A blame game you can bank on

‘Let me assure the country – and warn the banks – there will be no return to business as usual for them. In the next few weeks we will introduce legislation to end the reckless culture that puts short-term profits over long-term success.’

The UK chancellor of the exchequer, Alistair Darling, was pulling no punches in his speech to the Labour Party conference in Brighton on Monday. The ‘bonus culture’ in the City of London, widely blamed for the financial crisis, would have to stop. Banks that had been bailed out with huge sums of government money, having lost billions through bad debts, could not now expect to pay out a fortune to staff.

Darling declared: ‘In the next few weeks we will introduce legislation to end the reckless culture that puts short-term profits over long-term success. It will mean an end to automatic bank bonuses year after year. It will mean an end to immediate payouts for top management. Any bonuses will have to be paid over years, so they can be clawed back if not warranted by long-term performance. We won’t allow greed and recklessness to ever again endanger the whole global economy and the lives of millions of people.’ (1)

It perhaps says something about the weak accountability within banks that the shareholders of these institutions haven’t been able to force through rules of this kind before. It’s one thing to pay staff handsomely for making mega-profits, but even the most hard-nosed capitalist must surely baulk at paying people to bankrupt the company.

When the financial manure hit the proverbial fan last year, it was shareholders and governments that took the big hit; senior staff at the banks have often walked away with very substantial sums of money. As The Economist noted in August this year: ‘Shareholders have suffered in the crash, but why didn’t they and their boards step in, rather than egg the bankers on? How did the apparatus of risk managers and board committees allow them to err so badly?’

So, from the point of view of financial institutions, there is room for sensible reorganisation of rewards so that staff are not handed whopping great cheques for doing things that seem to make a lot of money in the short term but could end up causing disaster a year or two down the line. Angela Knight, chief executive of the British Banking Association, argues in the Guardian: ‘We agree that remuneration and bonuses need to be tied to the long-term success of the business and not for rewarding foolhardy risk-taking or flash-in-the-pan results. We do not agree that this means imposing an arbitrary ceiling on bonuses.’ (2)

However, Darling wasn’t talking to bankers, but to the Labour Party conference – and to the country at large. His speech was a craven attempt to key into the widely held sentiment that the bankers were to blame for the crisis and have now started to pay themselves enormous sums of money while the rest of the country suffers. In this view, the banks are saying ‘thanks very much for the bailout, we’re okay now, so screw you’.

While we need have little sympathy for the relatively small number of filthy rich people in the City of London (they seem to be doing very nicely without our support), we should have no time for the kind of grandstanding going on in Brighton, either.

First of all, a home truth. Galling as it is to see a small number of people paid massive sums while many hundreds of thousands are losing their jobs and possibly their homes, Darling’s attack is a little like bemoaning the fact that famous musicians, celebrities and sports stars are continuing to get rich while the rest of us have to tighten our belts. There is no connection between the importance of someone’s work to society and the amount of money it attracts.

While the man who (supposedly) runs the country, Gordon Brown, earns about £200,000 per year, financial traders who find a way of skimming an extra fraction of a per cent from billions of pounds worth of trading could quite possibly earn 100 times that much, because they are worth that much to the company that employs them. There are plenty of injustices in the world that need to be dealt with before bemoaning the fact that someone has a big house or an Aston Martin, whether they earned it for scoring goals or, as Lenin put it, by ‘clipping coupons’.

The obsession with such individual wealth is a major distraction from the serious business of working out what went wrong with the economy, which even now is being discussed in terms of greed, a failure of regulation or a crime committed by smart-arse number crunchers who got too big for their boots. While fetishising the behaviour of banks and bankers, the underlying weakness of all the developed economies – something very apparent in the case of the UK and USA for nearly 40 years – is ignored.

Moreover, the focus on the pay of a tiny minority sends a moral message to the rest of us that greed and ambition (that is, trying to get on in life) are bad things more generally – just when we need some well-focused ambition to get us out of this mess.

It is worth noting that Darling is not in much of a position to tell the bankers what to do. In recent years, the UK has become extremely dependent on the wealth which, if it wasn’t created in the City at least passed through it, and all the financial, legal and technical services that are required to manage those flows of capital. Devoid of an alternative vision of how the UK economy might operate, Darling is terrified that too much regulation will encourage big financial firms to look elsewhere for a home.

The Sunday Times reported earlier this month that Darling had held meetings with senior bankers ‘pleading with them to show restraint over the size of this year’s bonuses’. The truth is that Darling is desperate to keep the big banks sweet while talking tough in public. The last thing he needs is further embarrassment from big bonus payouts.

Rather than try to turn bankers’ pay into what Angela Knight calls a ‘dog-whistle issue’, we need a chancellor of the exchequer who can put aside the narrow advice of opinion pollsters and think about what is best for the wider economy. Just don’t bank on Alistair Darling, or anyone else in this government, being able to do that.

Rob Lyons is deputy editor of spiked.

(1) Alistair Darling warns Labour to inspire voters or rue next 20 years, Guardian, 28 September 2009

(2) Capping bonuses is not the answer, Guardian, 28 September 2009

(3) Alistair Darling’s plea to bank bosses: cut bonuses, The Sunday Times, 20 September 2009