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65% of public support a High Pay Commission


12:45 pm - August 24th 2009

by Don Paskini    


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Luke Akehurst:

Ordinary hard-working people want a better life for their families and not to be exploited. My guess is very few of them subscribe to limiting the wages of the people at the opposite end of the spectrum.

Tom Harris:

Sunny Hundal at Liberal Conspiracy, in particular, accuses me of seeking rightwing adulation by seeking to protect the rich. He’s not entirely wrong. I want the Labour party to continue to win the support, not just of our core vote, but of those Thatcher and Major supporters who switched to us in 1997 and who stuck with us for another one-and-a-half elections.

ComRes opinion polling this Sunday:

A High Pay Commission should be set up to curb excessive pay and bonuses:
Agree 65%
Disagree 31%
– Surprisingly there is little variance among different social groups
– Even 63% of Tories agree compared with 66% of Labour voters and 75% of Lib Dems

—–

So it seems that Tom and Luke’s ideas of what “ordinary hard-working people” and “Thatcher and Major supporters who switched to us in 1997 and who stuck with us for another one-and-a-half elections” might favour isn’t supported by the polling evidence.

That’s not to say that there aren’t good arguments against a High Pay Commission. But the argument that it isn’t popular is not one of them.

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About the author
Don Paskini is deputy-editor of LC. He also blogs at donpaskini. He is on twitter as @donpaskini
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Story Filed Under: Blog ,Equality ,Labour party ,Think-tanks

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Reader comments


I never denied that a High Pay Commission would be popular – if you remember, I described the proposal as “dog whistle politics” and dog whistle politics are often popular. Often wrong, but often popular.

This is the wrong road to go down for Labour because it frames our economic policies within an anti-aspirational politics. The HPC may itself be a popular idea, but over time, it is a deadweight that would cripple Labour’s claims to be the party of wealth creation and aspiration.

So there.

The question does rather answer itself.

Who after all could object to the curbing of “excessive” pay?

Fortunately the practical problems of such a thing are so obviously great that it won’t happen…

I never denied that a High Pay Commission would be popular

Of course you didn’t! You didn’t say either that such kind of politics would make it difficult to help Labour win any of the popular vote.

And now you’re trying to twist it around by saying it’s just ‘dog whistle’ politics – which is a lame attempt at saying you wouldn’t want to do anything popular that might resonate with voters.

The HPC was never simply about capping wages. It was about looking at a range of ideas. You not only caricatured as simply capping wages, but said that it would be unpopular and lose Labour votes. Now that’s been exposed as a sham – you’re trying to twist around your argument.

Earlier, you thought you’d got me by implying I had signed the ‘statement on progressive ethical blogging’. When I pointed out I hadn’t – you tried to twist it around by saying it was never an attack on me.

It seems that obfuscation and changing around what you say is becoming a regular think with you Mr Harris. No wonder the right-wing bloggers love you. You fit right in with Dale et al.

I want the Labour party to continue to win the support, not just of our core vote, but of those Thatcher and Major supporters who switched to us in 1997 and who stuck with us for another one-and-a-half elections.

That point in particular is about vote-winning. Now, of course, your aim was never to win votes but to reject ‘dog whistle politics’. I’m going to keep that in mind.

“A High Pay Commission should be set up to curb excessive pay and bonuses”

*beep* *beep* – whoops, that’s my loaded question alarm.

Perhaps we should ask “A High Pay Commission should be set up to cap all pay and bonuses – Agree or disagree?” and see if 65% agree with that too.

5 – “Perhaps we should ask “A High Pay Commission should be set up to cap all pay and bonuses – Agree or disagree?” and see if 65% agree with that too.”

But that’s not what compass proposed. I know it is easier to argue against imaginary left-wing arguments that you have made up, but polling on the actual proposal suggested seems like a better way to find out what people think about it.

Hi Tom,

I actually think that is a decent argument – policies can be popular on their own but still be part of an unpopular framework (e.g. the Tory policies on immigration were popular, but helped define them as the ‘nasty party’.).

But, forgive me if I’m wrong, I thought part of your argument was that this was a ‘core vote’ policy. omething which is supported by 63% of Tory voters is stretching the definition of core vote, and apparently it gets roughly the same levels of support amongst all income groups. I wouldn’t have expected that, would you?

This is funny for three reasons:

1. Luke and Tom being horribly wrong
2. Tom Harris in comment 1 going “So there” like an odd shaped child
3. Don’s put down of the ever tedious Mark M

Don – that’s a fair point, but no-one believes that those 63 per cent of Tory voters will suddenly switch to Labour if we adopted the policy. Similarly, the 65 per cent who told pollsters that they support it will never, ever, translate into support for Labour. I suspect that the question “Do you support a High Pay Commission” is the kind of question most people – Labour Tories or Liberal – would say yes to without thinking through the consequences.

