The 5th Way

1. Venture Socialism

2. The Bond Issue

3. Econodiversity

4. Local Circuits of Capital

5. Land Reform

The 5^th Way

First Statement of Principles

The 3^rd way was ‘the left’ accepting the importance of the ‘private sector’ and bringing it into the left’s solution for poverty reduction, wealth creation and redistribution.

1. Private Sector Reform

The 5^th Way accepts the private sector as part of socialism but asserts that the private sector was brought into the solution without first being radically reformed itself. It believes that 3^rd Way leftists were too accepting and unquestioning of the practices and procedures of the private sector, mainly because as leftists they had too little experience of the private sector and were somewhat startled and overawed by it.

Worse, these unreformed practices and procedures of the private sector were often uncritically transferred into the public sector, which was, at best, unnecessary and, at worst, damaging.

The 5^th Way takes a robust and proportionate approach to the private sector and embraces the sector’s own challenging principles to suggest that the sector is too often inefficient and wasteful, and needful of significant corporate and structural reform. It is reform which challenges the private sector to be massively more efficient: reform which the political right can be both fully accepting of and co-operative in bringing about.

2. The New Efficiency

The 5th Way’s addition to the debate is to propose that three levels of efficiency and solvency are specifically applied in respect of how the private sector’s performance, and contribution to the wider economy and society, is to be judged.

The 1st Level – Classical Efficiency

This is where the private sector enterprise makes a financial profit in a genuinely free and competitive environment. This should be a driving force within socialism itself and should not be left to the political right or the private sector itself. Classical Efficiency is termed so because not only is this an accepted view, but it also adheres to some of the earliest understandings of how markets work best. Adam Smith’s views of how markets work best, for example, are underpinned by strict acceptance of the genuineness of the competition and its freedom, especially at very local levels, and shying away from the inefficiences which often emerge when enterprises become large and oppressive.

The 2^nd Level – Environmental and Social Efficiency

A private sector enterprise cannot reach 2^nd level efficiency if its practices and procedures (regardless of financial profit or balance) result in a negative impact on the environment or on social structures. A 2nd Level efficient private sector enterprise will have a neutral or positive impact on environmental or social structures. It doesn’t matter how efficient the enterprise is at the first level (usually involving financial profit to private individuals): if it harms the environment or destroys community fabric it can be termed socially insolvent.

The 3^rd Level – Structural Efficiency – Private sector enterprises should not be given an unfair advantage over others, or indeed public sector enterprises, because wider structural economic systems are unfair and unreformed.

For example, a private sector enterprise (which could be an individual) may only be making a financial profit because of the large land bank that it owns – either income from it or trading in it, or otherwise. If that Land has been acquired through an unreformed land system which only allows land effectively to be held by ‘the few’, generation after generation, then the private enterprise which makes financial profit from it can be termed structurally insolvent.

Unreformed wider legal, banking, planning, education and training systems can give unfair advantages in the market which reduces real competition. They can even bar from the market entirely avenues of competition which would make the sector otherwise more efficient and competitive. Those enterprises which make financial profit in a market which is skewed by such inefficiencies are structurally insolvent and while they cannot be ‘blamed’ for exploiting those inefficiencies either directly or (more usually) accidentally they cannot be regarded as efficient enterprises.

Wider unreformed economic structures can not only cause private enterprises to be structurally insolvent, they can also cause them to be inefficient and lazy because the money will still roll in as a cash cow regardless of how classically inefficient the enterprise is. Structural efficiency is closely linked to classical efficiency because it is often these unreformed economic and social structures that cause markets not to be genuinely free and competitive. Structural Efficiency ensures that classical efficiency can be properly achieved.

The 5th Way challenges the private sector to seek out for itself and create conditions of real competition and real efficiency, not (more often than not) accidental financial profit.

3. Real Wealth and Real Economic Growth

Where an enterprise (public or private) is :

(a)Structurally Efficient,

(b)Environmentally and Socially Efficient, and

(c)Classically Efficient

it creates what the 5^th Way terms Real Wealth.

Economic Growth which is gained through real wealth is the new way to assess Real Economic Growth. Simple financial wealth is a small piece only of a much larger jig-saw. It is pointless creating financial wealth for distribution or otherwise if the way that financial wealth has been created means that society pays twice. It is so neutral a wealth impact, that it might as well have not been bothered with by anyone in the first place.

