positive contribution to society. We might like more training and R&D, but there are few businesses that could exist without ever doing any of either. Is Labour just too uncomfortable with the fact that business generally makes a big positive contribution to society even without being tinkered with by government?

So Ed, I hope you enjoyed telling your conference that you will stand up for what is right and oppose what is wrong. It is a fine and noble ambition, albeit somewhat unoriginal. But if you can give it any substance at all, that will be an achievement. Failing that, a mountain of regulation motivated by good intentions is the best and worst we can expect.