Economics Essay 78: Ownership and Control of Firms

Discuss how the divorce of ownership from control may affect both the conduct and performance of firms.

Key terms:

1. Divorce of ownership from control: This refers to a situation in which the individuals who own a company (shareholders) are not the same individuals who manage and control the company's day-to-day operations (managers). In many large corporations, shareholders are dispersed and have limited influence over the decision-making process, while managers make strategic and operational decisions.

2. Conduct of firms: The conduct of firms refers to how firms behave in terms of their strategic choices, pricing decisions, production methods, investment decisions, and interactions with competitors. It encompasses the actions taken by managers to maximize the firm's objectives, such as profit maximization or market share expansion.

3. Performance of firms: The performance of firms refers to the outcomes achieved by firms, such as profitability, efficiency, market share, innovation, and customer satisfaction. It reflects the extent to which a firm is successful in achieving its objectives and delivering value to its stakeholders.

The divorce of ownership from control can have significant implications for the conduct and performance of firms:

1. Conduct of firms:

   • Agency problems: The separation of ownership and control creates agency problems, as managers may prioritize their own interests over those of the shareholders. Managers may engage in self-serving behaviors, pursue personal goals, or make decisions that do not align with shareholders' interests.
   • Risk-taking behavior: Managers may be more inclined to take excessive risks when their personal wealth is not fully tied to the company's performance. They may pursue ambitious projects or make risky investments that could negatively impact the firm's financial stability.
   • Managerial discretion: Managers, in the absence of close monitoring by shareholders, have more discretion in decision-making. They can shape the firm's strategies, set executive compensation, and determine resource allocation. This discretion can influence the firm's conduct, including its competitive behavior and investment choices.

2. Performance of firms:

   • Shareholder value: The divorce of ownership from control can result in a divergence between the interests of shareholders and managers. This misalignment can lead to suboptimal firm performance and a failure to maximize shareholder value.
   • Managerial incentives: Managers may prioritize goals other than profit maximization, such as personal reputation, job security, or firm growth. This may lead to decisions that do not optimize the firm's financial performance or long-term sustainability.
   • Accountability and monitoring: Without effective oversight and monitoring by shareholders, managers may face less accountability for their decisions and actions. This can impact the firm's performance by reducing the incentives for managers to perform at their best or make efficient use of resources.

It is worth noting that the impact of the divorce of ownership from control can vary across firms and industries. Some firms may implement governance mechanisms, such as independent boards of directors or performance-based compensation, to align the interests of managers with shareholders and mitigate the negative effects. Additionally, the extent to which the separation affects conduct and performance depends on factors such as the degree of competition, market conditions, industry regulations, and the specific managerial practices implemented within the firm.

Overall, the divorce of ownership from control can introduce agency problems and influence the behavior and performance of firms. Addressing these challenges through effective governance mechanisms and aligning the interests of managers with those of shareholders is crucial for maintaining sound conduct and improving firm performance.

Do rich countries undermine democracies in developing countries? Economic History in Small Doses 3

Girish Menon*

The IMF led consortia (World Bank, WTO…), have represented the interests of the rich countries. Historically, they have advocated free market policies in developing countries. Whenever such weak economies got into economic trouble the consortia have insisted on harsh policy changes in return for their help. By such acts, are the rich countries really helping the growth of democracy in developing countries?

---Also read

1. Ideological Positions and Economic History

2. Is Corruption An Obstacle to Economic Growth? - Economic History in Small Doses 1

3. Are Democracy and Capitalism in Conflict? Economic History in Small Doses 2

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Free market policies have brought more areas of our life under the ‘one rupee one vote’ rule of the market. Let us examine some of these policies:

The argument is framed thus, “politics opens the door for perversion of market rationality; inefficient firms or farmers by lobbying their politicians for subsidies will impose costs on the rest of society that has to buy expensive domestic products.” The current farmers’ agitation in India is being tarried with this brush.

The free marketer’s solution is to ‘depoliticize’ the economy. They argue that the very scope of government activity should be reduced to a minimal state through privatisation and liberalisation. This is necessary, they argue, because the politicians are less competent and more corrupt. Hence, it is important for developing countries to sign up to international agreements like the WTO, bilateral/free trade agreements like RCEP or TPP so that domestic politicians lose their ability to take democratic decisions.

The main problem with this argument for depoliticization is the assumption that we definitely know the limits where politics should end and where economics should begin. This is a fundamental fallacy.

Markets are political constructs; the recognition of private ownership of property and other rights that underpin them have political origins. This becomes evident when viewed historically. For example: certain tribes have lived in the woods for centuries until the point when this land is sold off by the government to a private landowner and then these tribespeople now become trespassers on the same land. Or the re-designation of slaves from capital to labour was also a political act. In other words the political origins of economic rights can be seen in the fact that many of these rights that seem natural today were once hotly contested in the past.

Thus when free marketers propose de-politicizing the economy they argue that everybody else accept their demarcation between economics and politics. I agree with Ha Joon Chang when he argues that ‘depoliticization of policy decisions in a democratic polity means – let’s not mince our words – weakening democracy.’

In other words, democracy is acceptable to free-marketers only if it does not contradict their free market doctrine. They want democracy only if it is largely powerless. Deep down they believe that giving political power to those who do not have a stake in the free market system will result in an ‘irrational’ modification of property and other economic rights. And the free-marketers spread their gospel by subtly discrediting democratic politics without openly criticising democracy.

The consequences have been damaging in developing countries, where the free-marketers have been able to push through anti-democratic actions well beyond what would be acceptable in rich countries.

* Adapted and simplified by the author from Ha Joon Chang's Bad Samaritans - The Guilty Secrets of Rich Nations & The Threat to Global Prosperity

Who owns the country? The secretive companies hoarding England's land

Multi-million pound corporations with complex structures have purchased the very ground we walk on – and we are only just beginning to discover the damage it is doing to Britain. By Guy Shrubsole in The Guardian 


Despite owning 15,000 hectares (37,000 acres) of land, managing a property portfolio worth £2.3bn and having control over huge swaths of central Manchester and Liverpool, very few people have heard of a company named Peel Holdings. It owns the Manchester Ship Canal. It built the Trafford Centre shopping complex and, more recently, sold it in the largest single property acquisition in Britain’s history. It was the developer behind the MediaCityUK site in Salford, to which the BBC and ITV have relocated many of their operations in recent years. Airports, fracking, retail – the list of Peel business interests stretches on and on.

Peel Holdings operates behind the scenes, quietly acquiring land and real estate, cutting billion-pound deals and influencing numerous planning decisions. Its investment decisions have had an enormous impact, whether for good or ill, on the places where millions of people live and work.

Peel’s ultimate owner, the billionaire John Whittaker, is notoriously publicity-shy: he lives on the Isle of Man, has never given an interview and helicopters into his company’s offices for board meetings. He built Peel Holdings in the 1970s and 80s by buying up a series of companies whose fortunes had decayed, but which still controlled valuable land. Foremost among these was the Manchester Ship Canal Company, purchased in 1987. The canal turned out to be valuable not simply as a freight route, but also because of the redevelopment potential of the land that flanked it.

