Friday, 7 January 2011

Bank Stains

Not surprised this morning listening as usual to the Today programme on Radio 4 to hear of the bankers once again awarding themselves vast bonuses. Well who wouldn't, in their position? If you're in charge of the money, and no one can stop you, well you'd just take everything you could get your hands on wouldn't you. There's no need for any clever economic theory. This is simply what happens when a small sector of society (I hesitate to call them an elite) is essentially outside the law. They do what they want - and they want money.
That's no surprise either. To get where they are they don't have to be especially intelligent (I mean no more than a nurse or a teacher) they just have to be into money. No surprise then that those most interested in money end up with far too much of it.
They claim of course to be smarter than the rest of us (they've got more money, so that proves it) when in fact all they have is an area of expertise, as many of us do. Theirs happens to be making money. I'm not saying this isn't a crucial role in society, only, can it really be that much more crucial than everything else?

The world being as it is, what a person deserves hardly enters into the conversation. In the free market, we get what we can afford, or what we are in a position to demand, and so it is with wages. It all depends on scarcity. If what you have to offer is rare you can demand more for it. But is the kind of talent needed to work in The City so incredibly much rarer than almost anything else? The way they talk about themselves you'd think they were practically superhuman - with an uncanny ability to function without sleep, an almost god-like ability to withstand stress, and a quasi-omniscient understanding of how the world works. Wow! They're almost too good to be true.

I could say something similar about other high-earning groups - doctors, lawyers, footballers, heads of large corporations, but almost immediately we get into questions about what they do to justify their money. Doctors, probably most uncontroversially get a lot of money because they save lives and we're all grateful for that. We also take into account the length of time they trained and the number of hours they have to put in, especially early on in their careers.
Lawyers are a similar case. If you get into trouble with the law your life could be not worth living without proper representation. Lawyers also go through lengthy and costly training. Unfortunately paying lawyers is a less straight forward 'good' than paying doctors. It's as if we were required to undergo a lot of medical treatment that we weren't entirely sure was necessary and were then forced to pay whatever the doctor happened to come up with. In short, we're not at all convinced that lawyers really deserve what they charge, which often seems extortionate, but we have no choice, because we don't understand  what they do and they all charge more or less the same anyway.
Any profession that involves a specialised training has the rest of us at a disadvantage - even plumbing. We simply have to trust them to know what they're doing and not to rip us off.

Sportsmen and women and other entertainers do what most of us do for fun, but for cash, which doesn't sound very onerous. Certainly there's long hours of training and rehearsals, a lot of travel, a lot of meeting other celebs, but generally the salaries of the best paid entertainers are justified in terms of revenues, both from ticket sales and merchandise. There is a fairly straight line between a celebrity's name and the stuff associated with them that people want to buy. Top entertainers are also considered, by definition, extremely scarce, so they can command very high prices. Whether, for example, good singers or footballers really are that rare is doubtful but because we make them compete, it gives the illusion that only a tiny number are really worth looking at, and everyone else is mediocre or rubbish.
More reasonably, careers can be brief in the sports and entertainments industries, so it makes sense to make as much as possible as quickly as possible. (They could just save it up and then get a job like normal people, but that's not very rock'n'roll I suppose.)

Heads of large companies justify their money in other ways. Long years of training is definitely optional and may be considered detrimental by some, in favour of just some sort of 'common sense', or 'business acumen' or 'killer instinct' or whatever you want to call it. Certainly such people are often very driven and single minded (but then, so are train spotters), ruthless and manipulative almost to the point of psychopathology. They justify their income (if they feel the need to justify it at all) in that they tend to see their enterprise as entirely their own work, with the staff as mere human resources. It's their firm, they worked hard and long hours to make it what it is - therefore it's their wealth, to do with as they alone see fit. Of course the firm might sink without trace and they might lose everything, so they see the ability to take risks also as a justification for taking whatever they can, whenever they can. There's a lot of luck involved too, so there's a large element of gambling.

There is also the emergent property of The Going Rate - a level of remuneration that is accepted as normal. In theory the free market should bring this down to an affordable level as businesses try to undercut their competitors, but in practice it can result in an arms race as companies try to outbid each other for scarce resources, such as talented staff. This is ostensibly why UK banks have been unwilling to reduce exorbitant bonuses - because they are afraid they won't be able to compete for employees with other parts of the world. As a result the going rate has rocketted. This probably also accounts for the inflated prices of legal advice, medical care, bank charges and a whole lot of other unusually expensive items. You'd almost think there was a conspiracy.