A policy like this might be popular at the moment – I have no doubt it is – but it would be torn to shreds during a general election campaign, and deservedly so. As would the party which adopted it because it was apparently popular in a snapshot opinion poll.

One more thing: Even if it turned out this policy was well thought through, enduringly popular, saved the Labour Party from defeat at the general election and was actually set up by the Labour government after the next election… I would still believe that it’s the wrong thing to do.

Tom – In your final word post on the subject you used the words “trying to avoid a Tory victory at the general election” which would seem to imply you have doubts about the popularity of such an idea.

Second, as Sunder has been pointing out repeatedly, just about everywhere there is no obvious policy implications. You seem to be ruling out a high pay commission exclusively, if it is the anti aspirational politics your worried about there is a huge scope in what such a commission should look at.

Personally I think that many of the rewards, specifically in the financial sector were unjustified because banks underestimated the risks they were taking on. I don’t think that this position is anti aspirational since implicit in the whole aspiration argument is the idea that entepreneurs are making a positive contribution to society and deserve these rewards.

“The HPC was never simply about capping wages. It was about looking at a range of ideas.”

When the Tories say “our policies aren’t simply about doing X, we’re looking at a range of ideas”, they’re the Devil Incarnate for being vague and not setting down precise policies. When this HPC nonsense keeps its brief intentionally vague, it’s mana from Heaven.

I think the key problems with this proposal are that either:

1. It will involve setting some upper bound on acceptable pay and bonuses, falling into exactly the trap that Don is keen the policy should not fall into (that it should target only “excessive” pay)

or

2. The policy will involve a commission deciding in various individual cases what constitutes “excessive” pay, essentially giving another set of dictatorial powers to a quango. A set of politically privileged individuals will decide the “worth” of others. Very similar to the problems of the new “pay czar” in the US: http://www.cato-at-liberty.org/2009/08/19/the-pay-czar-at-work/ . Of course, the commission will never get round to curbing the excesses of those that actually need curbing, since, almost by definition, they will be the ones that are politically connected enough to avoid censure. This is what will happen if you don’t introduce a scheme of hard and fast rules on pay and instead leave it up to the discretion of officials.

Overall, I think the whole thing just misses the point on a gigantic scale. Those that win their pay fair and square via consensual market transactions need no quango telling them how much they can earn. They benefit others the more they earn. There are others, who extract wealth from others through political privilege, by arguing that their work is in the “public interest” or some such. The bailed out bankers and shareholders are the most recent example of that. But the answer isn’t to start curbing their pay, its to let their pay collapse amidst the heat of the market’s creative destruction. They were crap. They should have had their contracts terminated and their banks liquidated.

What specific policy would be torn to shreds Tom? You’ve already shown a lack of comprehension skills by attributing a petition to me when I didn’t sign it, and now you’re conjuring up specific policy proposals where they don’t exist.

The point of the project was to highlight the ongoing anger at the way the finance sector was allowed to get away with playing around with highly risky derivatives, putting everyone’s pensions at risk and destabilising the entire system.

There are strong arguments to be made on why it’s important to have better regulation that will take away incentives that encourage high-risk trading. Yet you refuse to engage in any of that. All you want to do is protect them.

those 63 per cent of Tory voters will suddenly switch to Labour if we adopted the policy.

Yeah, why even adopt ideas that have popular support and might even mistakenly give the impression Labour is the party of fairness and listening to people’s concerns.

I was pointing out flawed polling methodlogy. Apologies if that is tedious but it seems to me that if you’re going to try to use polling evidence to back up your point then you shouldn’t start off with a loaded question.

Anyway, what was incorrect with my suggested alternate question? How else would a High Pay Commision seek to ‘curb excessive pay and bonuses’ without creating an effective and entirely arbitary cap on pay?

As I’ve said before, it is no business of the government how much banks pay their staff. It is the duty of the government to seek a stable economy. It does this through better regulation of the market (not allowing banks to get too big to fail is a start) not by curbing pay as some quango sees fit.

Mark M:

You think it is flawed, many people here do not, again, free to your opinion but don’t confuse it with fact in your desperation to defend the side of the argument you agree with.

Hi Mark,

What is flawed about the polling methodology? Compass called on the government ‘to curb excessive pay’ and ‘to establish a High Pay Commission to review top pay and look at measures to ensure excessive pay can’t damage the economy again’. So asking people whether they agree or disagree that”A High Pay Commission should be set up to curb excessive pay and bonuses” strikes me as perfectly reasonable.