Half of England is owned by less than 1% of the population



Peel Holdings tends not to show its hand in public. Like many companies, it prefers its forays into public political debate to be conducted via intermediary bodies and corporate coalitions. In 2008, it emerged that Peel was a dominant force behind a business grouping that had formed to lobby against Manchester’s proposed congestion charge. The charge was aimed at cutting traffic and reducing the toxic car fumes choking the city. But Peel, as owners of the out-of-town Trafford Centre shopping mall, feared that a congestion charge would be bad for business, discouraging shoppers from driving through central Manchester to reach the mall. Peel’s lobbying paid off: voters rejected the charge in the local referendum and the proposal was dropped.

Throughout England, cash-strapped councils are being outgunned by corporate developers pressing to get their way. The situation is exacerbated by a system that has allowed companies like Peel to keep their corporate structures obscure and their landholdings hidden. A 2013 report by Liverpool-based thinktank Ex Urbe found “well in excess of 300 separately registered UK companies owned or controlled” by Peel. Tracing the conglomerate’s structure is an investigator’s nightmare. Try it yourself on the Companies House website: type in “Peel Land and Property Investments PLC”, and then click through to persons with significant control. This gives you the name of its parent company, Peel Investments Holdings Ltd. So far, so good. But then repeat the steps for the parent company, and yet another holding company emerges; then another, and another. It’s like a series of Russian dolls, one nested inside another.

Until recently, it was even harder to get a handle on the land Peel Holdings owns. Sometimes the company has provided a tantalising glimpse: one map it produced in 2015, as part of some marketing spiel around the “northern powerhouse”, showcases 150 sites it owns across the north-west. It confirms the vast spread of Peel’s landed interests – from Liverpool John Lennon airport, through shale gas well pads, to one of the UK’s largest onshore wind farms. But it’s clearly not everything. A more exhaustive, independent list of the company’s landholdings might allow communities to be forewarned of future developments. As Ex Urbe’s report on Peel concludes: “Peel schemes rarely come to light until they are effectively a fait accompli and the conglomerate is confident they will go ahead, irrespective of public opinion.”

While Peel Holdings is unusual for the sheer amount of land it controls, it is also illustrative of corporate landowners everywhere. Corporations looking to develop land have numerous tricks up their sleeve that they can use to evade scrutiny and get their way, from shell company structures to offshore entities. Companies with big enough budgets can often ride roughshod over the planning system, beating cash-strapped councils and volunteer community groups. And companies have for a long time benefited from having their landholdings kept secret, giving them the element of surprise when it comes to lobbying councils over planning decisions and the use of public space. But now, at long last, that is starting to change. If we want to “take back control” of our country, we need to understand how much of it is currently controlled by corporations.

In 2015, the Private Eye journalist Christian Eriksson lodged a freedom of information (FOI) request with the Land Registry, the official record of land ownership in England and Wales. He asked it to release a database detailing the area of land owned by all UK-registered companies and corporate bodies. Eriksson later shared this database with me, and what it revealed was astonishing. Here, laid bare after the dataset had been cleaned up, was a picture of corporate control: companies today own about 2.6m hectares of land, or roughly 18% of England and Wales.

In the unpromising format of an Excel spreadsheet, a compelling picture emerged. Alongside the utilities privatised by Margaret Thatcher and John Major – the water companies, in particular – and the big corporate landowners, were PLCs with multiple shareholders. There were household names, such as Tesco, Tata Steel and the housebuilder Taylor Wimpey, and others more obscure. MRH Minerals, for example, appeared to own 28,000 hectares of land, making it one of the biggest corporate landowners in England and Wales.

Gradually, I pieced together a list of what looked to be the top 50 landowning companies, which together own more than 405,000 hectares of England and Wales. Peel Holdings and many of its subsidiaries, unsurprisingly, feature high on the list. But while the dataset revealed in stark detail the area of land owned by UK-based companies, it did nothing to tell us what they owned, and where.

That would take another two years to emerge. Meanwhile, Eriksson had been busy at work with his Private Eye colleague Richard Brooks and the computer programmer Anna Powell-Smith, delving into another form of corporate landowner – firms based overseas, yet owning land in the UK. Of particular interest were companies based in offshore tax havens, a wholly legal but controversial practice, given the opportunities offshore ownership gives for possible tax avoidance and for concealing the identities of who ultimately controls a company. Further FOI requests to the Land Registry by Eriksson hit the jackpot when he was sent – “accidentally”, the Land Registry would later claim – a huge dataset of overseas and offshore-registered companies that had bought land in England and Wales between 2005 and 2014: some 113,119 hectares of land and property, worth a staggering £170bn.

 

Victoria Harbour building at Salford Quays, owned by Peel Holdings. Photograph: Mike Robinson/Alamy

Private Eye’s work revealed that a large chunk of the country was not only under corporate control, but owned by companies that – in many cases – were almost certainly seeking to avoid paying tax, that most basic contribution to a civilised society. Some potentially had an even darker motive: purchasing property in England or Wales as a means for kleptocratic regimes or corrupt businessmen to launder money, and to get a healthy return on their ill-gotten gains in the process. This was information that clearly ought to be out in the open, with a huge public interest case for doing so. And yet the government had sat on it for years.

The political ramifications of these revelations were profound. They kickstarted a process of opening up information on land ownership that, although far slower and less complete than many would have liked, has nevertheless transformed our understanding of what companies own. In November 2017, the Land Registry released its corporate and commercial dataset, free of charge and open to all. It revealed, for the first time, the 3.5m land titles owned by UK-based corporate bodies – covering both public sector institutions and private firms – with limited companies owning the majority, 2.1m, of these. But there were two important caveats. Although we now had the addresses owned by companies, the dataset omitted to tell us the size of land they owned. Second, the data lacked accurate information on locations, making it hard to map.

Despite this, what can we now say about company-owned land in England and Wales? Quite a lot, it turns out. We know, for example, that the company with the third-highest number of land titles is the mysterious Wallace Estates, a firm with a £200m property portfolio but virtually no public presence, and which is owned ultimately by a secretive Italian count. Wallace Estates makes its money from the controversial ground rents market, whereby it owns thousands of freehold properties and sells on long leases with annual ground rents.

We also now know that Peel Holdings and its numerous subsidiaries owns at least 1,000 parcels of land across England – not just shopping centres and ports in the north-west, but also a hill in Suffolk, farmland along the Medway and an industrial estate in the Cotswolds. Councils, MPs and residents wanting to keep an eye on what developers and property companies are up to in their area now have a powerful new tool at their disposal.

The data is full of odd quirks and details. Who would have guessed, for instance, that the arms manufacturer BAE owns a nightclub in Cardiff, a pub on Blackpool’s promenade and a service station in Pease Pottage, Sussex? It turns out that they are all investments made by BAE’s pension fund; if selling missiles to Saudi Arabia doesn’t prove profitable enough, it appears the company’s strategy is to make a few quid out of tired drivers stopping for a coffee break off the M23.

The data also lets us peer into the property acquisitions of the big supermarkets, which back in the 1990s and early 2000s involved building up huge land banks to construct ever more out-of-town retail parks. Tesco, via a welter of subsidiaries, owns more than 4,500 hectares of land – and although much of this comprises existing stores, a good chunk also appears to be empty plots, apparently earmarked for future development. One analysis by the Guardian in 2014 estimated that the supermarket was hoarding enough land to accommodate 15,000 homes. More recently, however, Tesco’s financial travails have prompted it to sell off some of its sites. Internet shopping and pricier petrol have made giant hypermarkets built miles from where people live look less and less like smart investments. In 2016, Tesco’s beleaguered CEO announced the company was looking to make better use of the land it owned by selling it for housing, and even by building flats on top of its superstores. As for the supermarkets’ internet shopping rival Amazon, whose gigantic “fulfilment centres” resemble the vast US government warehouse at the end of Raiders of the Lost Ark – well, Amazon currently has 16 of those across the UK. And it has grown very quickly: all but one of its property leases have been bought in the past decade.

