Clifford Longley is a broadcaster, journalist and author and steering group member for the Centre for Catholic Social Thought and Practice. This blog was produced for the Caritas Social Action (CSAN) Dignity at Work project.
There seems to be a consensus among economists that neoliberalism is dead, at least as an infallible doctrine. It continues as an influential legacy, however, largely because it has not been replaced by anything nearly as simple and compelling.
Its great advantage is that it does not rest in any particular moral consensus. When the foundation documents of neoliberalism were being written, Adam Smith's Wealth of Nations and its associated volume, his Theory of Moral Sentiments, he would have taken it for granted that the society he was writing about had certain unsproken moral norms. They were, so to speak, part of the wallpaper, things everybody took for granted.
Behind them lay more than a millennium of Christian history and culture. To extract his economic theory from that moral context, to let it stand alone, is to ignore what Smith would have taken for granted as the bedrock on which it is built. He would have rejected an amoral view of economics. Yet the advantage of modern neoliberalism is precisely that it appeals to a secular world, one that is not wedded to any particular philosophical or religious view of the purpose of human life. It is also the fundamental flaw that ultimately undermines it.
Neoliberalism and morality
Neoliberalism, sometimes called market fundamentalism, drove the world economy to the edge of the precipice in the crash of 2008. Yet it was an article of faith to market fundamentalists and neoliberal economists that this could never happen. Enormous damage – up to $30 trillion’s-worth – resulted. The world was saved from even worse only by government intervention at vast expense. The public is still paying the price. Neoliberalism is plainly not a scientifically sound economic theory.
Critics agree the solution lies somewhere in the area of morality. The basic flaw in the system was not just about personal greed, but about the idea that free market forces need not be, and should not be, deflected by scruples about their consequences; in other words that economics has no need of morality, that “the business of business is business”, and that what matters is the short-term maximisation of shareholder value.
Some neoliberal economists still believe that to be true, or at least act as if it were. Much of the furniture of modern economic life was put together when neoliberalism was the unchallenged orthodoxy.
The selling-off of publicly owned industries and services under Margaret Thatcher's and John Major's governments produced new corporate institutions which were neoliberal in character. They existed to make a profit. Regulation by the state, such as it was, was primarily designed to encourage competition and prevent cartels. As Adam Smith himself noticed, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public."
Latter versions of "political economy" added the assumption that free-market systems were self-regulating, that is to say the State did not, and normally should not, intervene on the side of some external interests; and that they were efficient, that is to say they would automatically extract the greatest value from the resources available.
Clause 172 and the legacy of free market economics
So where, apart from the structure or privatised industries, does the legacy left by free market economics from the days when it was unchallenged, now chiefly reside?
In Britain, the somewhat surprising answer lies in Clause 172 of the Companies Act. It was passed by a Labour Government in 2006, two years before the great crash called neoliberalism doctrine into question. It was meant to bring about the humanisation and remoralising of business practices by insisting that companies had to operate within a socially responsible framework. Apart from the direct shareholders, Clause 172 said that a business had responsibilities – albeit limited – to a series of other "stakeholders" such as employees, customers, suppliers and the community. It was a fashionable progressive cause at the time, sometimes known as the "stakeholder movement".
Although all companies registered in Britain are required to pay lip service to it, the clause has made at most a marginal difference to boardroom decision-making. The passing of the act was the high point in the life of the stakeholder movement. The government promoting it was a Labour government, though it was anxious not to be seen to be unfriendly to business interests. So the attempt to make business socially responsible by law was watered down to the point where it became marginal – where it remains. The imperative to promote the interest of shareholders swamps any other deliberation.
It was, on short, a feeble attempt to reign in neoliberalism in the name of the public good, and it largely failed to do so. Apart from anything else, company directors are also usually shareholders in the business, yet such conflicts of interest are ignored by Clause 172.
Clause 172 refers to the duty of the directors of a company to its members, that is to say to its shareholders. The language of "a company" and its "members" dates from the origins of company law in the middle of the nineteenth century. A company was a group of investors, companions or partners so to speak, who came together to promote a business venture by putting up the funds. They were individually and collectively liable for any losses, and if the business went bankrupt it could take them down with it.
It was to address this, and encourage such activity, that the concept of limited liability was invented, protecting individual investors and allowing the enterprise to take greater risks without threatening their personal ruin. The company became an entity with a legal personality of its own, for instance so it could enter contracts and sue and be sued – including by its own members. But it could not be sued by stakeholders. They had no legal rights.
