The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [132]
The banks are too big, too connected to each other so that when one failed the whole system came tumbling down, and too similar so that each went awry in the same way. They have served low-income customers very poorly indeed. Plenty of reforms have been suggested. Through breakups enforced by antitrust agencies and through regulations such as higher capital requirements, banks should be made smaller. More effective competition is needed to ensure banks serve customers better. For example, the authorities need to encourage the entry of new competitors. These could be community banks. They could be completely new entrants using new technologies such as mobile phones, with low costs allowing them to offer a better deal to customers. The power of the big banks in the developed world means poorer people living in the United States and Europe now have less access to financial services than people in developing countries who can transact by mobile phone or access microfinance if their incomes are low.
However, the key point about the reform of big finance for my current argument is the impact such high incomes in banking have had on the rest of society. The bonuses far in excess of salaries, and the spending on big houses, fast cars, and designer clothes they funded, did create a climate of greed. People in other professions who are in reality in the top 1 percent or even 0.1 percent of the income distribution were made to feel poor by the bankers.4 Banking bonus culture validated making a lot of money as a life and career goal. It made executives working in other jobs, including not only big corporations but the public sector too, believe that they deserved bonuses. Remuneration consultants, a small parasitic group providing a fig leaf justification for high salaries, helped ratchet up the pay and bonus levels throughout the economy. The whole merry-go-round of bonuses and performance-related pay is a sham. In almost every occupation and organization it is almost impossible to identify the contribution made by any individual to profits and performance—complicated modern organizations all depend on teamwork and collective contributions. Some individuals do stand out and can be rewarded in the traditional way with increases in basic pay and promotions from time to time.
The UK government introduced in late 2009 a penal tax on bonuses above £25,000 in banking (these are bonuses on top of large salaries, of course). The tax was criticized, not only by bankers but also by others who thought the measure impractical. But it was one of the few measures any government has so far taken to reform banking that was absolutely right. The symbolism is vital even if by itself the measure doesn’t bring to an end the corrosive culture of greed. Whatever the practical limitations on their actions, governments can still achieve a lot in symbolic terms, which should never be underestimated when it comes to impact.
Governments could do a lot more to change the social norms that helped destroy the Western financial system. For example, they could halt bonus payments in the public sector altogether, or introduce a general additional tax on nonfixed parts of people’s pay packages. I am not opposed to people making more money if they studied hard, or worked hard for it, or took the risk of setting up a successful new business—on the contrary, effort and entrepreneurship must be rewarded amply. Nevertheless, governments have to give a lead in restoring the sense of moral propriety and social connection between those people who are part of the extraordinarily wealthy global elite and the great majority of those with whom they share their own nation. Senior bankers should also contribute to this task of making greed and excess socially unacceptable once again. I know from personal conversations that many eminent bankers are ashamed of their industry, but they’ve