We’ve just sent in our submission to the European Commission’s public consultation on its trade policy. The consultation covers everything under the trade sun, and so does our long submission.

It’s not exactly weekend reading, so I’ll pick out one of the more juicy issues (and award a prize to anyone brave/sad enough to read the whole thing): the EU’s new investment powers under the Lisbon treaty.

EU member states currently have about 1200 bilateral investment treaties with other countries, but under Lisbon, Brussels get the power to make new Europe-wide treaties. These little known treaties typically protect foreign investors from expropriation or discriminatory treatment by host states, and have been notoriously one-sided in their favour. Now the EU has the chance to balance out these treaties, by inserting some obligations on investors, and in doing so, close the “governance gaps” that lead to so much business abuse of human rights, particularly in the developing world.

As the (endlessly quoted) UN Special Representative on Business and Human Rights, John Ruggie, puts it:

“The root cause of the business and human rights predicament today lies in the governance gaps created by globalization – between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences. These governance gaps provide the permissive environment for wrongful acts by companies of all kinds without adequate sanctioning or reparation. How to narrow and ultimately bridge the gaps in relation to human rights is our fundamental challenge.”

Such “wrongful acts by companies of all kinds” keep clogging up my inbox.

Europe’s best chance to help meet the fundamental challenge that Ruggie spells out would be to require investors under these new investment treaties to respect fundamental international human rights and environmental norms, through having an enforcement mechanism with teeth. At the moment, we have a small land army of international voluntary guidelines, tools, initiatives, compacts and standards, but nothing with real bite.

But rather than taking this “best chance”, the Commission’s recent communication on the topic looks a lot like business as usual. The only reference to investor obligations is a non-binding one to the non-binding OECD Guidelines on Multinationals in the non-binding preamble – language that might make some of the drafters feel warm, but will have no tangible effect on anyone, anywhere.

Further, the EU will most likely seek to use “Investor-State” arbitration process to resolve disputes under these new treaties. This means that investors can by-pass the entire domestic legal system of host states, to seek to enforce their rights in an international arbitration panel, with notoriously opaque procedures, no right of appeal, decided upon by arbitrators drawn mostly from the ranks of overpaid international investment lawyers.

Positive discrimination by the South African government to combat the legacy of Apartheid? Bolivia’s reclamation of its water supply to ensure the poorest can get access? Both actual disputes would have been ruled illegal by arbitration panels if global public pressure hadn’t forced the investors to back down.

EU member states, MEPs, Commission officials still have a chance to amend this communication and there are many options in front of them. They could scrub out reference to the arbitration panels, and make investors use the courts of host states. If investors can prove that the legal system isn’t fair or doesn’t work – allow them to use the legal system of the home state, but also give those affected by human rights abuses by foreign investors the same rights. Give workers and affect communities workers the same rights to sue in host and home state courts.

If this balanced approach is too much for some in Brussels to stomach, then the new investment rules should at least demand that investors can only step foot inside arbitration hearings in Washington if they have adhered to the OECD Guidelines on Multinational Enterprises.

As I’ve been leading the TUC’s development of science policy for a few years, it would be remiss of me to let today pass without wishing the best of luck to the many physicists working at the Large Hadron Collider at CERN, on the French-Swiss border. Today is the day that scientists at CERN will attempt to collide beams of protons at high energy. The aim is to recreate conditions that occured microseconds after the Big Bang, when the earth was formed.

This is the most important scientific project since the Moon landings. It would not have been possible without the work of thousands of physicists, many of them trade union members, from the UK and across Europe.

It is particularly timely that, in the UK, today’s development coincides with the beginning of a General Election campaign. That campaign is likely to be dominated by arguments about cutting the deficit, securing the economic recovery, jobs, immigration and crime. Science will no doubt come much lower down the pecking order. Yet whoever forms the Government after 6th May, I hope they give scientific endeavour the priority it deserves.

Britain’s public spending on science has doubled in real terms over the past 10 years, to more than £6bn. That’s impressive, whichever way you look at it. Gordon Brown has recognised the value of science to building a modern economy. We have an excellent Science Minister in Paul Drayson, who has worked with the TUC in recent months.

Yet science has also suffered funding shortfalls. This has hit programmes including research into breast cancer, agri-engineering and animal diseases. Research into climate change, pollution and diversity all face substantial cuts.