Companies are increasingly taking over previously public space in cities, too. Recent years have seen a proliferation of Pops – privately owned public spaces – as London, Manchester and other places redevelop and gentrify. You know the sort of thing: expensively landscaped swaths of “public realm”. Aesthetically, they are all very nice, but try to use Pops for some peaceful protest, and you are in for trouble. They are invariably governed by special bylaws and policed by private security, itching to get in your face. I once found this to my cost when staging a tiny, two-person anti-fracking demo outside shale-gas financiers Barclays bank in Canary Wharf. Canary Wharf is partly owned by the Qatari Investment Authority, and – bizarrely – photography is banned. Within a minute of us taking the first selfie on our innocuous protest, security guards had descended en masse, and we spent the next hour running around Canary Wharf trying to evade them.

The Land Registry’s corporate ownership dataset contains millions of entries, and much remains to be uncovered. Some of the information appears trivial at first glance – a company owns a factory here, an office there: so what? But as more people pore over the data, more stories will likely emerge. Future researchers might find intriguing correlations between the locations of England’s thousands of fast-food stores and the health of nearby populations, be able to track gentrification through the displacement of KFC outlets by Nando’s restaurants, and so on.

But to really get under the skin of how companies treat the land they own, and the wider repercussions, we need to zoom in on the housing sector, where debates about companies involved in land banking and profiteering from land sales are crucial to our understanding of the housing crisis.

One particularly controversial aspect of the housing debate that has generated much heat, and little light, in recent years is the debacle over land banking, the practice of hoarding land and holding it back from development until its price increases.

In 2016, the then housing secretary, Sajid Javid, furiously accused large housing developers of land banking and demanded they “release their stranglehold” on land supply. Housebuilders, not used to such impertinence from a Conservative minister, hit back. “As has been proved by various investigations in the past, housebuilders do not land bank,” a spokesperson for the Home Builders Federation told the Telegraph. “In the current market where demand is high, there is absolutely no reason to do so.”

So who is right? This is a complex area, but one that is important to investigate. Can the Land Registry’s corporate ownership data help us get to the bottom of it?

It is common for UK pension funds and insurance companies to buy up land as a long-term strategic investment. Legal & General, for example, owns 1,500 hectares of land that it openly calls a “strategic land portfolio … stretching from Luton to Cardiff”. Its rationale for buying land is simple: “Strategic land holdings are underpinned by their existing use value [such as farming] and give us the opportunity to create further value through planning promotion and infrastructure works over the medium to long term.”

When I looked into where Legal & General’s land was located, I noticed something odd. Nearly all of it lay within green belt areas, where development is restricted. The company appears to have bought it with the aim of lobbying councils to ultimately rip up such restrictions and redesignate the site for development in future.

In the case of pension funds lobbying to rip up the green belt, it’s the planning system that is (rightly) constraining development, not land banking itself. And none of this implicates the usual bogeymen of the housing crisis, the big housebuilding companies. By examining what these major developers own, is it possible to say whether they’re actively engaged in land banking?

There is no doubt that many of the major housebuilding companies own a lot of land. What’s more, housing developers themselves talk about their “current land banks” and publish figures in annual reports listing the number of homes they think they can build using land where they have planning permission. As the housing charity Shelter has found, the top 10 housing developers have land banks with space for more than 400,000 homes – about six years’ supply at current building rates.

Prompted by such statistics, the government ordered a review into build-out rates in 2017, led by Sir Oliver Letwin. Yet when Letwin delivered his draft report, he once again exonerated housebuilders from the charge of land banking. “I cannot find any evidence that the major housebuilders are financial investors of this kind,” he stated, pointing the finger of blame instead at the rate at which new homes could be absorbed into the marketplace.

Part of the problem is that the data on what companies own still isn’t good enough to prove whether or not land banking is occurring. The aforementioned Anna Powell-Smith has tried to map the land owned by housing developers, but has been thwarted by the lack in the Land Registry’s corporate dataset of the necessary information to link data on who owns a site with digital maps of that area. That makes it very hard to assess, for example, whether a piece of land owned by a housebuilder for decades is a prime site accruing in value or a leftover fragment of ground from a past development.

 

Shoppers in the Trafford Centre, a shopping mall until recently owned by Peel Holdings. Photograph: Oli Scarff/AFP/Getty

Second, the scope of Letwin’s review was drawn too narrowly to examine the wider problem of land banking by landowners beyond the major housebuilders. As the housing market analyst Neal Hudson said when it was published, the “review remit ignored the most important and unknown bit of the market: sites and land ownership pre-planning.”

In fact, if Letwin had raised his sights a little higher, he would have seen there is a whole industry of land promoters working with landowners to promote sites, have them earmarked for development in the council’s local plan, and increase their asking price. As investigations by Isabelle Fraser of the Telegraph have revealed: “A group of private companies, largely unknown to the public, have carved out a lucrative niche locating and snapping up land across the UK.”

One such company, Gladman Land, boasts on its website of a 90% success rate at getting sites developed. Few of these firms appear to own much land themselves; rather, they work with other landowners, perhaps signing options agreements or other such deals. Consultants Molior have estimated that between 25% and 45% of sites with planning permission in London are owned by companies that have never built a home.

This gets us to the heart of the housing crisis. Sure, we need housing developers to build more homes. But most of all we need them to build affordable homes. And developers that are forced to pay through the nose to persuade landowners to part with their land end up with less money left over for good-quality, affordable housing. By all means, let’s continue to pressure housebuilders whenever they try to renege on their planning agreements. But at root, we have to find ways to encourage landowners of all kinds – corporate or otherwise – to part with their land at cheaper prices.

Since the first appearance of modern corporations in the Victorian period, companies have expanded to become the owners of nearly a fifth of all land in England and Wales. Much of this land acquisition is uncontested: space for a factory here, an office block there. But some of it has proven highly controversial. Huge retailers and property groups like Tesco and Peel Holdings have eroded town centres and high streets by amassing land for out-of-town superstores, and lobbied to maintain a culture of car dependency. Multinational agribusinesses have exacerbated the industrialisation of our food supply and accelerated the decline of small-scale farmers. Property firms have made tidy profits from the privatisation of formerly public land – which might otherwise have gone into the public purse, had previous governments treated their assets more wisely.

Though the veil of secrecy around company structures and what corporations own is at last lifting, thanks to recent data disclosures by government, there’s still much that needs to be done to make sense of this new information. The Land Registry needs to disclose proper maps of what companies own if we are to get to the bottom of suspect practices like land banking, and give communities a fighting chance in local planning battles.

Legally obliged to maximise profits for their shareholders, and biased towards short-term returns, companies make for poor custodians of land. Nor are corporate landowners capable of solving the housing crisis. Hoarded, developed, polluted, dug up, landfilled: the corporate control of England’s acres has gone far enough.

Big Tech is sorry. Why Silicon Valley can’t fix itself

Tech insiders have finally started admitting their mistakes – but the solutions they are offering could just help the big players get even more powerful. By Ben Tarnoff and Moira Weigel in The Guardian 

Big Tech is sorry. After decades of rarely apologising for anything, Silicon Valley suddenly seems to be apologising for everything. They are sorry about the trolls. They are sorry about the bots. They are sorry about the fake news and the Russians, and the cartoons that are terrifying your kids on YouTube. But they are especially sorry about our brains.