Clause 172 (1) states:
Duty to promote the success of the company
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company's employees,
(c) the need to foster the company's business relationships with suppliers, customers and others,
(d) the impact of the company's operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
In the spring and summer of 2025 the Department for Business and Trade (DBT) commissioned Ipsos "to conduct qualitative research with executive directors and company secretaries of large companies to understand their perceptions of Section 172 of the Companies Act (2006), introduction of the requirement to publish a 172 (1) statement in their annual accounts, and the impact that these have had on company decision-making."
The report concluded that the impact on decision-making was minimal, though directors did not in principle reject the case for considering the effects of their decision on stakeholders other than shareholders. Many said they would anyway, without a legal obligation. But it added "The lack of legal enforcement and accountability of directors to stakeholders means s.172 is regarded with lower priority and minimises its actual influence on decision making. As directors pointed out and was highlighted in the literature review, companies can operate in ways that are not compliant with s.172, without suffering any legal consequences."
This seemed to confirm the judgement, quoted in a research paper published by Durham Business School in 2016, that "The high-point of the stakeholder movement in British business is probably represented by the reform of the Companies Act in 2006, and the failure of that reform to deliver much of anything may explain the subsequent decline in interest." This was actually a quotation from Just Money, How Catholic Social Teaching can Redeem Capitalism, (Theos 2014) by the author of this paper, Clifford Longley.) In other words Clause 172 has not redeemed capitalism, which remains committed to the interests of its shareholders if necessary even at the expense of other stakeholders.
‘The business of business is business’
At the high point of neoliberalism its essential point was contained in the aphorism, coined by Milton Friedman in 1970, that "the business of business is business."
This became the central pillar of both Thatcherism and Reaganomics, known on the continent of Europe as the Anglo-Saxon model. Its international version became known as the Washington Consensus. It forces less developed countries applying for developmental assistance from bodies like the World Bank or the IMF, for instance in order to be rescued from high levels of international debt, to apply the principles of neoliberalism to their own economies, sometimes with disastrous consequences for their own populations.
The birth of free market theory
The birth of free market theory is usually dated from Adam Smith's Wealth of Nations, published in 1776, which contained the well known proposition that the collective public good emerges automatically from the individual pursuit of private goods. It has various popular versions, from "a rising tide lifts all boats" to "greed is good", and so-called "trickle-down economics".
What Smith actually wrote is that an individual businessman "by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."
The dignity of work
There was no sign of this "invisible hand" when the pursuit of personal gain, disregarding the public good, brought Western financial capitalism almost to the brink of collapse in 2008. (And the word "frequently" is frequently overlooked in economic textbooks, implicitly replaced by something more like "invariably").
Something more drastic is clearly required, and this has to be addressed if the United Kingdom is not to continue with a flawed business model that reflects out-dated economic theory. Productivity, for instance, has for decades lagged far behind profitability in the British corporate sector, yet productivity is the key to economic growth. Is there, for instance, a connection between productivity and how the average business regards its workforce?
Does that workforce feel disengaged, and could that be because the maximisation of shareholder value is of little interest to the average workers except in so far as it continues to provides them with a wage or salary?
Is there a way of overcoming that alienation, so that workers feel valued and involved and can understand that their interests and the interests of shareholders are aligned rather than opposed? There is, and the Durham Business Schol paper spells it out.
The issue of "dignity of work" is key to that transformation. And at its heart is a realisation that wealth creation is not the product of capital alone but of a collaboration between capital and labour.
Such an idea would have been beyond the imagination of most 19th century entrepreneurs. Capital was the asset they possessed, often in the form of land and inherited wealth. They were the masters. Labour was work done by servants, hence the master-servant relationship became the standard way to understand the relationship between a businessman and those they employed. Assumptions about class, indeed of breeding, were implicit in those assumptions. The idea that a worker "owned" his own labour, and that that ownership gave him rights at least equivalent to the rights of those who owned capital, would have been incomprehensible at the time.
Employees as company members
A working paper from Durham Business School, written in collaboration with the Centre for Catholic Social Thought and Practice, proposed that Clause 172 be rewritten to recognise this radical equality.
The paper proposes simply that employees (at least those of some length of service) should be included as "members of the company" whose interests is it the duty of directors of the company to promote. It adds: "The interests of employees and long-term shareholders in the success of a particular enterprise are for the most part aligned, in a manner that does not necessarily apply to other stakeholders, with whom there is greater scope for conflicts of interest. Both employees and long-term shareholders can profit from the success of the enterprise without doing so at the expense of the other."
Such an amendment would make it easier for a company to adopt a formal "purpose" as part of its terms of reference and constitution, as at the moment the concept seems at odds with the maximisation of shareholder value (which is already the implicit purpose of the business.) But a joint purpose, properly understood and publicly declared, could go a long way to motivate a workforce.