Meanwhile, Adam Afriyie, the Conservative Science Spokesman, was quoted in the London Evening Standard on 8th February as saying: ”Right now, our country is virtually bankrupt, so major science budget cuts are inevitable.”

Trade unionists take a close interest in science. After all, it was a member of a TUC-affiliated union, Prospect, who, while working at the British Antarctic Survey, discovered the hole in the ozone layer. So we will be watching all three parties over the coming month, as they set out their pitch to run the country. For us, the biggest priority is entrenching the recovery. After that, it is building an economy, based on modern, high tech, high skill industries, that can compete in the era of globalisation. It’s difficult to understand how that can happen without continued investment in science.

Add in the need to attract more kids to study science and the role of science as a fundamental part of human endeavour, and the case for science is very strong. Politicians, please take note!

Deemed irrelevant prior to the financial crisis, the IMF was given enormous powers by the G20 to resolve it. But in light of statements it made earlier this week, trade unions are wondering whether world leaders have put a fox in charge of the hen house.

At the end of April, the IMF will give an interim report to G20 Finance Ministers on their efforts to build “strong, sustainable and balanced growth” and outline options on how the Banks should help pay for the mess they got us in. In a worrying omen of what their conclusions might be John Lipsky, the second in charge at the IMF, said earlier this week, that to drive growth, “…liberalization of goods and labor markets and the removal of tax distortions… should be pursued vigorously”. As the global trade union movement’s statement of priorities for the meeting makes clear, the world is crying out for millions of green and decent jobs, not the cutting of taxes and slashing of workers’ rights.

Active interventions in labour markets are working. According to the ILO, some 12 to 14 million jobs have been saved through initiatives such as shorter working time, youth job guarantee schemes and decent income protection. As its recent World of Work report shows, countries that have done so, such as Brazil, Australia, Germany and Jordan have weathered the storm, while those with deregulated labour markets and limited social protection schemes haven’t.

The conclusion is that keeping people in work is keeping the economy afloat, but only just. That’s why the UK’s government’s commitment to extend the jobs guarantee scheme for young people – the hardest hit by the crisis – is so important.  

And so is collective bargaining. It enables workers to collectively come up with sensible compromises with management in tough times to keep people in work. For a statistical feast on how good industrial relations drives productivity, morale, and economic recovery check out the TUC’s recently published pamphlet, The Road to Recovery. 

Globally, the decline in the proportion of workers covered by collective bargaining arrangements over the past three decades is a key reason why economic growth has left the majority of people behind. As ordinary workers have lacked bargaining clout, their wages have stagnated and income inequality and the social hardship that comes with it have been rising. In many countries this has driven the dangerous reliance on debt to finance household spending that was responsible for the financial crisis.

The IMF would do well to understand the human cost of deregulated labour markets. In the UK’s white meat sector, weakened employment rights has only led to miserable working conditions for the mainly migrant workers employed there. As the recent EHRC’s inquiry into the sector shows the precarious status of these agency workers has made them vulnerable to bullying and harassment, forced overtime and poverty wages. And how many of the 260 workers interviewed preferred this deregulated and flexible arrangement? You only need one hand to count this one – four of them.

Instead of slashing workers rights and removing “tax distortions”, we need serious public investment to create jobs. The ILO estimates that, despite positive government action, some 34 million jobs have been lost globally since the financial crisis began. An estimated 215 million workers and their families have been pushed into extreme poverty by the financial, food and fuel crises – getting by on less than $1.25 per day. Joblessness is likely to continue well into the future, despite initial signs of recovery. In some countries, as the ILO and the OECD’s forecasts show, unemployment will not reach its peak until well into 2011 at the earliest. Globally, over 300 million new jobs will need to be created over the next five years to return to pre-crisis levels of unemployment.

Who should foot this bill? At Pittsburgh in September last year, the G20 gave the IMF the job of coming up with options on how the finance sector should “make a fair and substantial” contribution to pay for the crisis. It will report back to Finance Ministers at the end of April. Given the scale of the task ahead of us the IMF needs to seriously consider a Robin Hood Tax, or we need to seriously consider getting this fox out of the hen house.