Sean Parker, the former president of Facebook – who was played by Justin Timberlake in The Social Network – has publicly lamented the “unintended consequences” of the platform he helped create: “God only knows what it’s doing to our children’s brains.” Justin Rosenstein, an engineer who helped build Facebook’s “like” button and Gchat, regrets having contributed to technology that he now considers psychologically damaging, too. “Everyone is distracted,” Rosenstein says. “All of the time.” 

Ever since the internet became widely used by the public in the 1990s, users have heard warnings that it is bad for us. In the early years, many commentators described cyberspace as a parallel universe that could swallow enthusiasts whole. The media fretted about kids talking to strangers and finding porn. A prominent 1998 study from Carnegie Mellon University claimed that spending time online made you lonely, depressed and antisocial.

In the mid-2000s, as the internet moved on to mobile devices, physical and virtual life began to merge. Bullish pundits celebrated the “cognitive surplus” unlocked by crowdsourcing and the tech-savvy campaigns of Barack Obama, the “internet president”. But, alongside these optimistic voices, darker warnings persisted. Nicholas Carr’s The Shallows (2010) argued that search engines were making people stupid, while Eli Pariser’s The Filter Bubble (2011) claimed algorithms made us insular by showing us only what we wanted to see. In Alone, Together (2011) and Reclaiming Conversation (2015), Sherry Turkle warned that constant connectivity was making meaningful interaction impossible.

Still, inside the industry, techno-utopianism prevailed. Silicon Valley seemed to assume that the tools they were building were always forces for good – and that anyone who questioned them was a crank or a luddite. In the face of an anti-tech backlash that has surged since the 2016 election, however, this faith appears to be faltering. Prominent people in the industry are beginning to acknowledge that their products may have harmful effects.

Internet anxiety isn’t new. But never before have so many notable figures within the industry seemed so anxious about the world they have made. Parker, Rosenstein and the other insiders now talking about the harms of smartphones and social media belong to an informal yet influential current of tech critics emerging within Silicon Valley. You could call them the “tech humanists”. Amid rising public concern about the power of the industry, they argue that the primary problem with its products is that they threaten our health and our humanity.

It is clear that these products are designed to be maximally addictive, in order to harvest as much of our attention as they can. Tech humanists say this business model is both unhealthy and inhumane – that it damages our psychological well-being and conditions us to behave in ways that diminish our humanity. The main solution that they propose is better design. By redesigning technology to be less addictive and less manipulative, they believe we can make it healthier – we can realign technology with our humanity and build products that don’t “hijack” our minds.

The hub of the new tech humanism is the Center for Humane Technology in San Francisco. Founded earlier this year, the nonprofit has assembled an impressive roster of advisers, including investor Roger McNamee, Lyft president John Zimmer, and Rosenstein. But its most prominent spokesman is executive director Tristan Harris, a former “design ethicist” at Google who has been hailed by the Atlantic magazine as “the closest thing Silicon Valley has to a conscience”. Harris has spent years trying to persuade the industry of the dangers of tech addiction. In February, Pierre Omidyar, the billionaire founder of eBay, launched a related initiative: the Tech and Society Solutions Lab, which aims to “maximise the tech industry’s contributions to a healthy society”.

As suspicion of Silicon Valley grows, the tech humanists are making a bid to become tech’s loyal opposition. They are using their insider credentials to promote a particular diagnosis of where tech went wrong and of how to get it back on track. For this, they have been getting a lot of attention. As the backlash against tech has grown, so too has the appeal of techies repenting for their sins. The Center for Humane Technology has been profiled – and praised by – the New York Times, the Atlantic, Wired and others.

But tech humanism’s influence cannot be measured solely by the positive media coverage it has received. The real reason tech humanism matters is because some of the most powerful people in the industry are starting to speak its idiom. Snap CEO Evan Spiegel has warned about social media’s role in encouraging “mindless scrambles for friends or unworthy distractions”, and Twitter boss Jack Dorsey recently claimed he wants to improve the platform’s “conversational health”. 

Even Mark Zuckerberg, famous for encouraging his engineers to “move fast and break things”, seems to be taking a tech humanist turn. In January, he announced that Facebook had a new priority: maximising “time well spent” on the platform, rather than total time spent. By “time well spent”, Zuckerberg means time spent interacting with “friends” rather than businesses, brands or media sources. He said the News Feed algorithm was already prioritising these “more meaningful” activities.

Zuckerberg’s choice of words is significant: Time Well Spent is the name of the advocacy group that Harris led before co-founding the Center for Humane Technology. In April, Zuckerberg brought the phrase to Capitol Hill. When a photographer snapped a picture of the notes Zuckerberg used while testifying before the Senate, they included a discussion of Facebook’s new emphasis on “time well spent”, under the heading “wellbeing”.

This new concern for “wellbeing” may strike some observers as a welcome development. After years of ignoring their critics, industry leaders are finally acknowledging that problems exist. Tech humanists deserve credit for drawing attention to one of those problems – the manipulative design decisions made by Silicon Valley.

But these decisions are only symptoms of a larger issue: the fact that the digital infrastructures that increasingly shape our personal, social and civic lives are owned and controlled by a few billionaires. Because it ignores the question of power, the tech-humanist diagnosis is incomplete – and could even help the industry evade meaningful reform. Taken up by leaders such as Zuckerberg, tech humanism is likely to result in only superficial changes. These changes may soothe some of the popular anger directed towards the tech industry, but they will not address the origin of that anger. If anything, they will make Silicon Valley even more powerful.

The Center for Humane Technology argues that technology must be “aligned” with humanity – and that the best way to accomplish this is through better design. Their website features a section entitled The Way Forward. A familiar evolutionary image shows the silhouettes of several simians, rising from their crouches to become a man, who then turns back to contemplate his history.

“In the future, we will look back at today as a turning point towards humane design,” the header reads. To the litany of problems caused by “technology that extracts attention and erodes society”, the text asserts that “humane design is the solution”. Drawing on the rhetoric of the “design thinking” philosophy that has long suffused Silicon Valley, the website explains that humane design “starts by understanding our most vulnerable human instincts so we can design compassionately”.

There is a good reason why the language of tech humanism is penetrating the upper echelons of the tech industry so easily: this language is not foreign to Silicon Valley. On the contrary, “humanising” technology has long been its central ambition and the source of its power. It was precisely by developing a “humanised” form of computing that entrepreneurs such as Steve Jobs brought computing into millions of users’ everyday lives. Their success turned the Bay Area tech industry into a global powerhouse – and produced the digitised world that today’s tech humanists now lament.

The story begins in the 1960s, when Silicon Valley was still a handful of electronics firms clustered among fruit orchards. Computers came in the form of mainframes then. These machines were big, expensive and difficult to use. Only corporations, universities and government agencies could afford them, and they were reserved for specialised tasks, such as calculating missile trajectories or credit scores.

Computing was industrial, in other words, not personal, and Silicon Valley remained dependent on a small number of big institutional clients. The practical danger that this dependency posed became clear in the early 1960s, when the US Department of Defense, by far the single biggest buyer of digital components, began cutting back on its purchases. But the fall in military procurement wasn’t the only mid-century crisis around computing.

