Swing Riots to Zero Hours

 

150402_Swing Riots

The early 19th Century contains a forgotten history lesson in trying to understand the changes in the relationship between the workforce and business.

Farming in the early 19th Century (by far the main employer) was mainly open field farming where wealthy landowners leased out their farms to tenant farmers. These tenant farmers then brought in labour to work the farms. Farm labourers were selected at annual labour fairs in the villages and small towns close to the farms. When selected, the labourer would be employed by the farmer for a year or so and live on the farm – usually sharing in the work and eating with the farmer and his family.

This seemingly idyllic relationship can be likened to working relationships in the 1960’s and 1970’s when employment was meant to be “for life”. It was the breakdown in that relationship and the tensions that ensued that led to British trades-unions forcing a mass of industrial disputes in the 1970’s that Margaret Thatcher’s government sought to end.

In the 1820’s and 1830’s, the annual fairs gave way to monthly contracts and then often to weekly and daily as the world of agriculture was devastated after the end of the Napoleonic Wars, as weather conditions worsened for farming and as poor conditions led to a rise in disease that devastated cattle and sheep in many areas. The need to keep costs lower and lower led to wage reductions on a regular basis and the invention of the threshing machine was seen as a needed investment by farmowners that could afford the investment.

For the farm workers, by 1830, life had become intolerable and the “Swing” riots ensued. Rowland E Prothero (Baron Ernle), writing in his “English Farming” (1888):

“While the Luddites broke up machinery, gangs of rural labourers destroyed threshing machines, or avenged the fancied conspiracy of farmers by burning farm-houses, stacks, and ricks, or wrecking the shops of butchers and bakers. In the riots of 1830-31, when “Swing” and his proselytes were at work, agrarian fires blazed from Dorsetshire to Lincolnshire.”

Fast-forward to 2015 and we are now confronted by the realization that business (our 21st Century equivalent of 19th Century farming in terms of employment) is now employing zero hours contracts with increasing regularity. This 19th Century response to a 21st Century problem goes hand-in-hand with the UK’s inability to increase its productivity to anywhere near the levels of Germany and France (let alone the USA).

Luddism (and its followers, the Luddites) was a cry against the fear of mechanization in mills and early factories (and the farms) while the “Swing” riots, although exacerbated by the introduction of threshing machines, was more than this. It was a reaction against a change in relationships that had been developed over many years. This breakdown of the relationship between the farm labourer and the farmer (and the poverty into which farm labourers were thrown) led to riots and the extraordinary backlash of Government (labourers were imprisoned, many were banished to the colonies and many were executed).

Zero Hours Working and Independence

This time around, zero hours contracting is also a symptom of a breakdown in relationships. It is common in low-skill environments and very common in many areas where Government (local and national) has decided to outsource. Many of these jobs occur where the individual on a zero-hours contract is working in social care. This is an example of short-term cost requirements that can easily lead to long-term quality disappearance – as the ability of the carer is their responsibility as far as the contractor is concerned.

For some time, the relationships between employer and worker in manufacturing and services has been changing – and reflects the way of agriculture in the early 19th Century. Workers are now more like sub-contractors as Tom Peters  (a leader in management thinking) envisaged back in 1994 when he wrote an article in The Independent – “Travel the Independent Road”:

“I contend that…everyone, bellhop, boss, scientist, had best achieve the mindset of the independent contractor.”

With the growth in self-employment in the UK since the financial crash of 2007/8 (where 15% of all workers are now self-employed and one-third of employment since 2010 has been in this area according to the Bank of England), we do appear to be changing the relationship between bosses and workers. In the Bank of England’s Q1 2015 Report, it asserts that “much of the recent increase in self-employment reflects longer-term trends.”

The steady ageing of the population and the increased distance between business managers (the most similar to tenant farmers in the 1830’s) and the average worker (at least in terms of salary) suggests that the 20th Century may well have been just a phase in the development of capitalism. It may well be that the natural default position is more ambiguous – offering those with skills the ability to sell into a marketplace with a range of options rather than the existing with one employer that pays for those skills for the whole of a working life.