There are two interesting corporate governance developments hidden in the detail of the budget report. Mandatory disclosure by institutional investors of how they cast their votes at company AGMs has been a long-standing TUC aim that we have campaigned for over many years. We have edged closer to achieving this today, as the budget report (chapter 3, page 40) says that the Government will consider using its power taken in the Companies Act 2006 to require public disclosure of voting records for institutional investors.

When this was discussed during the passage of the Companies Bill (as it was at the time) through Parliament, it was lobbied against by all the organisations representing asset managers. In the aftermath of the financial crisis and the belated but welcome recognition that there is a public interest in shareholders carrying out their governance role towards companies effectively, it will be interesting to see what stance these organisations take this time around.

The Government also states that it will consult on further measures to ‘facilitate the consent, by owners, of executive remuneration in the financial services sector’. An obvious step would be to make the results of AGM votes on company remuneration reports binding upon companies; at present, the vote is just advisory.

However, ‘shareholder consent’ for excessive pay packages has proved all too easy to achieve in the past; in 2007, before the financial crisis broke, remuneration reports at UK banks achieved the support of over 77% of votes cast. Even in 2009, after the bail-out of the banks, only 36% of votes were cast against bank remuneration reports, considerably lower than the 47.8% cast in favour.

Unless shareholders change the way they assess executive pay packages, obtaining ‘shareholder consent’ is unlikely to act as a dampener on either the levels or rates of increase of executive pay in the financial sector. To address this, it is essential that pension funds and other fund manager clients make it clear they would like to see their fund managers take a much tougher stance on executive pay. For example, we’d like to see the ratio between pay at the top and the bottom of a company form an important part of shareholders’ assessment.

I’m rather disappointed by the immediate reaction to the Budget from the CBI. They do seem to have missed the target again.

In his response, Richard Lambert, CBI Director General, has called this a “clever, political Budget”, expressed anxiety about the repaying of the deficit and welcomed support for business as “modest but helpful”. He then adds, intriguingly, “However, it is the fiscal decisions over the next twelve months that will really determine the UK’s economic future.”

Surely that’s too simplistic?

There are a huge number of factors that will determine the UK’s economic future. By setting a course for investment in strategic, green industries today, the Chancellor has established an exciting direction of travel for UK industry. Richard Lambert himself mentions the extra money for science places at university, which will be part of a drive for UK excellence in industries that provide growth, competitiveness, exports and jobs in the years to come.

These announcements are very welcome for the TUC. And given the many manufacturers in the CBI, surely they are welcome at Centre Point as well?

None of us like paying tax. But if the deficit is a cause for anxiety, it is inevitable that tax must play its part in getting the books in order. Saving £11bn through greater “efficiency”, as the Chancellor announced today, stretches credibility to breaking point. These cuts will hit our communities hard, yet it seems that the CBI would rather they take even more of a hit than for people, including some very well paid people, to contribute a bit more in tax.

This will be a key debate throughout the election campaign and beyond. The TUC will argue against cuts which threaten the fabric of our society. And in favour of progressive taxation, where those who can pay more and those who did most to cause the downturn (who are often the very same people) pay their fair share.

In today’s Budget, the Government took a further step towards supporting strategic industrial sectors. Many of  those sectors will be ‘green’, both because there is a huge future in those sectors and because it is simply the right thing to do.

Central to this development is the £2bn Green Investment Bank, operating on a commercial basis  and involving public and private sector capital. The GIB’s mandate will be to invest in the low carbon sector, considering new energy and transport projects in particular, and focusing initially on offshore wind generation.

The TUC had called for a £5bn strategic investment fund, taking minority stakes in strategic companies, in pursuit of long term growth and competitiveness. We didn’t get everything we wanted – but this is a very important step in the right direction. Surely the days of laissez faire industrial policy, when only the “market” decided what was in the country’s economic interests, are well and truly behind us?

This announcement comes after the £20.7m investment to support Nissan’s development of electric battery and car production, which wll support 550 high skilled engineering jobs. Ford has also been supported with a £1.55 billion loan guarantee to developer greener engine and vehicle technology.

Another key announcement today was up to £60m for the development of port sites, to meet the needs of offshore wind turbine manufacturers looking to locate new facilities in the UK. This will help secure investment for offshore wind in the UK, and support jobs in the wind energy sector and its supply chain.