Computers also had an image problem. The inaccessibility of mainframes made them easy to demonise. In these whirring hulks of digital machinery, many observers saw something inhuman, even evil. To antiwar activists, computers were weapons of the war machine that was killing thousands in Vietnam. To highbrow commentators such as the social critic Lewis Mumford, computers were instruments of a creeping technocracy that threatened to extinguish personal freedom.

But during the course of the 1960s and 70s, a series of experiments in northern California helped solve both problems. These experiments yielded breakthrough innovations like the graphical user interface, the mouse and the microprocessor. Computers became smaller, more usable and more interactive, reducing Silicon Valley’s reliance on a few large customers while giving digital technology a friendlier face.

The pioneers who led this transformation believed they were making computing more human. They drew deeply from the counterculture of the period, and its fixation on developing “human” modes of living. They wanted their machines to be “extensions of man”, in the words of Marshall McLuhan, and to unlock “human potential” rather than repress it. At the centre of this ecosystem of hobbyists, hackers, hippies and professional engineers was Stewart Brand, famed entrepreneur of the counterculture and founder of the Whole Earth Catalog. In a famous 1972 article for Rolling Stone, Brand called for a new model of computing that “served human interest, not machine”.

Brand’s disciples answered this call by developing the technical innovations that transformed computers into the form we recognise today. They also promoted a new way of thinking about computers – not as impersonal slabs of machinery, but as tools for unleashing “human potential”.

No single figure contributed more to this transformation of computing than Steve Jobs, who was a fan of Brand and a reader of the Whole Earth Catalog. Jobs fulfilled Brand’s vision on a global scale, launching the mass personal computing era with the Macintosh in the mid-80s, and the mass smartphone era with the iPhone two decades later. Brand later acknowledged that Jobs embodied the Whole Earth Catalog ethos. “He got the notion of tools for human use,” Brand told Jobs’ biographer, Walter Isaacson.

Building those “tools for human use” turned out to be great for business. The impulse to humanise computing enabled Silicon Valley to enter every crevice of our lives. From phones to tablets to laptops, we are surrounded by devices that have fulfilled the demands of the counterculture for digital connectivity, interactivity and self-expression. Your iPhone responds to the slightest touch; you can look at photos of anyone you have ever known, and broadcast anything you want to all of them, at any moment.

In short, the effort to humanise computing produced the very situation that the tech humanists now consider dehumanising: a wilderness of screens where digital devices chase every last instant of our attention. To guide us out of that wilderness, tech humanists say we need more humanising. They believe we can use better design to make technology serve human nature rather than exploit and corrupt it. But this idea is drawn from the same tradition that created the world that tech humanists believe is distracting and damaging us.

Tech humanists say they want to align humanity and technology. But this project is based on a deep misunderstanding of the relationship between humanity and technology: namely, the fantasy that these two entities could ever exist in separation.

It is difficult to imagine human beings without technology. The story of our species began when we began to make tools. Homo habilis, the first members of our genus, left sharpened stones scattered across Africa. Their successors hit rocks against each other to make sparks, and thus fire. With fire you could cook meat and clear land for planting; with ash you could fertilise the soil; with smoke you could make signals. In flickering light, our ancestors painted animals on cave walls. The ancient tragedian Aeschylus recalled this era mythically: Prometheus, in stealing fire from the gods, “founded all the arts of men.”

All of which is to say: humanity and technology are not only entangled, they constantly change together. This is not just a metaphor. Recent researchsuggests that the human hand evolved to manipulate the stone tools that our ancestors used. The evolutionary scientist Mary Marzke shows that we developed “a unique pattern of muscle architecture and joint surface form and functions” for this purpose.

The ways our bodies and brains change in conjunction with the tools we make have long inspired anxieties that “we” are losing some essential qualities. For millennia, people have feared that new media were eroding the very powers that they promised to extend. In The Phaedrus, Socrates warned that writing on wax tablets would make people forgetful. If you could jot something down, you wouldn’t have to remember it. In the late middle ages, as a culture of copying manuscripts gave way to printed books, teachers warned that pupils would become careless, since they no longer had to transcribe what their teachers said.

Yet as we lose certain capacities, we gain new ones. People who used to navigate the seas by following stars can now program computers to steer container ships from afar. Your grandmother probably has better handwriting than you do – but you probably type faster.

The nature of human nature is that it changes. It can not, therefore, serve as a stable basis for evaluating the impact of technology. Yet the assumption that it doesn’t change serves a useful purpose. Treating human nature as something static, pure and essential elevates the speaker into a position of power. Claiming to tell us who we are, they tell us how we should be.

Intentionally or not, this is what tech humanists are doing when they talk about technology as threatening human nature – as if human nature had stayed the same from the paleolithic era until the rollout of the iPhone. Holding humanity and technology separate clears the way for a small group of humans to determine the proper alignment between them. And while the tech humanists may believe they are acting in the common good, they themselves acknowledge they are doing so from above, as elites. “We have a moral responsibility to steer people’s thoughts ethically,” Tristan Harris has declared.

Harris and his fellow tech humanists also frequently invoke the language of public health. The Center for Humane Technology’s Roger McNamee has gone so far as to call public health “the root of the whole thing”, and Harris has compared using Snapchat to smoking cigarettes. The public-health framing casts the tech humanists in a paternalistic role. Resolving a public health crisis requires public health expertise. It also precludes the possibility of democratic debate. You don’t put the question of how to treat a disease up for a vote – you call a doctor.

This paternalism produces a central irony of tech humanism: the language that they use to describe users is often dehumanising. “Facebook appeals to your lizard brain – primarily fear and anger,” says McNamee. Harris echoes this sentiment: “Imagine you had an input cable,” he has said. “You’re trying to jack it into a human being. Do you want to jack it into their reptilian brain, or do you want to jack it into their more reflective self?”

The Center for Humane Technology’s website offers tips on how to build a more reflective and less reptilian relationship to your smartphone: “going greyscale” by setting your screen to black-and-white, turning off app notifications and charging your device outside your bedroom. It has also announced two major initiatives: a national campaign to raise awareness about technology’s harmful effects on young people’s “digital health and well-being”; and a “Ledger of Harms” – a website that will compile information about the health effects of different technologies in order to guide engineers in building “healthier” products.

These initiatives may help some people reduce their smartphone use – a reasonable personal goal. But there are some humans who may not share this goal, and there need not be anything unhealthy about that. Many people rely on the internet for solace and solidarity, especially those who feel marginalised. The kid with autism may stare at his screen when surrounded by people, because it lets him tolerate being surrounded by people. For him, constant use of technology may not be destructive at all, but in fact life-saving.

Pathologising certain potentially beneficial behaviours as “sick” isn’t the only problem with the Center for Humane Technology’s proposals. They also remain confined to the personal level, aiming to redesign how the individual user interacts with technology rather than tackling the industry’s structural failures. Tech humanism fails to address the root cause of the tech backlash: the fact that a small handful of corporations own our digital lives and strip-mine them for profit. This is a fundamentally political and collective issue. But by framing the problem in terms of health and humanity, and the solution in terms of design, the tech humanists personalise and depoliticise it.

This may be why their approach is so appealing to the tech industry. There is no reason to doubt the good intentions of tech humanists, who may genuinely want to address the problems fuelling the tech backlash. But they are handing the firms that caused those problems a valuable weapon. Far from challenging Silicon Valley, tech humanism offers Silicon Valley a useful way to pacify public concerns without surrendering any of its enormous wealth and power. By channelling popular anger at Big Tech into concerns about health and humanity, tech humanism gives corporate giants such as Facebook a way to avoid real democratic control. In a moment of danger, it may even help them protect their profits.

