The profitable message in the Social Chapter: Christopher Haskins, chairman of Northern Foods, urges companies and the Government to invest in a fair society

THE key political argument in Britain and the European Union today ought to be about finding the correct balance between the market and democracy for the late 20th-century, post-communist Europe. One answer might be what is sometimes referred to as the 'Inclusive Company'.

The liberal capitalists seek a return to the unfettered world of the early 19th century, when the demand of the market was all that mattered. The social democrats, typified by Germany and Scandinavian countries, insist that social justice must not be undermined by the workings of the market.

The dogma of Thatcherism proclaimed the sanctity of the entrepreneurial businessman. If he was restrained by trade union pressure, legislate against the unions. If he wanted to make an unsolicited takeover, however dubious, he should not be hindered. The state should have no investing role in the economy - so let the infrastructure collapse. If entrepreneurs wanted to pay themselves plenty, and resented taxation, then they must have their way.

A lot of damage has been done, economically and socially, as a consequence of the Thatcher experiment. The widely proclaimed economic miracle of the late 1980s has proved a mirage - concocted from the bonanza of North Sea oil, an inevitable recovery from the traumatic recession of the early Eighties, and the reckless free-for-all economic policies of Lawson in 1987/88. After 15 years we continue to underperform against our social democratic neighbours, and have greater social problems as well.

The liberal capitalists hoped that entrepreneurial Britain would also be philanthropic, and that the benefit of the economic miracle would trundle down to the poorest people in our society. Sadly, the gap between rich and poor has widened in Britain for the first time in a century, and some 20 per cent of the population are suffering varying degrees of poverty.

The European social democrats on the other hand, despite the present recession and high unemployment, have outperformed Britain economically, and socially have continued to narrow the gap between rich and poor.

The liberal capitalists argue that the most effective way to economic prosperity is to minimise the responsibility of the state and the company for the promotion of social justice. The social democrats argue that as social justice is an essential element in achieving economic prosperity, both the state and the company must actively invest to improve opportunity and fairness in society. This is at the core of the argument about the Social Chapter.

The Royal Society for the Arts initiated an inquiry into the state of the British company and in a recent report proclaimed the merits of 'the Inclusive Company', which recognises its responsibilities to its staff, its suppliers, its customers and the community, as well as satisfying the needs of its investors. This concept, extensively practised in Japan and the most successful European democracies, is claimed to make good business sense while promoting fairness.

The aspirations of the Social Chapter of the Maastricht Treaty are not dissimilar. Here the priority is to increase job opportunities, but it also seeks to improve hiring and working conditions, promote dialogue between management and workers and investment in training, and attack discrimination. It is sad that a modern British government cannot subscribe to such objectives.

Opponents of the Social Chapter argue that companies should be responsible for minimal social obligations to their staff. If you can successfully exploit people through low wages and lousy working conditions, good luck to you.

Ironically, the resulting abuses have to be ameliorated by the state through the benefits system and the health service, necessitating additional personal taxation - at which point there is an outcry about the excessive costs of social security.

The belief that Britain's economic prosperity should rely on companies that pay low wages and are not committed to improving the skills of staff is surely inappropriate for a developed western democracy.

Most successful companies recognise this and, on their own initiative, pay decent wages, make proper social provisions for staff, do not discriminate and invest heavily in training. The problem is that, compared with other social democracies, Britain is very short of successful companies. Lacking skills and investment, the country cannot compete with its developed competitors and, of course, it is impossible for low-skilled Britain to succeed against the low-cost developing world.

So a sensible government would support the general aims of the Social Chapter and endorse the concept of The Inclusive Company. It would restrain companies from exploiting staff and require them to contribute substantially towards the welfare of their staff, thereby promoting justice and reducing the state's social security burden. It would encourage co-operation with suppliers - many of them small companies - rather than condone the confrontation and exploitation that still prevails. And it would promote a greater link between companies and the communities in which they operate.

German companies have been required to assume extensive social and educational responsibility for their staff since the days of Bismarck. Japanese companies thrive on close alliances with their suppliers. In America, large companies closely identify with the cities in which they are based. This is in sharp contrast to Britain where the majority of large companies choose to locate their headquarters in faceless, overcrowded London, denying themselves any sense of community.

The western world is undergoing a jobs revolution, where technology and social change are reducing the need for unskilled work, and full-time male employees are being replaced by part-time women workers. Institutions and labour laws must recognise these changes and adjust to them. But government must also ensure that the less-structured, small, service companies do not abuse both their staff and the state's benefit system just because the supply of unskilled labour exceeds demand.

Unfettered liberal capitalism only respects the demands of the market. The deregulated British stock market, putting a greater emphasis on dividends rather than reinvestment, and preferring the rewards of takeover speculation as opposed to long-term investment in new products and technology, distorts the thinking of too many British company boardrooms.

Supported by government action - in areas such as income tax distortions and incentives, takeover regulations, and the promotion of good business principles - companies should realise that if the needs of customers, staff, suppliers and communities are satisfied, then the investors are also bound to prosper. To promote investors' needs alone, or in preference to other stakeholders, is bad business strategy and bad for the cause of fair play and social justice.

(Photograph omitted)