I see a theme developing here. Following ‘New Industry, New Jobs’ and then ‘Going for Growth’, the Government is becoming more and more committed to developing those industries, including in the ‘green’ sector, that are vital to the UK’s prosperity in the globalised economy. This approach came later than we would have liked, but we are glad it is here at last.

As political attention turns towards next week’s Budget, I was happy to be asked to comment on the needs of industry for Left Foot Forward. Regular readers will know of the TUC’s recent call for a French style strategic investment fund, with a £5bn budget, taking long term stakes in strategic companies. However, access to finance for companies, especially green tech companies or those that will improve the nation’s infrastructure, must be a priority as we move out of recession. I hope the Chancellor takes the opportunity to address this vital issue.

It is a sign of the pressure being felt at the heart of the eurozone that France and Germany, the main drivers of the European project, have had such a public spat in the last 24 hours. Yet the subject of that spat is a subject that has exercised many an economist as the economic downturn has progressed.

To recap, France has argued that years of moderate wage rises in Germany has raised the competitiveness of the latter country at the expense of its neighbours. Christine Lagarde, the French finance minister, has told the Financial Times that Germany should raise domestic consumption, helping weaker eurozone nations to boost exports and shore up their finances. Germany has responded by arguing that its success is based on strong companies and has suggested that other countries would be better off building their own industrial sectors in the German fashion than crying foul about German success.

Who is right? Well, both.

The TUC has argued before that the imbalance between producer/exporter countries, such as Germany and, even more obviously on the world stage, China, and consumers, particularly the US but also, to a lesser extent, European countries such as the UK, is unsustainable. It’s all very well for Germany to say that others should follow its lead, but if we all tried to produce and export as much as Germany does, while dampening down domestic consumption, supply would massively outstrip demand. The situation in the world automobile industry, where more cars are  produced than people can buy, but no producer wants to cut supply, would be a microcosm of the economic dilemma facing the world.

Having said that, which of us could say, hand on  heart, that if we had an economic model as successful as Germany’s, especially German levels of industrial success, we’d voluntarily dismantle it?

In recent years, the TUC has called for policies to rebuild Britains industrial base. The aim was not particularly to build an industrial infrastructure to rival Germany’s, which would be setting the bar incredibly high, but to balance our economy away from an over-reliance on financial services and towards more strength in manufacturing and green-tech jobs. Most recently, we called for the establishment of a Strategic Investment Fund, based on the French model, to help build some of those industries. Later this week, we will call for a Budget for growth to be unveiled by the Chancellor on 24th March. We know the Government has more than a passing interest in the type of industrial investment banking that exists in Germany. All of this augers well. Were the UK, and other countries, to eventually improve their industries to the extent that they threatened German dominance, we might need to think about a European industrial policy, so the beggar thy neighbour approach that was taken by countries with regard to Vauxhall/Opel last year does not become the norm. In this sense, France’s criticism of Germany hits the mark, in my view.

What is more, I’m glad that Christine Lagarde raised the issue of German wages. In a way, Germany would be justified in saying that this matter is none of her business, but as the TUC is a member of both the ETUC and the ITUC, and as this has been an issue for German trade unions for so long, I feel justified in commenting. Economic commentators have got so used to presenting wages as a cost, and portraying trade union negotiators as wanting to undermine companies’ success when they bargain for pay increases, that many have forgotten the importance of wages. Of course I declare an interest, as a trade unionist. But wages equals demand for goods and services, and demand for goods and services means a well-functioning economy. What is more, the wages of the lower paid equals proportionately higher demand, as well as social justice. Ministers imposing public sector pay freezes in the mistaken priority of early action to tackle the deficit, please take note. Conservative politicians and European Commission officials who want even earlier/more aggressive action to cut the deficit, please do likewise.

“One Creme Egg please.”

“That’ll be 50p, sonny.”

“I don’t have any cash.”

“Well, I’m afraid you kind of need to…”

“What if I paid you £5 later?”

“What?”

“My Dad’s good for it.”

“But…”

“Hold on…” (dials on MyFirstBlackberry) “Dad, are you okay to lend me a fiver if I need it?”

“What for?”

“I want to buy a Creme Egg.”

“What?”

“A Creme Egg. I’ll give you back a tenner after school.”

“How?”