One can easily imagine a version of Facebook that embraces the principles of tech humanism while remaining a profitable and powerful monopoly. In fact, these principles could make Facebook even more profitable and powerful, by opening up new business opportunities. That seems to be exactly what Facebook has planned.

When Zuckerberg announced that Facebook would prioritise “time well spent” over total time spent, it came a couple weeks before the company released their 2017 Q4 earnings. These reported that total time spent on the platform had dropped by around 5%, or about 50m hours per day. But, Zuckerberg said, this was by design: in particular, it was in response to tweaks to the News Feed that prioritised “meaningful” interactions with “friends” rather than consuming “public content” like video and news. This would ensure that “Facebook isn’t just fun, but also good for people’s well-being”.

Zuckerberg said he expected those changes would continue to decrease total time spent – but “the time you do spend on Facebook will be more valuable”. This may describe what users find valuable – but it also refers to what Facebook finds valuable. In a recent interview, he said: “Over the long term, even if time spent goes down, if people are spending more time on Facebook actually building relationships with people they care about, then that’s going to build a stronger community and build a stronger business, regardless of what Wall Street thinks about it in the near term.”

Sheryl Sandberg has also stressed that the shift will create “more monetisation opportunities”. How? Everyone knows data is the lifeblood of Facebook – but not all data is created equal. One of the most valuable sources of data to Facebook is used to inform a metric called “coefficient”. This measures the strength of a connection between two users – Zuckerberg once called it “an index for each relationship”. Facebook records every interaction you have with another user – from liking a friend’s post or viewing their profile, to sending them a message. These activities provide Facebook with a sense of how close you are to another person, and different activities are weighted differently. Messaging, for instance, is considered the strongest signal. It’s reasonable to assume that you’re closer to somebody you exchange messages with than somebody whose post you once liked.

Why is coefficient so valuable? Because Facebook uses it to create a Facebook they think you will like: it guides algorithmic decisions about what content you see and the order in which you see it. It also helps improve ad targeting, by showing you ads for things liked by friends with whom you often interact. Advertisers can target the closest friends of the users who already like a product, on the assumption that close friends tend to like the same things.

 

Facebook CEO Mark Zuckerberg testifies before the US Senate last month. Photograph: Jim Watson/AFP/Getty Images

So when Zuckerberg talks about wanting to increase “meaningful” interactions and building relationships, he is not succumbing to pressure to take better care of his users. Rather, emphasising time well spent means creating a Facebook that prioritises data-rich personal interactions that Facebook can use to make a more engaging platform. Rather than spending a lot of time doing things that Facebook doesn’t find valuable – such as watching viral videos – you can spend a bit less time, but spend it doing things that Facebook does find valuable.

In other words, “time well spent” means Facebook can monetise more efficiently. It can prioritise the intensity of data extraction over its extensiveness. This is a wise business move, disguised as a concession to critics. Shifting to this model not only sidesteps concerns about tech addiction – it also acknowledges certain basic limits to Facebook’s current growth model. There are only so many hours in the day. Facebook can’t keep prioritising total time spent – it has to extract more value from less time.

In many ways, this process recalls an earlier stage in the evolution of capitalism. In the 19th century, factory owners in England discovered they could only make so much money by extending the length of the working day. At some point, workers would die of exhaustion, or they would revolt, or they would push parliament to pass laws that limited their working hours. So industrialists had to find ways to make the time of the worker more valuable – to extract more money from each moment rather than adding more moments. They did this by making industrial production more efficient: developing new technologies and techniques that squeezed more value out of the worker and stretched that value further than ever before.

A similar situation confronts Facebook today. They have to make the attention of the user more valuable – and the language and concepts of tech humanism can help them do it. So far, it seems to be working. Despite the reported drop in total time spent, Facebook recently announced huge 2018 Q1 earnings of $11.97bn (£8.7bn), smashing Wall Street estimates by nearly $600m.

Today’s tech humanists come from a tradition with deep roots in Silicon Valley. Like their predecessors, they believe that technology and humanity are distinct, but can be harmonised. This belief guided the generations who built the “humanised” machines that became the basis for the industry’s enormous power. Today it may provide Silicon Valley with a way to protect that power from a growing public backlash – and even deepen it by uncovering new opportunities for profit-making.

Fortunately, there is another way of thinking about how to live with technology – one that is both truer to the history of our species and useful for building a more democratic future. This tradition does not address “humanity” in the abstract, but as distinct human beings, whose capacities are shaped by the tools they use. It sees us as hybrids of animal and machine – as “cyborgs”, to quote the biologist and philosopher of science Donna Haraway.

To say that we’re all cyborgs is not to say that all technologies are good for us, or that we should embrace every new invention. But it does suggest that living well with technology can’t be a matter of making technology more “human”. This goal isn’t just impossible – it’s also dangerous, because it puts us at the mercy of experts who tell us how to be human. It cedes control of our technological future to those who believe they know what’s best for us because they understand the essential truths about our species.

The cyborg way of thinking, by contrast, tells us that our species is essentially technological. We change as we change our tools, and our tools change us. But even though our continuous co-evolution with our machines is inevitable, the way it unfolds is not. Rather, it is determined by who owns and runs those machines. It is a question of power.

Today, that power is wielded by corporations, which own our technology and run it for profit. The various scandals that have stoked the tech backlash all share a single source. Surveillance, fake news and the miserable working conditions in Amazon’s warehouses are profitable. If they were not, they would not exist. They are symptoms of a profound democratic deficit inflicted by a system that prioritises the wealth of the few over the needs and desires of the many.

There is an alternative. If being technological is a feature of being human, then the power to shape how we live with technology should be a fundamental human right. The decisions that most affect our technological lives are far too important to be left to Mark Zuckerberg, rich investors or a handful of “humane designers”. They should be made by everyone, together.

Rather than trying to humanise technology, then, we should be trying to democratise it. We should be demanding that society as a whole gets to decide how we live with technology – rather than the small group of people who have captured society’s wealth.

What does this mean in practice? First, it requires limiting and eroding Silicon Valley’s power. Antitrust laws and tax policy offer useful ways to claw back the fortunes Big Tech has built on common resources. After all, Silicon Valley wouldn’t exist without billions of dollars of public funding, not to mention the vast quantities of information that we all provide for free. Facebook’s market capitalisation is $500bn with 2.2 billion users – do the math to estimate how much the time you spend on Facebook is worth. You could apply the same logic to Google. There is no escape: whether or not you have an account, both platforms track you around the internet.

In addition to taxing and shrinking tech firms, democratic governments should be making rules about how those firms are allowed to behave – rules that restrict how they can collect and use our personal data, for instance, like the General Data Protection Regulation coming into effect in the European Union later this month. But more robust regulation of Silicon Valley isn’t enough. We also need to pry the ownership of our digital infrastructure away from private firms. 

This means developing publicly and co-operatively owned alternatives that empower workers, users and citizens to determine how they are run. These democratic digital structures can focus on serving personal and social needs rather than piling up profits for investors. One inspiring example is municipal broadband: a successful experiment in Chattanooga, Tennessee, has shown that publicly owned internet service providers can supply better service at lower cost than private firms. Other models of digital democracy might include a worker-owned Uber, a user-owned Facebook or a socially owned “smart city” of the kind being developed in Barcelona. Alternatively, we might demand that tech firms pay for the privilege of extracting our data, so that we can collectively benefit from a resource we collectively create.

