The real John Lewis economy

This year ‘the John Lewis economy’ has become something of a political theme, shorthand for a fairer, more participative form of capitalism. For those unfamiliar, John Lewis is one of Britain’s biggest retailers. It operates a chain of department stores and a sister network of high-end supermarkets called Waitrose. What makes the company distinctive is that it is owned by the employees. Everyone that works at John Lewis is a partner.

Since the company constantly wins awards for the best companies in Britain to work for, it is somewhat envied. It is also considered to be second to none in customer service and helpfulness, and this is often attributed to the pride that employees take in the business. The current government would like to see more of this kind of thing, and has talked in encouraging tones about employee ownership and cooperatives. Rightly so, but I was curious to know what Mr John Lewis himself thought he was doing. Nick Clegg may be co-opting his ideas as a model, but what was his own vision?

Luckily for us, John Spedan Lewis told his story and explained his ideas very clearly in a radio interview for the BBC, conducted in 1957 (pdf). The story goes something like this. John Lewis began as a drapers on Oxford Street in London, and it grew into a department store. John Spedan Lewis joined his father’s business at 19, and was rather shocked by what he found. His family was making a fortune, but the staff were poorly paid. The wage bill of all 300 staff was equal to the profit shared between him, his father and his brother.

This didn’t seem right to Lewis. In other trades, experts were paid with a flat fee. It was only in business that those at the top could draw such huge and potentially unlimited wealth, without passing any down to the people who earned them their success. It is right to reward effort, but Lewis saw excessive and unjustified rewards. “The incomes of the more fortunate of the captains of industry are many times as great as would have caused the same persons to work just as hard and for just as many years if, instead of going into business, they had happened to become, say, lawyers or doctors.”

Lewis began to re-imagine his business to benefit the staff, increasing holiday pay and cutting work hours. He brought in a staff council and started publishing an in-house magazine. Lewis senior didn’t approve of these ideas and in 1914 he shuffled his son out of the main Oxford Street store to a smaller and less profitable sister shop. His reforms worked and turned the fortunes of the sister store around, and in 1920 his father agreed to the first profit-sharing scheme across the group.

Eight years later his father died and Lewis junior assumed control of the operation, and he drew up a constitution and created the John Lewis Partnership. It included a living wage for all employees, and profits would be shared in addition to wages. By the time he retired he had handed over the business to the employees entirely, to be run by the board and an elected council, with the wages of the Managing Director capped. Happiness economists might want to take note of the Partnership’s stated purpose, which isn’t about profit or shareholder value: “The Partnership’s ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business.”

So he had a different vision of work and of business. But did John Spedan Lewis have ideas about a whole new form of capitalism? Apparently so.

“The present state of affairs is really a perversion of the proper working of capitalism” he told the BBC. “It is all wrong to have millionaires before you have ceased to have slums. Capitalism has done enormous good and suits human nature far too well to be given up as long as human nature remains the same. But the perversion has given us too unstable a society. Differences of reward must be large enough to induce people to do their best but the present differences are far too great. If we do not find some way of correcting that perversion of capitalism, our society will break down.”

Lewis believed, rightly, that a certain amount of inequality was inevitable because people have different abilities and energies. But he recognised that “this inequality should be the least possible. It need not be nearly so great as in the modern business-world it is.”

He also believed that his model was less exploitative and would be adopted by others, and that is would be a real benefit to society. It would make work “something to live for as well as something to live by.” It could even be “the new source of working energy of which our country is in such grave need.”

When George Osborne proposed a new shares-for-rights swap recently, he was drawing on that last point – giving new energy to Britain’s business. The idea of employee ownership coming at the expense of employee rights would have been anathema to John Lewis however. It gives more power to the employer, and increases the potential for exploitation.

The current government is also silent on inequality, which was John Lewis’ main motivation. There has been no action on corporate pay, which is far more extreme than in Lewis’ day. Where a living wage has been defined, it remains optional – a nice thing businesses can add to their corporate social responsibility portfolio if they wish. It’s not too late to start talking about these things of course, but they don’t appear to be high on the agenda at the moment.

The ‘John Lewis Economy’ is a noble ambition. It’s a middle way, and offers some solutions we should all be able to agree on – John Spedan Lewis took inequality seriously while remaining a capitalist from head to toe. But we should beware of politicians appropriating the name, enjoying the reflected glory of one of Britain’s most progressive companies, and then watering down all their most important ideas.

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One Comment on “The real John Lewis economy”

  1. dichasium October 23, 2012 at 7:29 pm #

    “It is all wrong to have millionaires before you have ceased to have slums.” How brilliant it would be to have that splashed around Westminster for all to see, forever. As for politicians pretending to wear John Lewis’ cloak, it is a disgrace, and I hope your post gets around to let people know about the wolves in sheep’s clothing ploy.

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