The comparison could fairly be made with wartime experience, when factory workers felt they were contributing to the war effort and were regularly prepared to go beyond the call of duty. They had a motive to push their output and their productivity to its maximum.
Conflict or collaboration?
There were high hopes that the 2006 Companies Act reform would energise business culture and persuade it to turn outwards, understanding its place as a good citizen in the community at large. Many companies already do that, though they still have a model of industrial relations which is in essence adversarial. There are some who prefer it that way, for whom industrial relations are still conflictual by nature, a localised stage for the conduct of class war.
Clause 172 as it stands seems to justify that implication, for it invites directors, many of whom are also shareholders, to take a zero-sum approach to the interests of their employees – what is given to the employees in wages and salaries has to be at the expense of shareholders in dividends and enhanced share price.
If they work together to increase the size of the cake, as it were, there would be more for everybody. But more importantly still, making them members of the company alongside shareholders would dignify workers in their own eyes and the eyes of shareholders. They would cease to be "hired hands" and become equal partners. They would see improvements in productivity not as an unwelcome imposition but as serving their own interests.
The challenge of integrating AI into working practices in particular will be difficult if it is seen as a threat. On the other hand the successful implementation of AI will call for maximum ingenuity and flexibility from the workforce. The greater the sense of participation and partnership the workforce acknowledges and is acknowledged, the better will be the result.
The Durham paper is an application of Catholic Social Teaching to the world of business. It leads to the moral claim that workers enjoy a natural right of membership of the company or group that employs them, as natural as their right to own their own bodies. Legal recognition of this natural right would permit companies to adopt a corporate purpose beyond the pursuit of shareholder value, which is unlikely otherwise to take place.
Directors are required to promote the success (not simply the profits) of the company for the benefit of its members (not simply its shareholders). Automatic worker membership would empower directors to pursue the success of the enterprise in which long-term shareholders and workers have a common interest. In this sense workers could begin to understand that they are working for themselves as well as for the owners of the business. This could be a powerful motivating factor, and make it easier to understand work as a contribution to the common good.
Nevertheless such recognition would not be sufficient without some transfer of sovereignty over takeover decisions from shareholders to directors and workers. Directors would need to be free to pursue the success of the enterprise without the threat of hostile takeover. Furthermore, since an enterprise may be worth more to shareholders dead than alive, the consent of workers would be needed to takeovers recommended by directors.
A company has no natural right to the privileges of a human person. Limited liability was intended to protect people from ruin, not to permit the shirking of responsibilities to stakeholders. Parent companies should be held liable for the obligations of their subsidiaries.
A change in the understanding of the nature of property in companies is needed. The right to own property is not unlimited, but subject to responsibilities that arise from it. These proposals are a feasible and incremental move towards a fairer and must just society which respects the dignity of people and so generates a fair return for responsible investors. They are also key to economic growth, which the existing model of capitalism, represented in Clause 172, is manifestly finding very difficult.
A new model
What is being proposed is not the adoption of the John Lewis model, where a business is owned by its employees, nor the Co-op model, where a business is owned by its customers, and nor is it the Nationwide model, where the business is run for the mutual benefit of its customers. They are all fine models which clearly work.
But this approach recognises the moral equivalence of labour and capital in the conduct of a business, showing that wealth creation is the product of collaboration between the two, and that shareholders and workers have similar interests.
Not all workers can be present at every board meeting, obviously, so some system of democratic representation would have to be created. The exact role of trade unions, where they exist, would have to be worked out and they would have choices to make. Do they want to handle the process of democratic representation, or would they prefer a separate process, independently organised? There are models available that could be adapted from abroad, especially from Germany.
Could this model be applied to the public sector? There are already examples of it, for instance in the constitution of National Health Hospital Trusts, where the shareholder is the state and maximisation of profit is not the purpose of the enterprise. But many hospitals get their model of industrial relations from the private sector, where the assumption is an adversarial relationship between labour and capital.
The proposed changes to company law outlined here would alter how industrial relations are conducted in the private sector and therefore alter the model that the public sector would follow.
From drudgery to vocation
Above all these changes would respect and enhance the dignity of work, elevating it from drudgery to vocation and making all employees participants in the success of the enterprise. It is well known that job satisfaction is a major influence in what motivates and dignifies workers, and making them co-responsible for the governance of a business would reinforce a sense of partnership and pride in what they do. That way lies increased profit, economic growth, and improved productivity.
The present neo-liberal model of company governance is harmful to business, harmful to workers and harmful to the national economy. It belongs in the 19th century, where it originated. It belongs to a theory of economics which is discredited.