Compass suggest maximum wage ratios and bonus taxation as possible ways of curbing excessive pay, but would leave that up to the Commission. They didn’t mention putting arbitrary caps on pay.

You may think that it is no business of the government how much banks pay their staff, but that doesn’t mean an opinion poll is biased just because it suggests that most people disagree with you.

Don – I think his point is that “excessive” already means “too much”. So a normative phrase has already been snuck into the poll. If someone is being paid “too much”, then obviously something must be done about it. There is a hidden premise in the question that one can objectively ascertain what correct pay is (something that many economists reject).

It is a bit like the way polls consistently find that the public are in favour of detaining “terrorism suspects” for long periods without trial – the implication being that they are terrorists that just haven’t been found out yet. If you said “do you think police ought to be able to detain citizens without trial”, the answer “yes” would probably instead be in a minority (although I imagine still a depressingly large number).

http://vpcyn.wordpress.com/2009/08/23/what-bollocks/

Beckett thinks people in other walks of life don’t matter – and dear Tom here (a “Labour” MP) is all for MPs getting 200k on top of their public purse kickback for writing for a Newspaper.

THAT is why he is against a HPC, not the aspirations crap he talks about. If he was for that why isn’t he doing something for the poor, working poor, advocating the tax allowance be made higher so let poor people pay less or no tax, etc, etc?

If he has, link to it and I will apologise.

And this:

enduringly popular, saved the Labour Party from defeat at the general election

Tom Harris admits that Labour will be defeated in the up and coming general election? The Mail would love that.

19. Planeshift

“How else would a High Pay Commision seek to ‘curb excessive pay and bonuses”

You’re assuming that a HPC would conclude that excessive pay and bonuses should be curbed. It may not.

It may be the case that a commission looks at the evidence, and concludes that it is in everybody’s interest that high pay and bonuses are not curbed. We don’t know until it happens.

Seeing as there is a case being made that excessive pay and bonuses contributed to the current crisis – alongside producing all manner of negative externalities such as pricing locals in cornwall out of housing – then now is the time to have a look at this properly and what (if anything) can and should be done about it.

Frankly there should also be commissions on the wisdom of continuing the prohibition of drugs, the war on terror, criminal justice policy etc. They tend to produce better policy outcomes than politicians aiming for Daily Mail points.

[17] Thankyou Nick. Someone who understands what it means to load a question. It may well be that people want a High Pay Commission regardless of the way the question is put (and that is something I would have to accept), but the use of the word “excessive” means that the question is not balanced and conclusions drawn from the poll are very much open to question.

[19] Optimistic thinking Planeshift, but when have you ever known a quango to say “you know what chaps, I don’t think we’re needed here. Let’s pack up and go home”?

21. Planeshift

A comission isn’t the same thing as a quango, but I take it your point is that the comission’s rules will be rigged yes minister style in favour of a certain outcome. In which case I’d point out that I wouldn’t be in favour of that. Plus your argument could then be used against any comission – and I suspect most libertarians would be in favour of commissions on drugs etc.

What I’m in favour of is a HPC that looks at all the evidence, and draws conclusions based upon that evidence.

Actually, libertarians wouldn’t be in favour of a commission on drugs. They just say legalise them all.

I would be in favour of an HPC as you describe. One which objectively looks at pay, risk etc and concludes whether said pay is excessive. Being a cynic/realist, I don’t think that’ll ever happen – mostly because of the “yes, minister” factor. No body/commission/agency set-up to look into something says “we’ve looked and we’re surplus to requirements”. The best that would happen in that case is “we’ve looked and here are some recommendations that don’t change anything but at least we still get paid to run this commission”.

Don – I think his point is that “excessive” already means “too much”. So a normative phrase has already been snuck into the poll. If someone is being paid “too much”, then obviously something must be done about it.

Clearly, you guys should be telling the British Polling Council how to do their jobs.

It can’t possibly be that most Britons think people paid extremely highly in the finance sector don’t deserve that money, or that pay differentials are already too high.

How is a commission structurally different from a quango? Do they report to parliament rather than the Government or something?

I know it might look crazy, but I am actually in favour of more democracy than anything else. I believe a more decentralised, more representative political system will eventually throw up some better policies on things like drugs. Just as Switzerland manages periodically. It isn’t as if the evidence for legalisation isn’t out there and I think only greater representation will be able to undercut the special interests that various government institutions have in maintaining their illegality.

Sunny: I am sure the policy will be popular anyway. The public just love delving into other people’s business so long as they think they will be unmolested. Singling out the rich is an easy way of doing that. I am just saying the question is still obviously loaded to drive support for the policy. Just as those nasty “lock up ‘suspected’ terrorists” polls are too.