4. Real Efficiency and Econodiversity

Where the new left and the new right (e.g. David Cameron) should be able to agree is that there can be nothing to be feared by challenging the private sector to be driven by real efficiency and not dated and inefficient practices and procedures. More wealth (real and financial) can be created than is currently being created because we have left the private sector to become lazy and unresponsive and literally self-serving. Indeed, Adam Smith would have been horrified by the modern workings of the market in 2006/7, especially at global level.

In particular, the actual business models which enterprises most commonly use actually to be in the private sector in the first place are stiflingly and inefficiently limited. (The ‘Limited to Ltd.’ debate is part of the 5th Way - does the prevalance of unevolved Limited Liability status any longer bring real value to the economy or does it encourage inefficiency and economic waste?)

The 5th Way promotes Econodiversity as being vital to a modern, thriving, healthy business neightbourhood.

5. Business Efficiency Regimes

The 5th Way asserts that while Public Sector enterprises have been challenged under the 3rd Way to be more efficient, responsive and accountable, the Private Sector has not recently been so challenged itself. It challenges the private sector to be ruthlessly efficient and to subject itself to the kinds of reality checks which Public Sector enterprises have undergone.

The private sector should never be satisfied with the status quo and should never accept that traditional patterns of business practices and procedures should prevail. There is an inertia-based tendency for them to do so. Many in the private sector too often believe that the market and its forces look after these things.

If the private sector applied the same regimes of inspection that have been applied to public sector enterprises, they might very well be more efficient on their own terms and would provide more wealth for the whole economy. The inspection regimes applied to public enterprises actually often had little to do with real private sector practices and procedures, but were applied under the pretence of having emerged from that sector. The private sector would like to think they were too, but they rarely existed there.

The 5th Way is, like the 3rd Way, pro-business. But it believes that private business should not escape rigorous testing and monitoring in the widest sense as to the value it should be giving to the wider economy. If businesses are not shown to be adding value on their own terms and/or to the wider economy then they should be identified as such, for their own and everyone else’s good. The more efficient the private sector is, the better for the whole economy.

And the consumer, in particular, should know the good from the bad. If you buy a Bond in the private sector – you can check its rating (e.g. Standard and Poor’s or Fitch ratings). Why shouldn’t we apply this rating more widely to business for the benefit of other businesses and the ordinary consumer? League Tables abound in the Public Sector, why not more so in the Private Sector?

Public sector enterprises are now challenged always to be seeking improvement and never to be satisfied with coasting average. They set up the practices which enable that.

Too much of the private sector is ‘coasting’ and settles too easily from the inefficiencies brought upon it by market forces which are not vigorous enough in ensuring full value from the sector. Only a thoroughly reformed and genuinely free and fair private sector will allow real wealth and real economic growth which neither harms the planet nor adversely affects the social fabric of the state.

Now is the time for the Private Sector to start learning from the practices and procedures of the Public Sector.

6. Local Circuits of Capital

The 5^th Way asserts that circuits of capital have to be localised and democratised. The 3^rd Way leftists in trying to bring private circuits of capital into the public sector missed a trick. There were and are other sources of capital beyond taxation and private sector finance from the big players in national and global capital.

A key aspect of the 5^th Way is identifying and promoting these.

7. Bonds

The Bond is one of the key sources which the 5^th Way identifies to short-circuit unreformed, standard circuits of capital. As the Thatcherites created the concept of the Share Owning Democracy in the early 1980s (very much on a wing and a prayer, it turns out) as an early driving force for Thatcherism, The Bond Owning Democracy is a key driver in the 5^th Way.

Businesses, Public Sector Enterprises, Councils and Government itself can issue Bonds to bring in new circuits of capital for investment in the public and private sectors. Yes, the private sector itself can usefully and efficiently buy these bonds and the big pension funds can diversify out of equities and into them. But most importantly the Bond can be freely and easily available on any local centre high street (specifically through Post Offices) to any private individual at modest prices. The owning of a Bond by British citizens is to the 5^th Way what owning a BT share was to Thatcherism. Just as share swaps are commonplace in international capital, there is room to create Share to Bond Swaps especially to de-invest from PFI mechanisms.