In highly skilled jobs within the film industry, for example, it has been common for some time for companies to be formed just to make one film. Skills are brought to bear on that film (whether by actors, directors, script writers, cameramen/women and all the rest) who then disperse at the end of the production. They leave with payment for their role and investment of time and skill and, hopefully, with their reputations enhanced – reputations that will help them towards the next collaboration.

In most work, the old mentality of learning on a job and working for the same company for life persists. Zero hours contracts splits the worker from the employer so that they cannot gain training and benefits from that skill accumulation.

The Labour Party, in the run-up to the May 7th General Election, calls for the curtailment of such contracts. However, as argued in many areas, there are many types of such contracts (not all bad) – Independent 3rd April 2015 – and the move to such contracts may well be a harbinger of changes in the working structure. If the latter, while abuses at work need to be stopped, then we still need to have a change our thinking about how we assist those who are independent contractors to develop skills and capabilities (and also help them to negotiate good independent contracts) and to help them to access the work where it is available.

This calls for government to understand and work with the organisations that represent the self-employed – who have been for so long the virtual bystanders in a game carried out by business and representatives of permanent employees (trades unions and staff associations).

There may well be no repeat of the Swing Riots in the 21st Century but as inequality of income and wealth become progressively worse, it is critical that we ensure that inequality of opportunity for all those who want to work but may decide (or have it decided for them) to work as independents is minimized. This can be done by enabling training in skills and enhancing the networks of opportunity for them.

Independent working can be entirely fulfilling but the old (Ed Miliband?) mindset needs to change to the way the world is working in the 21st Century and to maximize the ability of the self-employed / Independent worker to achieve success in this changing (and uncertain world).

 

 

 

 

 

 

How Corrupt Are the Banks? Corrupting Cultures.

“Rigging the system to fix their bonuses. The word “corruption” is not enough to describe what they were doing.”

 

So stated one expert observer on Radio 4’s Today programme this morning (November 12, 2014) about the Foreign Exchange corruption in the world’s banking systems. UBS, RBS, Citibank, JP Morgan and HSBC were fined $3.4bn and Barclays is still to settle.

 

The travails at Tesco on which I have recently written, appear almost trivial beside the corruption (and, yes, “corruption” is the word to describe what was happening) that pervaded the western world’s banking systems leading up to and well beyond 2007.

 

The Bank of England apparently feels exonerated by the fact that no-one there knew anything about the foreign exchange mis-dealings at the five (or six) banks now fined. Just like the protestations at Tesco’s auditors (PwC) who, after 30 years, knew nothing about the culture changes that were at the root cause of Tesco’s recent failings.

 

Culture is the root of corruption

 

Francis Fukuyama in his excellent books “Political Order and Political Decay” and “The Origins of Political Order” showed how culture is at the root of society at the national level.

 

This is as true of companies – complex adaptive systems if ever there were any – as of nations. Companies are directed entities and depend on senior management and Boards allied to the competitive and regulatory environment in which they exist for the culture that they employ. The culture of every business is different – depending on the specific people they employ, the rules they employ, the country and region they exist in and the external environment.

 

The culture of any business organization is not a secret to those working within in it and is not a secret to those who work closely with it.

 

When a culture goes bad, as it clearly did in the case of Tesco and on a much broader and deeper scale in the case of the banks, it is not sudden and evolves as a result of changes that are both internal and external. Culture change has been the topic of many books and papers since well before the advent of quality management and Deming but these books tend to dwell on how to improve the culture to one of quality control or of “excellence” (as in Tom Peters’ “7 S’s”).

 

Unfortunately, there is little literature on how to understand corrupting business cultures in order to make changes that impact early enough so that customers, the business and shareholders are not hurt. The issue with banks is that nations have been hurt as a result of the toxic atmosphere in these institutions and the noxious emissions that resulted.

 

This cultural health and safety aspect of banking is clearly not understood by regulators (nor, indeed, by Directors and Audit Committees let alone external audit firms). Regulations are all about legal change and regulators are, to a large extent, ticking and checking against a set of procedures in the same way that external auditors carry out their roles.