Take a look at this classic 2006 vintage from YouGov for example: http://www.yougov.com/archives/pdf/SpectatorPollResults.pdf

Admittedly, I haven’t seen a more stupid set of answers for a while, but you can see where many of the questions are slanted, especially the detention question. But, of course, YouGov is a member of the British Polling Council so couldn’t possibly be creating the survey to please its paymasters (in this case, the Speccy). Why, no self-respecting pollster could ever do that!

All the pollster does to be part of the BPC is report their method and results with a certain amount of transparency, so that other can convert their raw figures into the headline figures. Nothing to do with bias in the questions. Those are set by whoever commissions.

Of course it would be far better for the bankers to earn (or “earn” if you prefer) their money elsewhere…then more of us could afford a house in Knightsbridge.

We won’t worry about the tax receipts.

The public might support a high pay commission but based on ignorance and biased-BBC watching. See the below article out this morning on Bloomberg. I am a banker and trust me – this is the tip of the iceberg, thousands of bankers and other professionals are preparing to leave this country (it takes time to up-root and move your wife and kids abroad) – they will soon be doing the same jobs, servicing the same clients but from abroad and paying tax revenues to foreign governments instead of ours. There is only one result – the UK will lose immense tax revenues that are unlikely to come back. Where on earth do you think the money comes from to pay for the NHS, welfare state and public sector? We have no natural resources and rely completely on taxes on business and private sector employees. Manufacturing has gone with globalisation and now we rely on the service sector and particularly financial services. Our education system is plummeting down the world rankings, our weather is appalling and there are increasingly fewer reasons for service industries, businesses and wealth-creators to stay here (let alone move here). We can choose to embrace financial services – on which we have become dependent – or suffer a dramatic loss of living standards and public sector services in order to become a competitive manufacturing nation once again.

By Chris Peterson
Aug. 25 (Bloomberg) — U.K.-based hedge funds with total assets of as much as $15 billion moved to Switzerland in the past year in order to escape a planned personal tax rate of 51 percent and increased European Union scrutiny, the Wall Street Journal reported, citing financial industry lawyers.
Recent moves to Switzerland include Amplitude Capital LLP, which moved $735 million in assets; David Butler, of advisory firm Kinetic Partners, said his company had helped 23 leading hedge funds to leave the U.K., and a further 15 were planning to go, the newspaper said.

Shorter bankers: “Nice country you’ve got there, it’d be a shame if anything bad happened to it.”

@28 – although I probably agree with you, “I am a banker and trust me” might not be the very best way to begin your argument!

Nick/Mark M/cjcjc – What exactly is it your trying to argue here? Believe it or not we lefties are well aware of the whole idea of loaded questions and flawed polling.

The question:
“A High Pay Commission should be set up to curb excessive pay and bonuses”

May be a bit vague but would seem to indicate a public belief that a) pay is excessive and b) the government should do something about it. There’s a hell of a lot of scope in that question, admittedly, but rather than complaining that the question is loaded just bevause it does not have *your* angle on it. Or the pretend that the question should use some precise language, can you not just accept the fact that your opinion is not a popular one.

Sadly that is true #30 – good point!

Jebus, the loaded question point really doesn’t seem to be registering does it?

The question:
“A High Pay Commission should be set up to curb excessive pay and bonuses”

May be a bit vague but would seem to indicate a public belief that a) pay is excessive and b) the government should do something about it.

No it doesn’t. Firstly only the results can indicate a public belief, not the question. Secondly the question doesn’t ask “do you think pay is excessive?”, it presumes that pay is excessive. Surely we should do something about that which is excessive?

Andy – Funnily enough, my Indian co workers don’t have enough good things to say about the wather, apparently in Mumbai it’s just as cold in winter and searing hot in summer.

Anyway – I am well aware of where the money comes from, and despite that I would still like to see your overrated, bloated, greedy, parasite of an industry regulated into the stone age. Globalisation depends on the political acceptance of the nations taking part, if globalisation no longer benefits the people of the nations taking part then it should be rejected.

Have blogged about this here

I think this is a good challenge to Tom and Luke, though I think the argument on maximum wages and pay ceilings has rather given an unnecessary and easy straw man target in polarising the debate.

Tom is saying the principle overrides the politics. But he also seems to say that the problem of ‘framing’ means leaving unmerited rewards unaddressed

Luke Akehurst’s argument “have Compass never read John Rawls” does seem a strange argument against a proposal for scrutiny of top pay, especially if he seems to be implying that current inequalites at the top are in the interests of the worst-off.
http://www.nextleft.org/2009/08/rawslian-defence-of-top-pay.html

ukliberty @33 – It’s implicit in the question

@31 I was simply making the slightly humorous point that the question is slightly loaded – though I suspect that the result would indeed not be too different if you swapped “excessive” for “high”.