8. Bringing Old Labour and New Labour together

The 5^th Way is a new route which allows the 3^rd Way to be accommodated into socialism in a much more organic way. It is not a graft-on of disparate theories from alien landscapes. It is modern and relevant, practical and challenging. For those on the left who were never comfortable with Blairism it gives a vocabulary as to why Blairism did not (past tense!) work as a practical political concept. It also allows them to retrieve from their Old Labour loins their sense that normal business and financial practices cannot be trusted to work for the good of us all. Blair’s intentions were good, he simply missed the point that most of the private sector was, and is, as inefficient as the public sector he felt he had to reform. Public Sector reform must come with Private Sector reform.

The 5th way is the 5th way because it adds two further things to the 3rd Way. It is able to bring in what should not be lost from more left wing socialism and also brings in more right wing libertarian economic thinking to challenge business practices and procedures, which would not normally be associated with the left.

9. Micro-Socialism and Venture Socialism

The 5th Way proposes a re-alignment of approach for socialism away from mainly big-lever, state socialist, commanding heights action towards what is termed Micro-Socialism and its related Venture Socialism. In the past socialism has been too statist and bottom-down. If socialism is about creating economic and social justice by intervening in the economy to make it so, the 5th Way suggests that real impact to achieve this is actually created by intervention at a very local level, or at the most local level appropriate.

Big socialist action usually meets a big capital counter-reaction by big capitalists (especially global capitalism) and often defeats it. Intervention at the micro-economic level is much more difficult to counter by big capital. It can, through local circuits of capital, even circumvent the big players in the capital market. For example, most working-class people actually work in small and medium size business enterprises. If old state socialism concentrates on the commanding heights of the national economy those workers are left untouched directly. Regional, City Region and Local government has a major role in Micro-Socialism.

For example, a local council can buy shares in a small or medium size business in return for investment (perhaps raised through Bond Issues) and actually have partial equity ownership of that business, involving some influence on how it is run and its real wealth efficiency (this is Venture Socialism). This is public ownership, not on a big industrial, national scale, but at the micro level.

10. Blues and Greens

It can be said, though, that for the left of the Conservative Party there is in the 5th Way a radical, reforming post-Thacherite, non-Blairite edge. The Greens can find some radical and economically robust pathways.

11. Ending the 30 Year Consensus

The Keynesian Consensus which lasted for 30 years after the 2nd World War was met in the mid 70s by a new Consensus forged by the early thinkers of the new right in Britain and the US. Through Thatcherism, Blairism and Bushism, this consensus also lasted 30 Years.

It is time for the new Consensus to replace it.

The 5^th Way is here.

Limited Liability Status seems to be an absolute given. When did anyone last question its hallowed status in capitalism the world over? ‘Limited’, ‘Inc’, ‘GmbH’ – all much the same.

How far do those outside business actually understand its impact? It’s just part of the economic furniture. Isn’t it? It has essentially always been there: capitalism has been built upon its foundation. Hasn’t it? The Companies Acts and the Partnership Act. The cornerstones of the market? Aren’t they?

The 5th Way questions why such an outmoded and ancient protection should be accorded to a ‘limited’ number of people in economic society. It believes that it hardwires failure, protects the sloppy and inefficient and promotes short-termism. And for what actual purpose? To encourage risk-taking? Because risk-taking’s good? Isn’t it? It’s at the heart of business – some ventures come off, some don’t. Without the risk where would we all be?

Where is the evidence for the apparent necessity of this 18th Century ‘venturist’s’ creation in the 21st Century at all?

The 5th Way sees unreformed Limited Liability Status as part of a wider problem of a private sector which has not properly evolved to meet the needs of an efficient, diverse, modern and wide economy. The dominance of Limited liability promotes, in particular, monolithic overall business structures.

Its status has been promoted, in particular, by lazy and unenlightened advice by the legal profession the world over. Lawyers are likely only to understand and promote to their clients three business models: Sole-Trader, Partnership and, much more often than not, a Limited Liability Company through a Share issue (usually just 2 shares, by the way). They are not taught at Law School any other models: diversity of business models is not only an alien concept to lawyers, such diversity would mean a lawyer’s job is much less easy and predictable.

The 5th Way wants to debate the upsides and the downsides of the current dominating Limited Liability model in business structures. Not only as a general economic concept, but also in the context of the average trader’s, business’s and consumer’s everyday experience of its practical workings.

How many sole traders and partnerships find themselves regularly being driven into economic disadvantage in the market by sloppy Limited Liability companies afforded Legal protection by the courts?

It wants to promote a range of differing business models which better enable a more efficient and thriving and wealthier private sector: this is an example of Econodiversity.