So what do we have so far? Being important to society, training and expertise, scarcity, brief career, risk taking, going rates.
A lot of this is bogus. I could not justify charging an extortionate rate as a gardener on the grounds that I was afraid I wouldn't be able work in a few year's time. Many people train hard and work long hours all their lives for almost no return at all, and gambling is just gambling.
In fact only two things on the list really count - being important to society, and scarcity, but they are completely at odds. The former might be considered a left wing approach, the latter, right wing. Those most committed to the free market consider supply and demand the only factors worth taking into account when considering the price of anything, including labour. It doesn't matter how long you work or how hard, or how crucial to the smooth running of society, if you are easily replaced, you can't expect much in the way of remuneration.
Most ordinary people on the other hand will quickly bring in questions of how vital a person's job is, how hard, dirty or dangerous it is. (How tedious it is should probably be included. The hardest job I ever had was on the tills in Sainsbury's before the days of bar code readers. The job was incredibly boring and repetitive but you couldn't drift off for a second. A friend of mine had an agency job standing at a conveyor belt all day watching vitamin pills go by, looking out for misshapen ones. He lasted a week I think. At least with weeding I can think about other things.) The more menial the job, the more easily the workers are replaced, and therefore the less money they attract, and yet if I had to say whether bin men, or hospital cleaners, or potato growers or merchant bankers were the more crucial to society...  well. Its certainly not obvious.
The question is even more pointed when you think about footballers or TV presenters. We routinely use the language of fairness and deserving when we talk about wages but the economy does something completely different. This is the sort of thing I mean when I talk about Economic Reality as opposed to Real Reality. Bankers talk about deserving their money too - they tell us how stressful it is and what long hours they work, but lots of people have stressful jobs and work long hours. My Brighton friend has spent a large amount of his working life in group homes for adults with various kinds of 'challenging' (i.e. violent) behaviour and you can be sure he didn't get millions in bonuses. For most ordinary people, the greatest stress is the fear of losing your livelihood. (There seems to be a belief that low paid people don't care so much because they have less to lose!) Entrepreneurs and financiers on the other hand pride themselves on being risk takers. They love that stuff. If remuneration is compensation for stress it follows that they should be paid less, not more.
The most well paid people among my friends design websites, write press releases or do research for London companies. In fact it seems that those with the most fulfilling creative jobs also get the most money. Pay is not in any way 'compensation' for hard work.

The difficulty for those who would argue that banker's pay is undeserved is the argument that they get paid what they do because they bring in all this revenue, and bin men just don't create that much wealth. If a market trader is involved in a deal that brings in millions or billions - shouldn't he or she be rewarded? This relates exactly to the sports celeb who's name sells millions in tickets and merchandise, or the businessman who risks his house to build a company. Shouldn't they get their cut, for what they did? Isn't that fair? Don't they deserve it?
Frankly I'm not sure. I don't think so, but I'm not sure as yet why not.
When it comes down to it, they haven't actually done that much, any of them, in pure hard work and intelligence terms - not more than a lot of other much less well paid people. Their relatively ordinary amount of effort and intelligence nevertheless can produce massive returns. Probably remuneration should be related to productivity. If I grow more plants - I sell more plants - I make more money. An employee who comes up with an idea that saves his company a fortune should be rewarded. I'm not convinced though that this logic can be extended indefinitely. For bankers, the relatively small amount of work is completely unhitched from the magnitude of the results. Plus bankers, unlike entrepreneurs, are usually in a 'Heads I win, tails I don't lose' situation. The risk is actually rather low.

And there are consequences. The massive wealth of the minority does directly mean that others go without. Even within the UK, the buying power of the few means that most people cannot afford to live in the capital. Natives of rural areas have to move to the town and commute to work in the country because houses are bought up as second homes by the rich. Globally the spending power of the rich nations means that resources are wasted on those who already have more than enough instead of going to those in need. We are all in the West somewhat guilty but the gargantuan extravagance of this bloated minority should be liable for far more of the burden. Instead they pay lawyers and financial consultants to ensure that they pay no tax whatsoever - a luxury the rest of us cannot even imagine. They should be made to pay, or better - not given such ludicrous sums in the first place.
The world is not infinite. It is a closed system - a zero sum game. What is gained by one is lost to another, or in this case, many others. Growth and technology will not save us.
And these people run the world for Christ's sakes, or soon will. Surely we don't want the most powerful people in the world to have the emotional intelligence of spoilt toddlers?

But wouldn't we all, given the opportunity, do the same thing? If we could make millions by doing almost nothing for a few years - wouldn't we all do it?
Of course we would.
But perhaps the issue is that we shouldn't be faced with those sorts of opportunities.
No doubt there are many sordid things we might be tempted to do, given the chance (and if the law turned a blind eye). But that wouldn't make them right.
And there is such a thing as resisting temptation - unfashionable as that might be.
Most people, I believe, think that the pay should reflect how valuable and how hard the job is - that remuneration should be properly deserved, and individually tempted as they may be, they believe that the kinds of incomes we see in certain areas of the economy at the moment are at least undeserved and unfair, and at most, a wank-stain on the underpants of humanity.


Steve Law said...

It's been drawn to my attention (thanks Emma) that calling someone 'not especially intelligent' these days is tantamount to saying they're thick.
Maybe I should have said 'not unusually intelligent'.
I've met very few people who I would describe as especially or unusually intelligent. What I was saying was that bankers and entrepreneurs don't strike me (and I've met a few) as being more likely to be among them than anyone else - quite the reverse actually. To be really driven and ruthless it's best to have a fairly uncomplicated view of the world.

paulgrand said...

Oh YES, right on the nail!:-D