Though of course evidence of popularity is not a great argument for a policy other than that it may indeed be popular. (The death penalty is popular; halting immigration is popular; etc.)

I simply think that it would be self-defeating.
Regulating banking back “into the stone age” is probably not going to end up being helpful.
The activities of which you disapprove will simply move elsewhere.
They will not disappear.
I’m not sure that will leave the UK better off.

So #34 you concede where the money to pay for the NHS, welfare state, public sector etc comes from but you would destroy it anyway just to suit your political beliefs?

[33] “Surely we should do something about that which is excessive”

But who can judge what is excessive? Couldn’t any level of pay above that required to house, cloth and feed one’s family be deemed “excessive”? If not there, where do you draw the line? I accept I’m taking the argument reductio ad absurdum but these are the dangers. Who decides what is excessive and what happens if they are wrong?

@38 – he wouldn’t be destroying it though, would he?

You would.

No #40, we create the wealth and regulating us into the stone-age means we all leave and you dont have that wealth anymore. Sad but as simple as that. And as for avoiding globalisation talk to North Korea, they are the only other country to have tried that route.

@41: That sounds rather like the publican who ‘had’ to burn down his pub to get the insurance money.

We dont need to burn anything, we just sell up and up sticks out of the UK. Ideally we do so before sterling collapses under the weight of Brown’s tax increases and public spending binge. Most finance or other service professionals have an international outlook – they travel abroad, have friends abroad because they do business abroad. They aren’t brits without passports and they will go.

You don’t *have* to leave though. You could just as easily stay – so please, spare us the crocodile tears.

If you take away our source of wealth by regulating us into the stone age why would we stay? do you think there is something innately superior about this country that would make it worth that sacrifice? Maybe poverty is noble to you. Bankers dont have crocodile or other tears – they will be in their chalets in Switzerland or their apartments in Dubai or Manhattan earning revenues for those governments and quite happy about it.

“do you think there is something innately superior about this country”, he asks, then mentions buggering off to, er, Dubai…

Yeah, thanks for that – I needed a laugh!

Not everyones cup of tea but fantastic lifestyle to be had. But all that is besides the point, the tax revenues lost from Brits who have moved out there would probably fund a few government departments. Unfortunately you just can’t squeeze people via regulation or tax ‘until the pips squeak’ without them not generating you tax anymore. That is the bottom line. If you do find poverty noble then regulate and tax us into the stone age and you can live in the UK in stone age conditions!

Well, good luck explaining all that to the authorities in Dubai, when the inevitable day comes that you fuck up again and you’re attempting to hold their economy to ransom.

Honestly. Good luck…

47 – You’ve convinced me. I think we need to address this problem where people do not understand the importance of the work that you do, e.g. because they watch the biased BBC rather than bloomberg.

Perhaps one way of addressing this problem would be for you and other bankers who think as you do to have a weekly telly programme (“Trust Me – I’m a Banker”) in prime time on BBC 1 (and any other media outlets which you would like to make use of).

On this programme, you would get to explain to people about the work that you do as a banker and how vital it is that the UK ensures that its government is more hospitable to you and your co-workers, e.g. by lowering your taxes, reducing spending on public services which you do not need and would not like to have to pay for, and reducing all the burdensome regulations which you have to comply with, and to make sure that they understand the consequences of failing to do so.

I think this would be a very popular programme, and I would confidently predict that after, say, a month of such programmes, support for a High Pay Commission would no longer be at 65% amongst the general population.

50. Luis Enrique

This is a very silly discussion. No left-winger should wish to see one of the UK’s largest tax-generating export industries driven out of the country, and that possibility should be something that a High Pay Commission should take seriously. The finance industry might have cost us all a lot recently, mainly by causing a mega-recession (so crowing about wealth creation is misplaced), not so much via the bail-outs (on that subject, this article is worth reading), but it is not likely to do so again any time soon. At the same time, there are lots of potentially sensible reforms to pay that an HPC could recommend, that would make the finance industry a less destructive and less divisive presence in the UK, while doing little to move the industry overseas. The idea that the dense network of relationships that is the City of London is just going to upsticks and relocate to Dubai if renumeration is reformed and reduced, is just daft. One of the things I have been arguing on other threads (to no effect, to my dismay) is that reducing bonuses may just increase bank profits – banks who have just seen profits increase are unlikely to respond by moving to Dubai in order to pay their workers more and reduce their profits.

You helped crashed the world economy, you idiot! You do not create wealth, it was all a mirage. We’ve entered the largest crisis in capitalism in a century and you still consider bankers wealth creators?