 

The prime aim of such regulators seems to be to do a job so that they cannot be blamed for any failures. The Bank of England – crucial to the proper oversight of our financial systems – has failed so often in the past ten years but now seems comforted that no-one inside the BoE knew what was going on. RBS’s own (relatively) new CEO (Ross McEwan) voiced his anger on the BBC at the actions of “a very small group” of foreign exchange traders ruining everything for the many good people that work for RBS. He was asked the right question by the BBC interviewer (Kamal Ahmed) – “is culture changing enough”? McEwan responded that it was not changing quickly enough. But, the bad culture became institutionalised (as Ian Fraser’s excellent “Shredded” showed)  and the thought that senior management did not know of such a culture existing within such a key area of the bank is too sad to be true.

 

Walk into any office of any organization and any seasoned business manager will detect the culture. Ask some questions and listen to the responses. Any organisation is based on how its culture works and who benefits from that cultural response to its aims and ambitions.

 

Short-termism, where bonuses are made through short-term risk-taking and often corrupt dealing, is bred in cultures that are knowable. For management to claim not to be aware is ludicrous. As many senior bankers said around 2008/9, they knew the culture was wrong but could not stop it as everyone (every bank) was the same – no-one was willing to stop.

 

Fukuyama describes well how corrupt societies work where lack of trust exists around the centre (e.g. government) and where corruption is rife. No-one is wiling to be the first to pay their proper taxes, for example, if no-one else does. The same was true with the banks – everyone was corrupt, so who was going to stop the game? No-one. Now, no-one trusts the Banks – supposedly, a central plank on which wider society floats.

 

With the foreign exchange corruption, which occurred much more recently, there seems to be little or no excuse. The banks have been going through huge structural re-assessments since they sank in 2008 and senior management were being changed along with it. The Bank of England should have been focused on critical market areas (Foreign exchange transactions in London – 40% of the world’s transactions take place here – are hardly trivial) and should not have been unaware of the overhang of a corrupt culture in UK banks. To claim otherwise is nonsense.

 

The culture within regulators has to be changed along with the banks. While no-one claims they are corrupt cultures, a culture of defensiveness, box-ticking, shifting blame and lack of knowledge is the worst cultural set for a regulator. They need (like external auditors) to be responsive to societal needs – not tick and check but pro-actively understanding the organisations they are supposed to be regulating (or auditing). This is not an easy task for organisations that appear to be completely incapable of doing this important job – not wanting to rock the boat before it sinks. But, rocking the boat may throw out those who are bent on sinking it before it sinks – that is what good regulation (or auditing) is all about.

From Euro Chaos to Chasm

As Greece Votes

I was on an ethics panel this week – organized by CGMA and Accounting Magazine. This has been arranged to discuss the outcome of CGMA’s recent survey “Managing Responsible Business” http://www.cgma.org/Resources/Reports/Pages/ManagingResponsibleBusiness.aspx

This survey explored the range of issues around business and doing things properly – ethically. It found that most businesses tried to, CEO’s were handing down responsibility for this to other staff, the ability to do so changed by country and there was real pressure not to in some countries.

With elections in Greece on Sunday and the Euro in everyone’s mind, the issue of business ethics seemed mighty small in comparison.

Ethics – moral rectitude, the rules of conduct – are not just about business. It is from society that ethics emerge and it is the destruction of the rules of good conduct that has tipped Europe and many other parts of the world into an economic, political and financial chasm. It is a chasm that threatens our way of life and, deep inside that chasm, there is not a lot of light.

The Chasm is not just a Banking one

 

We are continuously being told by our politicians that the current banking crisis can be resolved with large amounts of cash. The latest attempts are the £100bn on offer by the Bank of England of low rate loans to banks to regenerate lending in the UK and the €100bn on offer to Spain to prop up their banks.

In the chasm, sticking plasters don’t work.

Banking liquidity is not the problem anyway. The problem that banks have in Spain, for example, is solvency – their very being is at stake not their ability to lend in the short-term. They were over-stretched by awful decisions ten years ago to lend to get-rich-quick property schemes that were doomed and, when the tide went out, were shown to be naked. Borrowers across the western world were too highly geared – over-leveraged. While companies have managed to get their act together, individuals have not and while savings are higher, they are still, by normal standards, far too over-leveraged – which is still leading to house price reductions everywhere but London (where funds are rushing in from all corners of worse of countries).