“You just need to persuade the shopkeeper. Hold on, I’ll pass you over…”

“Hello sir? Your son says he wants me to give him credit on a Creme Egg. ”

“I’m sure it’s fine. Don’t worry, I’ll sort out the money if he can’t come up with anything.”

“Hmm… This isn’t how we normally do it, but here you go then…”

(Child eats egg. Rolls up wrapper. Hands it back to shopkeeper)

“What’s that for?”

“Payment. It’s a Collateralised Confectionary Obligation. Good for fifteen quid.”

The Cadbury/Kraft deal repeats all the same mistakes that generated the downsides of the last twenty years:

1. It’s a deal done to enrich shareholders rather than for the benefits of the company;

2. It’s a deal recommended to shareholders by people with a massive vested interest in the deal going ahead (notably the Board and a mass of consultants);

3. It’s a deal that relies heavily on borrowed money to fund the buyout;

4. It’s a deal that allows the supposedly free operation of the market and its benefits to trump other issues such as national identity, job security, and quality of produce even though we know that the mergers and acquisitions have a poor record of improving company performance;

5. And it’s a deal which goes through because it is largely supported by short-term investors after a quick buck than those with a long-term interest in the company.

Maximum discomfort now needs to be felt by Kraft and by those who will benefit from this deal. Only through public and media pressure might we be able to stop another era of pointless and damaging mergers and acquisitions.

The vested interest that drive this activity deserves to be as big a scandal as the bank bonuses.

Industrialists have some reason to cheer after today’s publication of the Pre-Budget Report.

The PBR contained an additional £200m for the Strategic Investment Fund, the body set up in this year’s Budget to support the ‘New Industry, New Jobs’ initiative.

Only £100m of this is new money, so a word of caution is necessary. If the other £100m has been redirected, we need to see where it has been redirected from before giving a hearty welcome. What’s more, £200m is hardly a King’s Ransom. Nevertheless, there had been no indication of more money to follow the initial £750m allocated to the Strategic Investment Fund in April, so some money is better than no money.

£150m of this cash will go towards low carbon projects and will form part of £400m over the next two years to support green growth. Among the projects supported in this wider initiative, £50m will be invested in the development of the UK offshore wind industry, £40m in low carbon technologies and £30m in green transport projects.

Industry policy is clearly going in the right direction. Green technology will be a crucial part of the manufacturing sector of the future, so it is vital that Government prioritises it now. Of course, green industries are not confined to overtly environmental technologies, such as the building of wind turbines. Ensuring that our automotive and aerospace industries are able to build greener cars and aircraft must be central to future industrial support.

Tucked away in the full Pre-Budget Report is the announcement that later this month, the Government will publish a Policy through Procurement Action Plan, which will demonstrate how the Government will use procurement to deliver policy priorities around apprenticeships, skills and youth unemployment, SMEs and low carbon resource efficiency to stimulate economic growth. This is a major victory for a very long trade union campaign for exactly such a procurement policy.  I will wait to see the wording of the Action Plan before giving it a full welcome, but today’s announcement is important news.

Hold the front page! Actually, the Financial Times did hold a bit of the front page. This is for the shock news that the CBI, Britain’s bosses organisation, has, in the FT’s words, “backed Conservative plans to cut the budget deficit swiftly and sharply”.

Before continuing, I should confess that I have a few chums in the CBI. For five years now, I have represented the TUC in meetings with government on manufacturing industry, among other things, and my CBI counterpart and I usually agree much more than we disagree.

But this is serious territory.

In it’s submission to the Government on the Pre Budget Report, the TUC has questioned the urgency of deficit reduction, compared to our number one priority, entrenching economic growth. However, we accept that the deficit must come down eventually. The questions are when, and over what period?

The TUC submission puts forward a number of tax options that we believe are preferable to spending cuts or tax rises. Where does the CBI stand on this? And if the CBI supports spending cuts and tax rises, to repay the deficit, which cuts and which rises?

I’d love to be wrong on this, but I don’t imagine the CBI will call for rises in corporation tax. So if taxes have to go up, that leaves income tax or VAT, the taxes that hit working people and, in the case of VAT, the poorest hardest.