The mediocre growth from the last few decades have almost vanished. Please leave, I don’t consider what you do wealth creation so I really wouldn’t miss you. There would be transition costs but in the long term it would really really be worth it.

The Financial Services Industry is bloated and overlarge, we really do not need it in its current form. Finance isn’t a balloon, when we push it down here it will not necessarily inflate in Dubai or in Shanghai. You will not just be able to float around the world doing as you please.

A concerted effort can shrink finance and put misallocated resources to use for the real economy, as in the post war years.

donpaskini is right. And of course, we all know how warmly the Great British Public react to having themselves and their governments pushed around by ‘indispensable’ industries.

53. Luis Enrique

“Please leave, I don’t consider what you do wealth creation so I really wouldn’t miss you.”

see now, I think that’s a daft thing to write (no offense Left Outside) because it really doesn’t stem from any clear picture of the “what you do” in question is, just some vague idea about “banking”. Although perhaps LO you are just exaggerating in the rhetorical heat of the moment.

The finance services industry does an awful lot of wealth creation [1]. However, parts of it do things that are (probably) not wealth creating – there’s been a good debate, largely on US econ blogs, about the value of “financial innovation”, but these innovations are only a small of the finance industry. Some informative articles on this subject are here , here and here

[1] I am repeatedly amazed how many people hold strong views on banking, while apparently having no idea about what role the finance sector plays in the economy.

cjcjc – I’d accept a fair bit of what your saying, including the fact that popular isn’t the same as right. Since, however, we are discussing whether a question in a poll may or may not be loaded I think arguing about the popularity of a viewpoint is fair.

Andy – I think the whole Private Sector = Creator of wealth that supplies our taxes argument is simplistic. I think a better way of thinking of it is in terms of goods bought freely (from our after tax income) and goods we are compelled to buy (through the taxes we pay), by doing this we can iron out anomalies such as private sector firms that are paid from the public purse and state owned firms that are run as businesses (not many of these in the UK).

Another point that is worth considering is that a huge amount of the economic activity in the UK is entirely domestic, most of the firm’s I’ve worked for would be unable to move because their income ultimately comes from the British consumer. I’d suspect that banking is similar in that it derives a lot of income from domestic customers, this bit of banking is not really mobile.

There is of course the subject of international banking income, I think that this has to a large degree flourished due to a high degree of political protection. If we take people like Simon Johnson and Joseph Stigliz at their word it would seem that international institutions do seem to have been on the side of western financial interests.

Luis – I think that ultimately the debate about banker renumeration is ultimately one about financial regulation. It’s a longer debate that I don’t have the time for here.

Donpaskini: I think this would be a very popular programme, and I would confidently predict that after, say, a month of such programmes, support for a High Pay Commission would no longer be at 65% amongst the general population.

Heh, excellent!

Unfortunately you just can’t squeeze people via regulation or tax ‘until the pips squeak’ without them not generating you tax anymore. That is the bottom line. If you do find poverty noble then regulate and tax us into the stone age and you can live in the UK in stone age conditions!

Honestly, I thought you ‘masters of the universe’ would understand nuance. Clearly not.

There are loads of economic arguments to be made on why extremely high pay in the finance sector is a mirage and shouldn’t be there because it makes the economy unstable.

You can’t come here everytime the discussion arises to say you’re going to move to Dubai and that we’re trying to push everyone into the stone ages. Makes you look like a twat and doesn’t bring you much sympathy.

Luis Enrique:
No left-winger should wish to see one of the UK’s largest tax-generating export industries driven out of the country, and that possibility should be something that a High Pay Commission should take seriously.

I’m seriously worried about your economic knowledge Luis. A finance sector CANNOT sustain the super-normal profits that were being generated over the last 20 years because they were based on highly-risky investments and shifting around debt and equity to make returns better than was the case. These people had not suddenly found the magic pill to increase productivity.

So in fact, if we see the high profits being generated again like the past – then we should be more sure than before that another massive crash will come along soon enough.

We’ve entered the largest crisis in capitalism in a century and you still consider bankers wealth creators?

Actually we now appear to be leaving it.
Sorry to disappoint you.

The mediocre growth from the last few decades have almost vanished.

At the end of this year OECD real GDP will still be around 90% higher than 25 years ago, even with a fall of over 4% this year. That fall takes us back not decades, but roughly to where we were towards the end of 2006.

All data available at http://www.oecd.org/oecdEconomicOutlook.

Luis,

[1] I am repeatedly amazed how many people hold strong views on banking, while apparently having no idea about what role the finance sector plays in the economy.

How long have you had an Internet connection? 🙂

cjcjc – I’ve bookmarked comment #56. Just letting you know…

@55: “There are loads of economic arguments to be made on why extremely high pay in the finance sector is a mirage”

Not everyone here is an expert on economics. As there are “loads” of arguments, perhaps you could list and explain the five best ones for us.