More experimentation is needed, but democracy should be our guiding principle. The stakes are high. Never before have so many people been thinking about the problems produced by the tech industry and how to solve them. The tech backlash is an enormous opportunity – and one that may not come again for a long time.

The old techno-utopianism is crumbling. What will replace it? Silicon Valley says it wants to make the world a better place. Fulfilling this promise may require a new kind of disruption.

The runaway locomotive of Electronic Voting Machines

Tabish Khair in The Hindu

It happened in December 1841 near Reading, England. A Great Western Railway luggage train travelling from London Paddington to Bristol Temple Meads station had just entered Sonning Cutting. Rain had loosened the soil next to the track, which had caused mud to spill on to the track and cover it. This forced the broad gauge locomotive, containing three third-class passenger carriages and some heavy goods wagons, to derail. Eight passengers died on the spot and many were seriously injured. One passenger died later in hospital.

The tragedy set in process a largely unremarked legal change: it led to the abolishment of ‘deodands’. Deodands were penalties imposed on ‘moving objects that caused deaths’. After the Sonning Cutting accident, a deodand of £1,000 (about £100,000 today) was imposed on the train engine. This was, however, never paid (how could it be?), and five years later deodands were abolished.

From our perspective, this marks a significant change: from objects associated and controlled by humans to objects with much more leverage of their own. From a dropped box or a mismanaged horse carriage to a derailed engine. In 1841, deodands existed in a world that had changed. Trains marked not just the increase of pace while travelling, they also enabled a kind of tragedy which was difficult to imagine in an age of horses: now dozens, soon hundreds, of bodies could be mangled in a single accident. Blame for a derailed engine was a different matter than blame for a brick dropped from a window or an overturned carriage.

An opportunity and a danger

I start with this example to highlight the obvious fact that all technological developments come with some advantages and dangers. A society that ignores the former for the latter stays stuck in time, but a society that ignores the latter for the former might well plunge down a precipice.

Electronic voting machines represent such an opportunity — and danger. But because too much capital is invested in selling and replicating these systems, the opportunities and advantages are currently drummed up more than the dangers. Electronic voting machines have been accused of advertent or inadvertent ‘flaws’ in many countries, including India. But governments argue that some malfunctioning is inevitable when we use voting systems in vast lands with great educational disparity.

But let us talk about Denmark. Denmark is an egalitarian country of only six million people, all of whom receive basically the same kind of education until high school, and can choose to go to university free of charge. It has a high literacy rate and its politicians are at least theoretically more accountable than those of India or the U.S. It also has a high voting percentage.

And yet, recently, a small controversy erupted in Denmark. The fact that it is only a small controversy is frightening — because it has to do with the very nature of democracy, and Danes are a proudly democratic people. The largely neo-liberal government of Denmark decided to put the partly electronic voting system of Denmark up for a bid between rival companies. Three companies applied, including the public-owned company that has provided these services in the past. Then the government lowered the maximum bid amount. This forced two of the companies — including the public-owned one — to withdraw. The single company that stayed in the fray could submit a cheaper offer because it already runs similar voting systems in a number of countries — where the system has been accused of malfunction or vulnerability to tinkering.

As this was a private corporation, questions were asked in the Danish Parliament about its ownership. The Parliament was wrongly assured by a minister that it was a Danish company. When the major Danish daily, Politiken, traced the company’s head office to a tax-haven island off South America, the government promised more information.


Who are the owners?

But in the process, a vital factor seems to have been overlooked — not just by members of the Danish government, which is not surprising, but also by many of its critics. It is this: the island on which the company is registered permits companies not to disclose their ownership. In other words, the Danish voting system might be produced by a company whose real owners are invisible. Surely, there is something seriously wrong about the increasing vulnerability of democracies to the digitalised chicanery of invisible or half-visible corporate owners? Surely it is legitimate for citizens to demand to know the real owners of such companies? For instance, would a company controlled by the Russian mafia or the Koch brothers of the U.S., with their history of lobbied interference in democratic matters, be a neutral player and a reliable service provider?

As trains came into being, not only were ineffective laws, like that of deodands, remade or abandoned, new laws were put in place to ensure safety and accountability. Today, with the locomotive of digitalisation rushing at us, we largely lack a concerted effort to protect democracy against its dangers. Electronic voting systems need far greater scrutiny that those who are singing the siren songs of ‘progress and digitalisation’ want us to realise. It is time to plug our ears, and ask some hard questions — in every country of the world.

The workers who bought out their bosses – and secured their futures

By Aditya Chakrabortty in The Guardian


It had all been going so well. In this smoothest of seductions, John Clark and Alistair Miller hadn’t had to do a thing. There they were, itching to sell their business and get on with retirement. Then one day in the middle of 2015, this American firm – big-time, way out of their league – swung by the factory outside Glasgow and asked: what price do you have in mind? This was followed by an invitation back to the multinational’s European headquarters in the home counties.

So off popped Miller. The two sides were inching towards the dotted line when he casually inquired what the Americans would do with their new Scottish premises. This one question sent the needle screeching across the record. 

As soon as the managing director across the desk started talking about “exploring possibilities” and “transferable technologies”, Miller knew what she meant. Their Scottish operation would run for another six months, a year tops. Then it would be shut – and the order book and the technology shifted down south. And when the factory disappeared, so too would the jobs and the livelihoods of 60-odd workers and their families. Selling up would hand the owners a huge cheque, and leave their staff on a tiny giro.

“You’d be sitting back with your piles of cash,” says Clark, “but at some point you’re going to bump into those guys. Some of them have been there longer than me. I know their families.”

“Those guys” helped to build this place. Since its launch in 1986, Novograf has gone from printing signs for vans to working with some of the biggest chains in Britain. It has become expert in the branding that envelops you while shopping, eating or holidaying, but which you never take in. Walk around a Co-op supermarket, and the signs guiding you to the wine and beer or fruit and veg aisles will be Novograf’s. Pop into a Pizza Hut and the wood-look flooring will have been made and laid by Novograf employees. Stay at an Ibis Styles hotel and the big fat number on your room door probably comes from their East Kilbride factory. Then there’s Greggs, Iceland, Tesco, Waitrose …

Miller and Clark hadn’t poured six decades of their combined lives into this venture only to leave a plump carcass for others to feed on. But the two sixtysomethings had run smack into one of the central problems of British capitalism: how to ensure a company’s owners look after it. Pretty much any spiv with a chequebook can buy a business in the UK and ruin it as they want. Westminster will ask few questions, expect even less accountability, and never learn any lessons. That fanatical British adherence to open markets and property rights leaves the staff, the suppliers and the public counting for little. 

The publisher of Horny Housewives, Richard Desmond, bought the Express stable in 2000 without New Labour ministers raising an eyebrow. A once-great paper was wrecked and hundreds of journalists lost their jobs, but Desmond pocketed nearly £350m before he sold it to Trinity Mirror this year.

In 2005, Manchester United football club was snapped up by the Glazer family, who paid for it by borrowing hundreds of millions that they loaded on to the club’s balance sheet – before shifting its headquarters to the tax haven of the Cayman Islands, a 10,000-mile round trip from the club’s Old Trafford stadium.