Or perhaps the CBI believes the tax take could remain the same and we could repay the deficit through deep cuts in public spending. If so, where exactly should the axe fall? The TUC supports investment, in skills, in infrastructure, in science, in support of those companies in the real economy which will build our competitiveness in the era of global competition. I suspect the CBI supports this investment as well.

So where else might the cuts happen? In schools? In hospitals? In care for the elderly? Will the CBI tell us?

This has been a hellish downturn and the road ahead will be tough. Getting out of recession, stabilising growth, while investing in the future without tearing the heart out of the social fabric, is the challenge that we face. That’s a challenge that we can meet, but we won’t meet it through the swingeing cuts resulting from an unnecessarily panicky approach to deficit reduction. Come on, CBI. Think again on this one!

We are all understandably angry about banker’s bonuses and the seeming irresponsibility of the capital markets. They have cost us a fortune; in wealth, in jobs, in public spending. But railing against the capital markets won’t get us very far unless we have an alternative.

So here is the big question: “What should our capital markets look like? What functions should they carry out, and how would you judge if they are doing a good job?”  Answer that, and we might get a better handle on how policy and action can create the world we want to see.

It seems to me that capital markets should do two things. First, they should be able to take our savings, and provide it to those who can best invest it. They should do this in a way which is low cost, which is in the best interests of the savers they seek to serve, and of the broader “stakeholders” who depend on the success of the financial community.

Second, financial markets can help defray risk. For example they can offer life insurance. If you are a small farmer in Kenya, you can sell your autumn crop in the springtime to help pay for fertiliser. More basically, we can write or receive a cheque or a credit card payment, and know that the risk of default is very small.

All these services are very important to our economy.  Indeed, absent them it is difficult to see how our economy would survive. So, working properly, capital markets are a good thing. But how do we get them to work properly.  How can we trust those that look after our wealth to do so responsibly?

Well one thing we could do is to regulate. And regulations are necessary. But regulations don’t make people trustworthy. Indeed, if you just depend on regulation you may damage the sense that our agents need faithfully to be serving us.

Better, if you want people to be trustworthy, is to make them accountable. So boards of banks should be accountable to someone for what they do, and those to whom they report should carry out their task responsibly, and themselves be accountable. And for the system to work it needs reliable and independent information. And it needs the vigilance of everyone; regulators, customers, journalists and others.

We all know what a “civil society” looks like; freedom of speech, democratic accountability, separation of powers, rule of law. We get very upset if any of these principles broken. For capital markets what we need is a “civil economy”; we need to be explicit about who is responsible and accountable, with independent relevant information available, and a heavy dose of scrutiny. And we need to get very upset if any of these principles are broken.

If we did, it would suggest a whole number of reforms to the way that our current system works. For just one example, consider the “credit default swap” (CDS). It is like a life insurance on a company, and therefore a perfectly good thing if used properly. But you can buy a CDS entirely anonymously. That can’t be responsible, any more than it would be responsible to allow people to buy life insurance contracts on others without telling them.

Responsibility and accountability are all very well.  But they raise the question; to whom should the system ultimately be accountable? Consumers? Society? The workforce? The shareholders?

Today, the law says that much of the economic system should be run for shareholders.  Who are those shareholders? Well, if you look at the shareholder registers of the banks you will discover the names of lots of fund managers. But they don’t own the capital they invest – It is usually money which belongs to pension and insurance companies from around the world. It represents millions of people’s savings. Indeed, two thirds of the adult population of the UK have a stake in the shares of the world’s largest banks. It is for them that these banks should be run.

What about consumers? Many say that the best thing we could do would be to start consumer banks and savings institutions. Great idea. Not least because most of our current savings products just don’t work well. Take for example, the cost of a personal pension.

Imagine you’re a 25 year old setting aside £10,000 for retirement at 65. Then look at how much you will pay in fees over the 40 years of savings. (The last time I tried the FSA’s personal pensions comparison tables one supplier, due to compounding of interest and charges, was taking more than £90,000 in fees over 40 years!).

So there is much to be done.

But the good news is that, as “citizen shareholders” we can have huge influence how the banks we own will work. With proper thought, we could establish a responsible long term savings industry in this country. This prize if we can do so is simply huge.

But responsible capital markets, like responsible government will come, not just with regulation. It requires the development of the “civil economy” which we all can trust, and in which we all can participate.