60. Luis Enrique

Sunny,

I am seriously worried about your reading skills! Again, I have no idea how you managed to take what I wrote, and come up with your response. Of course I do not think anybody discovered a super productivity pill and I agree that part of the profitability of the finance sector was explained by tactics that were only storing up trouble for later. Perhaps you are arguing with the Luis Enrique in your head?

I am particularly enjoying your concern for my knowledge of economics! I am the first to admit that I am a humble student in the foothills of the mountains of knowledge. How are you getting on with some of those papers I recommended for you here by the way? No? Thought not.

Luis Enrique – in which it’s difficult to know what you’re actually arguing for.

I suggest reading this article by Robert Peston on why such super-normal profits are bad for the economy:
http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/07/why_bankers_arent_worth_it.html

If your argument is that banks will have more profit by not paying people high wages – then I’d suggest there is still a problem with the financial sector if it continues to generate profits and revenues of the past two decades.

If your argument is that a recovering economy now means we should stop bashing the finance sector, then I don’t buy that either. They got us into this mess and we still don’t have a response to how to avert such big messes in the future.

If you think the crash was a one-off and wouldn’t happen again – then you need to learn sufficient lessons from this crash. Perhaps you could suggest the changes you would like to see happen?

In the meantime, people arguing that the finance sector will move enmasse to Dubai (has anyone read about their economy recently?) or that we’re going back to the stone ages needs to be laughed at.

[55] Sunny, he’s not trying to get sympathy for bankers. He’s trying to bring some realism. If we hit bankers and banks in general with punative tax rates they will up-sticks and go somewhere more tax friendly and we lose massive amount of tax revenue (McDonalds, Kraft, Proctor & Gamble, Google, EA and Yahoo have all moved their European headquarters to Switzerland in recent years – so don’t think companies won’t do it).

We can’t afford a £700bn state without bankers tax revenue. If we start punishing them with wage caps and high taxes they won’t worry about leaving us, and creating a massive deficit.

And don’t be ridiculous in thinking that bankers were solely responsible for this crisis. Governments around the world bought into the Greenspan bubble, kept interest rates artificially low, encouraged reckless sub-prime lending and were somehow surprised that bankers took risks to make money. The cosy global property consensus that was used to generate huge tax revenues was every bit as much the fault of governments around the world as it was bankers.

“Luis Enrique – in which it’s difficult to know what you’re actually arguing for.”

I think he wants to play at right-back…

Ummm cjcjc, I’m sure I’ve heard you mention deficits and debt before. The impact of this recession will be felt for decades in reduced GDP growth, or GDP growth being directed by taxation towards paying off the debt which has been accumulated.

Moreover, the financialisation of our economy means that higher growth could have been realised but resources were misdirected towards finance. In my view at least.

And GDP measurements suck, the economy is going to continue shedding jobs for months, possibly years, AND the countries that are pulling us out of recession are ones without seriously “deficient” financial sectors. Like China’s, Japan’s or those in SEA’s.

@Luis, yeah some rhetoric was involved, I want finance more simple, not stone age.

@Sunny H on Peston – damn right.

65. Luis Enrique

Sunny

Consider my flabber well and truly gasted.

You refer me to an article by Robert Peston, about returns on equity and leverage and risk, which a more astute reader might have noticed bears something of resemblance to the description I gave of leveraged investment and shareholder returns in this recent comment. And you think that article should cause me to reconsider my arguments.

So, I have been arguing all along that unless reforms affect how bank generate their income, simply moderating bonuses is unlikely to have the affect upon incentives you imagine, because if there is still money to be made from leveraging up and investing in exotic financial instruments, cutting the share of that money paid to bankers in the form of bonuses will simply increase the share retained as profit. You appear to be inching towards comprehension with this:

“If your argument is that banks will have more profit by not paying people high wages – then I’d suggest there is still a problem with the financial sector if it continues to generate profits and revenues of the past two decades.”

But you still don’t seem to see that the continued existence of “problems with the financial sector” is precisely what I am saying measures to restrain bonuses will fail to satisfactorily address. An argument that if you’d slowed down and thought about a bit more, rather than just leap straight in, in an attempt to show me how wrong I am, you might have understood from this earlier comment, perhaps.

“If your argument is that a recovering economy now means we should stop bashing the finance sector, then I don’t buy that either. They got us into this mess and we still don’t have a response to how to avert such big messes in the future.”

I’m the one arguing for more far reaching reforms than just fiddling about with bonuses, and you think I’m saying we should leave well alone. Mystifying.