Philip Green may strip BHS bare; Cadbury can be ravaged by Kraft; Australian investment bank Macquarie can run Thames Water into the ground then, as a reward, get the public’s Green Investment Bank. Each time owners damage a business, employees and often customers get shafted, and local economies suffer – while a handful right at the top cash in.

But Miller and Clark can tell you how much depends on the simple fact of ownership. It helps shape the business model, the ethos and culture of a company. However, even as they tried to secure a careful owner for their business, all the plausible options were a no-go.

Sell to a rival? Their staff and values would be discarded like used wrapping paper. Cash out to private equity? A green light for a corporate ransacking. Neither man’s children wanted to trudge in their dad’s footsteps, and senior management were not in a position to buy them out.

‘I could be sitting back on piles of cash. But at some point you’re going to bump into those guys. I know their families.’ John Clark, chairman and former owner of Navograf. Photograph: Murdo Macleod for the Guardian

Just then, a postcard flopped on to the doormat. “Thinking of exiting your business?” it asked. When the man from Scottish Enterprise, an agency of the Holyrood government, told them about worker ownership, he got blank faces. The biggest employee-owned firm in the UK, John Lewis, was a Novograf customer, yet all Clark knew about its structure was that once a year the company would be on the news for paying “partners” a tax-free bonus. Which was lovely, Clark and Miller thought, but what did that have to do with them?

Employee ownership is as simple as selling a company to its staff. Over 300 British firms have done it, from Arup architects to Waitrose. But it is as radical as giving the people who create a business’s wealth the right to share in it. That wealth is no longer handed over to remote shareholders in the form of share buybacks and dividends.

When Clark and Miller “got off our butts” and visited a few of the 95 Scottish firms now owned by their employees, “we learned that their productivity was higher, that they were more resilient in bad times, that they were more inclusive of all their staff”.

Giving workers control over their companies doesn’t just make the firms more successful, it also makes the workers a lot better off. Last year, the California-based National Center for Employee Ownership analysed US jobs figures and found that younger workers who are worker-owners enjoy 33% higher wages and 92% higher median household wealththan those who aren’t owners.

The British government knows much of this, because it commissioned a report that told it so. The very first line of Graeme Nuttall’s 2012 review reads: “Employee ownership is a great idea.” After lobbying by Liberal Democrat ministers, two years later chancellor George Osborne scrapped capital gains tax for employers who transferred a majority share of their business to workers. This was back when Osborne and David Cameron would hymn “the John Lewis model”.

Just like “the march of the makers” and the “big society”, the fad has left little trace. Of the 2,617 full-time equivalent civil servants at the Department for Business, not one is dedicated to promoting worker ownership, as advised by the Nuttall review. The same report also recommends “the appointment of a minister responsible for promoting employee ownership across government”. Yet this department confirmed to me that not even its most junior minister holds any such brief.

That silence partly explains why employee ownership remains so exotic. When Clark and Miller announced their idea for selling the company to their staff, they hired a local hotel, put on fancy nibbles and gave a great presentation. “The very first question we got was, ‘Have we still got a job?’” remembers Clark. “Nobody had a clue what it meant,” recalls factory technician David Anderson. “People assumed that everyone was going to have to get a mortgage to buy the company.”

Four hundred miles north of Whitehall, the far smaller Scottish Enterprise employs eight full-time staffers to promote and advise on worker ownership and other “inclusive models” of organising companies. The SNP government is full-square behind it, and the Herald, the Record and the Scotsman newspapers trumpet this Inverness holiday resort or that Hebridean jewellers being taken over by its employees.

Just two decades ago, newly devolved Holyrood paid through the nose for inward investment and prayed that the multinationals would repay their lavish subsidies with lasting jobs. They rarely did. Hewlett Packard, Chunghwa Picture Tubes and many others pulled the corporate equivalent of a one-night stand.

 ‘Everyone received a decent tax-free bonus last year, and also took part in the first-ever staff survey, which led to sick-pay and leave entitlement becoming more generous.’ Photograph: Murdo Macleod for the Guardian

Holyrood can still relapse – such as when it gifted Amazon £2.5m of taxpayers’ money and got back a distribution warehouse in Dunfermline. But Scottish Enterprise’s Sarah Deas talks of fostering a Mittelstand – a German-style dense network of medium-sized businesses that think long term and honour their social obligations.

Which is a reminder that British business is not some political monolith – that it can break left as well as right. White-haired Clark is appalled at “the FTSE guys”, the chief executives paid 100 times the average wage of their workers. “What are they doing to deserve that?”

Clark is not, he says, “some paternalistic capitalist” or a “crusader”. He’s “hardnosed”, and with Miller got a fair price for Novograf. But they’ve also taken big risks to ensure their workers could afford it. It proved impossible to raise cash upfront for the purchase price. “Not one of the major banks was interested. Not even our own.” So Clark and Miller turned themselves into a bank – handing over the company shares while allowing employees to pay them back over a few years, with interest. And with conditions: as long as the pair retain an interest in the firm it cannot relocate more than 200 miles away, “because that would defeat the entire purpose of the deal”.

At the end of 2016, all the shares in the company were transferred from the two original owners into a trust held on behalf of all staff. Just over a year later, the all-new, same-old Novograf still feels eggshelly, as if everyone is trying to gauge what’s changed. Its new managing director, Jennifer Riddell-Dillet, has to tell employees: “Remember you’re an owner.” She both manages and works for her staff, one of whom sat on the panel that interviewed her for the job.

Novografers like to tell you that this isn’t “some socialist paradise”, that there are still bosses and workers; but the priorities have changed. Formerly a senior manager for two PLCs, Riddell-Dillet says: “Public companies are only about external shareholders. There, employees are the asset of the business – but they’re a sweatable asset. Here, you think, ‘If I just drive them into the ground it will be less fulfilling, less rewarding and it will be more ruthless.’”

Everyone received a decent tax-free bonus last year, and also took part in the first-ever staff survey, which led to sick pay and leave entitlement becoming more generous. Anderson, a Novograf lifer, says: “The people on the factory floor definitely feel more in control than before. Anybody can now say, ‘I don’t see why things have to be done that way’ – and someone’s got to answer.”

That power requires some growing into. Production manager Michael Carr has become a director of Novograf, and has struggled to get his head around the accounts. And with no previous experience, Anderson and business development manager Margaret Nelson now make up half the trustee board. The other two trustees will be Miller and Clark, until they’re finally paid off. “It’s obvious that they know what they’re talking about and we don’t,” says Nelson. “Challenging your old boss is an intimidating thing.”

But employees will challenge on their expert subject: their daily work. Just last week, an employee showed Carr a cheaper and quicker way of assembling signs. They would never have spoken up before, he says, yet that one simple thing could save “a few thousand pounds in man-hours and material”.

In its first full year of employee ownership, Novograf’s sales shot up 20% and the company took on an extra 22 people. That success followed on from a strong performance in 2016, but Riddell-Dillet reckons their direct stake in the outcome did drive employees to put in “the blood, sweat and tears”.

Not all the savings are strictly necessary. Not so long ago, now-chairman John Clark, while washing his hands in the gents, reached over to the soap dispenser. He remembers a thin jet of lotion flying out – “Whoosh ... it hit me amidships” – all over his stomach. He charged over to the man responsible for ordering in supplies and told him the new soap was far too thin. While Clark stood dripping, the man nodded. “Aye, that was me,” he said. “I’ve watered down the soap by half to save money.”