And it will be in debates, such as those hosted by the TUC, that the ideas and institutions of the Civil Economy can develop. Not just by global regulatory master plans. Like civil society, the civil economy will depend on the creativity and social entrepreneurship which can deliver trustworthy, responsible and accountable savings and investment institutions.

With Britain now in the grip of the worst recession since the 1930s, we’ve got to do everything in our power to safeguard pension schemes. Unless we act now, there is a very real danger that ordinary people could pay a severe price in retirement for the monumental profligacy of City bankers.

I accept that the climate for employers and for fund managers is extremely difficult – low interest rates, poor returns and increasing life expectancy are all having an impact. And where firms are genuinely struggling to meet their pensions obligations, unions want to enter into a positive dialogue with them about the way forward.

But there is a nagging suspicion that some firms (including many that took contribution holidays in the 1990s) are using the current recession as a convenient excuse to adopt a slash and burn approach to occupational pensions. Adopting precisely the same short-term, profit-maximising mentality that gave us the financial crash in the first place.

Over the past few weeks, we’ve seen some pretty alarming developments across UK plc. Barclays taking the unprecedented step of closing its final salary scheme to 18,000 existing staff, Dairy Crest following suit, with 3,500 employees affected there. And 55 other firms set to do the same, according to a study published by PriceWaterhouseCoopers last week.

None of us should be in any doubt as to what the flight from defined benefit schemes means in practice. It means millions of the pensioners of the future facing poverty – their well-being suffering, and all at an extra cost to the taxpayer.

And it’s not just the private sector where we must be on our guard. With the public finances in their worst shape since the second world war and the Tories resorting to populist rhetoric about ‘pensions apartheid’, we must be prepared to defend the public sector pensions settlement we agreed in the autumn of 2005.

As pension funds own a significant tranche of UK plc (including shares in some of our leading financial institutions) they are in a unique position to influence the behaviour of firms they invest in.

Responsible, engaged investment can enable risks to be managed more effectively, it can push companies to behave more responsible towards workers, communities and the environment, and, perhaps most pertinently, it can deliver long-term returns for investors.

But hands-on investor behaviour still remains the exception rather than the norm. As I blogged yesterday, a lack of shareholder oversight, especially in the banks, was one of the contributory factors to the financial crisis of the past two years.

So the case for a fundamental change of direction – for a new age of engaged investment – is perhaps more compelling now than ever before. I believe we have a genuine window of opportunity to promote more active, responsible investment behaviour – and in doing so to help create a new kind of financial capitalism.

This post is taken from part of what I will be saying to the TUC Member Trustees Conference in London today.

We’ve been examining the voting records of institutional investors for seven years now at the TUC, through our Fund Manager Voting Survey (2009 full survey here), and we’re noticing a worrying trend- we’re now down to 40% of fund managers responding to our survey, compared to 68% only five years ago. The data that many other fund managers are choosing to make public outside our survey is often only partial and of a pretty low quality.

Coupled with this, there seems to be a pattern of complacency amongst many funds. The vast majority of institutional investors didn’t challenge the remuneration reports of leading banks in the run up to the crash. Only one respondent (Co-operative Insurance Society) opposed RBS’ acquisition of ABN Amro (which is now widely regarded as one of the worst deals in UK corporate history). Such a strong pattern of siding with the board on controversial decisions looks like fund management on autopilot.

The theory is that in modern capitalism company boards are accountable to their owners, the shareholders. But this is a long way from what is actually happening. Instead share owners, mostly ordinary people saving through their pension funds, simply have no say.

The fund managers who are meant to exercise ownership rights and responsibilities often fail to do so. What is worse is that many will not even tell the unions that represent thousands of pension fund savers whether or how those ownership responsibilities were exercised.

The tragedy is that this system has been tested, with the result being the near destruction of the global financial system. In practice, big banks were accountable to no-one, their boards free to chase big bonuses without any regard to safeguarding the long term interests of their share-holders.

And yet the City seems set to go back to business as usual, talking up green shoots and opposing change while unemployment continues to rise as those with no responsibility for the crash continue to lose their jobs. It looks to us as though the voluntary approach to disclosure has comprehensively failed, and that Government needs to use its reserve power in the 2006 Companies Act to enforce mandatory disclosure.

Tom P has also blogged his thoughts on this.