That’s enough w**k about bankers’ bonuses

The public stock of investment bankers in the UK has sunk so low that even Gordon Brown’s government now feels it is safe to look down on them. Hence New Labour’s planned one-off tax on banking bonuses, expected to be announced in chancellor Alastair Darling’s pre-Budget statement this week, has been hailed as one of the more popular measures this deeply unpopular government has proposed. So despised are the top bankers that even the supposedly pro-business Conservative opposition party toyed with the idea of proposing a similar measure first, and has let it be known that they ‘wouldn’t rule out’ a windfall tax on bonuses in government.

Britain’s big ‘bankers’ certainly seem to have earned their status as a modern rhyming slang for those committing the sin of Onan. But as far as sorting out the problems of the economy and society concerned, the entire obsessive discussion about bankers’ bonuses is effectively a load of old wank.

Don’t get me wrong, I do not much care if some amply-remunerated rich men and women get hit with a windfall tax. No doubt their spokeswoman had a point when she protested that any such measure would be ‘populist, political and penal’. But so what? An elected government is entitled to impose political measures with regard to the economy. Indeed, it would be no bad thing in that regard if they started acting more like political leaders and less like braindead accountants, contrary to the impression the government has given over the past decades. Those who also object that such a tax will raise relatively little money when set against the scale of government debt undoubtedly have a point, especially once the City lawyers have located all of the inevitable loopholes.

Yet it is hard to feel much sympathy for the poor ickle put-upon multi-millionaire bankers. And harder to avoid laughing at the couldn’t-make-it-up irony of seeing the country’s top finance capitalists playing the victim card and threatening to sue the New Labour government under its own onerous Human Rights Act. Nor are many people too impressed with the argument that such a tax will drive away the top talent from the UK banking industry. After all, employment in the financial sector is hardly expanding elsewhere (Dubai, anybody?). And those familiar with some of the outstanding specimens of City boy that have evolved in recent years might question the description of their ilk as irreplaceable men of genius. Maybe they really are the Leonardo da Vincis of the City, but to outsiders it appears that racking up huge sums in the markets of the past 20 years has been as easy as pressing a computer button.

So no, my objection to the obsession with bankers’ bonuses is not that it is somehow unfair, or that it is punishing the ‘wealth creators’ – my old friend Vladimir Lenin long ago established the distinction between productive capitalism and the ‘coupon clipping’ of City financiers who make money out of wealth produced elsewhere.

The far bigger issue for the rest of us should be that the focus on banks and bankers and bonuses is distorting the causes of the problems of the recent past, and distracting from a proper discussion of the economy we might need for the future.

As has been argued consistently on spiked, the hidden economic problems of the ‘boom’ years that exploded in the credit crunch are not reducible to the actions of some bonus-hungry individual bankers. They were representative of an entire economic system run on a similarly parasitic basis. Nor were the bankers rogue financiers – they were central players in the New Labour project, feted by Brown and Tony Blair as the future of the UK economy.

The largely illusory economic boom of the Blair-Brown years was based on the growth of the finance sector, inflated asset prices, and public spending – all of which were financed by credit, much of it borrowed from the dynamic parts of the world economy in the East. Just as the price of shares and property came to bear little relation to the underlying values of the assets involved, so top salaries and bonuses in the City became divorced from genuine wealth creation in the UK as the money men claimed their share of the credit-fuelled financial bubble.

The expanding banking and finance sector in the UK temporarily filled the gap left by the decline of manufacturing and other productive sectors of the economy. The BBC’s Robert Peston reckons that, despite financial services accounting for just eight to 12 per cent of the overall economy, ‘in the boom years before 2007 the City was directly responsible for about a third of all the UK’s economic growth and a disproportionate share of tax revenues’. When Brown ran the Treasury, Bankers such as Fred ‘the shred’ Goodwin at RBS became his key economic advisers, praised by the then-chancellor as recently as 2007 for forging ‘an era that history will record as the beginning of a new golden age for the City of London’.

New Labour bet the national mortgage on the bankers and the financial markets almost as badly as did the smaller governments of Iceland and Dubai. Little wonder that Brown and Darling felt they had no option but to step in with the multi-billion pound rescue packages for the banks when the bubble burst so spectacularly. Now they are turning on their erstwhile allies and acolytes in the City, blaming the bankers for everything. There are shades here of the showtrials in which Stalinist regimes of old turned their former comrades into scapegoats for crises, allowing the government not only to sweep its own dirt under the carpet but to pose as a new broom cleaning house.

Even worse than distorting and minimising the economic problems of the past and the present, the obsession with bankers and bonuses risks distracting from the problems of the future. It means that we are not even addressing the biggest problem: the fact that UK capitalism is still dependent on its declining financial sector. Indeed the focus on the bankers as the big issue only confirms that they are still at the heart of the British economy and what they do is central to the chances of a recovery. But unless we seriously believe that it is possible or desirable to turn the clock back to the financial ‘boom’ years, then that is palpably nonsense. The government and opposition parties’ preoccupation with the banks’ balance sheets and bonuses as the big economic issue of the day seems to confirm that they have no idea of what a future economy should look like beyond fantasising about a cleaned-up version of the past financial bubble. That should be more worrying for the rest of us than what some City boy gets for Christmas.

Do we want to rely on a reformed finance sector that can act as a parasite on the world economy in a ‘low-risk’ fashion? Or do we rather need a dynamic economy in which banks are mere servants rather than masters of the universe, one built on new sectors and old strengths, that can generate growth and jobs and take us forward into the future? We seem to be no nearer even debating how that might happen while all eyes are on taxing a few bankers’ bonuses.

So, cheer for punitive taxes on the bankers’ bonuses if you want – while being aware that the next step will be taxing the ‘greed’ of us ordinary consumers, just as the promised restraint on top civil servants’ salaries will lead the way to attacking the jobs and pay of the entire public sector workforce.

But let’s not kid ourselves that whether or not some get their wankers’ bonuses will make a big difference to the future of the economy and society. Starting a debate about the bigger picture would be a bonus for us all.

Mick Hume is editor-at-large of spiked.