Welcome to the Shareholder Democracy (Version 2)

Osborne’s commitment to a shareholding democracy is audacious, if not original. It is also risky.

I think we can now all agree that George Osborne wants to be Conservative party leader. His conference speech was no ordinary spiel of economic figures and anecdotes, we might expect from a chancellor’s conference speech but rather littered with new policies aimed as cementing the chancellor as favourite to succeed David Cameron. It was a thoroughly ideological speech.

At the core of the Chancellor’s ideology is a belief in the power of greater devolution; devolution not only in policy making away from central government to local councils, but also from financial investors to individual members of society. In true Osborne style this new financial devolution already has a double barrelled title: the ‘shareholder democracy’.

To kick-start the shareholder democracy Osborne has announced a final sale of the remaining 12 per cent stake the Government owns in Lloyds bank. Such a move has the priorities of individual investors at its core and Osborne’s leadership ambitions throughout.

Under the sell-off members of the public will be offered a 5% discount to Lloyds’ market price and small investors seeking shares worth less than £1,000 will get priority. In an attempt to provide members of the public with a long term stake in the bank those who keep their shares for at least 12 months will get one bonus share for every 10 they own.

Osborne’s commitment to a shareholding democracy is audacious, if not original (it is an agenda usually associated with the Liberal Democrats). It is also risky. Lloyd’s shares are considered valuable stock by the markets and could raise significant gains for the government through institutional sales, which would have meant better value for the taxpayer.

But, Osborne is willing to risk the potential media fall-out in favour of a wider agenda. To understand why you need to look back at the privatisation of British Gas by Margaret Thatcher’s government made famous by the “Tell Sid” tagline. The energy groups’ sale dwarfs today’s Lloyd’s sale raising a sum equivalent to £14.4 billion in today’s money, with 1.5 million private investors taking part. Thatcher used the sale as a political weapon aimed squarely at turning ambivalent Britons on to capitalism and dealing a blow to the leftist Labour party of the time. The policy worked, and a new army of individual investors, nicknamed ‘The Sids’ brokered a new age of popular capitalism.

The Lloyds sale may be more meagre in nature – more “’tell squid’ than ‘tell Sid’” as Jonathan Guthrie says in the Financial Times – but the political strategy is similar.

Osborne is no fool. He understands the modern political shift away from institutions and big governments and towards local groups more trusted by the public. He realizes that trust in central Government is waning and desire for more localised even individualistic decision making is growing. He also realizes that public distrust in financial institutions is not going away anytime soon and that the public is crying out for new levels of accountability in the banking sector.

Labour’s answer to this has been to elect a more grassroots and less centralised style of leadership, whilst criticising ‘corporate welfare’ and ‘greed’ wherever possible. Osborne’s is to use the political and economic arsenal of his hero, Mrs Thatcher. But the shareholding democracy of the 1980s was only a partial success with many investors selling up short off when the Government would have hoped. The British public has never taken to the shareholding like the Germans, or even the Chinese, who have experienced a dramatic boom in the number of individual investors. Osborne will know this. Let’s hope the public still has an appetite for popular capitalism.