But, the banks are hiding behind the problem in front of them – national insolvency. The transfer from nations (i.e. taxpayers) to banks has been enormous and continues. Well over a trillion dollars was poured into the US banking system and the same in Europe. The estimate is that this needs at least to be doubled. National solvency is at stake throughout Europe (west, south and east especially) and the austerity programmes now in place are a testimony to them.

Like the 1930’s, this is leading to massive unemployment and a risk that the chasm into which nation by nation is being thrown will swallow them whole. In Europe, the answer, we are told lies with Germany – they should assume the debts of all the others with Eurobonds – a financial answer to a financial problem.

But, the chasm is bigger than this.

The Chasm is engulfing Politics, Economics and Finance

Behind the financing of banks and the insolvency of nations lie the root causes. These are the disenfranchisement of the mass of people in most nations – disenfranchised not by their inability to vote every few years but by the paucity of choices on offer.

Greece offers a great example of a nation in economic chaos but the causes and the choices open to the people there are not often recorded.

Whoever read Michael Lewis’s “Boomerang” will understand some of the corruption that underpins the chaos. It is endemic and led by a political elite that have rampaged through the economy and gouged out any life from it. At the same time as The President of Equatorial Guinea is about to meet with four NGO’s (including my former employer, Global Witness) to discuss the rampant corruption inside his country, who is meeting with who to ensure that Greece can emerge with some dignity from its corruption?

Who can blame voters for, at last, running away from Pasok and into the arms of Syriza – the main concern is not the Euro, it is the corruption of the political elite and complete lack of trust in any politicians. The whole political class is tainted.

Outside Greece, the same is true to some extent in Spain and in Italy, where technocrats (unelected) now rule. The paucity of choice for voters – why vote for politicians when they are all the same and as corrupting and corruptible as each other?

The euro problem is much deeper. It is not just about emulating hard-working Germans, it is about serious change needed throughout Europe where leadership is absent or tainted by nations that are corrupt, unable to raise taxation, where the cash culture is rampant. This is true in Greece, Spain, certainly southern Italy and elsewhere. Why would Germany want to pick up the tab for this when the problem is chasm deep – not the surface banking or financial issue that has been painted?

The Ruling Class

In democracies, we are supposed to be able to vote out political parties that do a bad job. What happens when the whole political class is damned? The whole electorate is disenfranchised as a result.

This is true throughout the Eurozone – political parties have joined forces with other powerful elites to seemingly run countries – now, it is clear they have run them into the ground or, worse, into the chasm where conventional politics, economics and finance are drowning.

The ruling classes – politicians of all political persuasion, big business, the public sector – decided to run off with the benefits and have left the rest behind. Somewhere those funds reside in tax havens, well away from the hands of civil society. If it was all about harder effort, there could be some light ahead, but the problem is so deep that it will take years of real change and real hurt to recover to anywhere near where countries thought they were until recently.

From Chasm to ……what?

The European dream of one country living under one flag, which to many is a nightmare, is not a new one as the wars of the twentieth century showed. Now, a war just as savage is being fought – but a war where the fighting is hidden and where the soldiers don’t even realize they are in the trenches. Greek citizens and the young in Spain (where 50% are out of work) probably realize the consequences of the post-war European experiment. Many others don’t yet, but soon will.

Papering over a crack or two is relatively easy. Papering over a chasm is impossible,

The core problems of societies need to be resolved – corruption has to be ended, taxation has to be collected, public servants have to serve the public, politicians have to be credible and respected and people have to believe that if they work hard they stand a chance of being successful. For banks to function, they need finance; for businesses to succeed, they need markets and finance; for an economy to succeed, it needs good business but also a society that works – and that is not riven with insidious corruption of people and dignity.

Many African states (with massive natural resources) are corrupt and wealth is held by small elites. We did not believe that the corruption in Europe was on the same scale and, indeed, it is not the same – but the scale may be greater and just as endemic.

Solutions will not be found purely through the injection of more money into a chasm – the chasm has to be filled first or cleansed at least. Liberal democracy was supposed to be the best solution (the best worst solution). The 21st Century struggle may not be against the same totalitarians as in the last century (fascists and communists) and, hopefully, it may not be sullied by war and death, but, metaphorically, it will be just as bloody and won’t be complete until political elites are brought down to earth and civil society gets inside the tent.