“Perhaps you could suggest the changes you would like to see happen?”

Well, let’s see what happened last time I suggested using compulsory insurance[2] to penalise activity that leads to a build up of systemic risk, you told me that was “unworkable”. When I pointed out that’s the kind of thing that people like Nouriel Roubini and the Obama Administration propose … well, that fact appeared to pass you by.

“in which it’s difficult to know what you’re actually arguing for.”

yes, well I did rather get the sensation of banging my head against a brick wall. And so bloodied, I will retire.

[1] If I wanted to argue against myself here, I could argue that even in this shift in how income is divided will help, because shareholders will respond differently to bankers taking home annual bonuses. One would be placing rather a lot of faith in the ability shareholders to direct behaviour toward the long-term good, however, to think this sufficient. I have never argued that moderating bonuses will have no beneficial effects, only that the countervailing effect via profits has been ignored, in everything I have seen from from supporters of a HPC. And I have argued that changing the structure of bonuses is more important than changing the size of them.

[2] I hold no particularly candle for this way of skinning the cat.

Hi Luis,
So, I have been arguing all along that unless reforms affect how bank generate their income, simply moderating bonuses is unlikely to have the affect upon incentives you imagine

But I’ve never argued that merely dealing with bonuses will deal with the problem. Perhaps you could point somewhere to where I did that?

But you still don’t seem to see that the continued existence of “problems with the financial sector” is precisely what I am saying measures to restrain bonuses will fail to satisfactorily address

Like Tom Harris – you seem to misunderstand that I’m setting out policy proposals or even recommending what a HPC could do. I’ve never argued we should focus on restricting bonuses. You’re not reading my stuff well.

I’m the one arguing for more far reaching reforms than just fiddling about with bonuses, and you think I’m saying we should leave well alone.

Good – because that’s what I argue and that’s what the Compass letter argues.

Well, let’s see what happened last time I suggested using compulsory insurance[2] to penalise activity that leads to a build up of systemic risk, you told me that was “unworkable”.

I’m not sitting here setting out policy proposals. I’m arguing for a HPC which will do that in a detailed, considered way. I can’t remember dismissing your proposal, but if I did then apologies, I may have been referring to something else.

I don’t disagree that this is likely to be a sluggish recovery.
But whatever has happened, we have not lost “decades” worth of growth – we are back to where we (OECD average) were around two and a half years ago, having seen real GDP almost double since 1984.
Japan in fact has fared far worse with GDP up just 60% since 1984 and only 11% in the last 10 years, they will have lost 7% this year versus 3% in the US and 4% in the UK.
China of course has done far better, though many are now warning that they are blowing up their own bubble now.

I don’t want to cheerlead for bankers; far from it.
But this was more than the bankers’ fault – it was really the (cetainly unattractive and unsustainable) zeitgeist – but just as much spurred on by the regulators (esp Greenspan) who should have known better and are (is) still in denial.
Still, ultimately, you cannot regulate away cycles, even if you can (and should have) mitigated them. Running a fiscal surplus during the boom might have been a good idea for example!! But u-no-who thought he had abolished cycles…

But this is not the “end of capitalism”.
Nor will the recovery be aided by hobbling an industry in which the UK has successfully specialised over several centuries.

68. Luis Enrique

Just … when … I … thought … I … was … out …..

“You’re not reading my stuff well”

From here:

“I appreciate you are not saying that pay reforms are a silver bullet, I agree there are wider reforms to be made to the finance industry, and I know that your support for the commission does not amount to campaigning for crude pay ceilings”

I’m pretty sure I’ve read you right all way through. I know perfectly well that you are not setting out policy proposals or even recommending what a HPC could do, all I have been doing is putting forward an argument that I think supporters of the HPC, like yourself, need to listen to.

I have been trying to alert you to the problem of lower bonuses potentially just meaning higher profits, and the implications that has for the HPC and incentives within finance. I have read a fair bit about the HPC about how cutting bonuses could make the financial sector a healthier place, but nothing that shows any recognition that lower bonuses may just mean higher profits. I have been saying that when the HPC does its work, it ought to take this into account, and to do that first it’s going to need to recognize the problem .

The only reason I have been arguing with you over these threads* is that rather than responding with something like “ah, yes, good point” or “I see your point, but I think you are mistaken because …” you have consistently responded with (to my mind) weird objections that did not address what I was saying at all – whilst saying that you had “dealt with” my argument.

okay, I really must go – I hope this is mostly cleared up, and no hard feelings.

* aside from being the sort of loser that likes to get into arguments on the internet

Why are we talking about a HPC instead of a modified UK Glass-Steagall Act? Dont involve yourself in the intricacies of how banks manage themselves and pay their employees – governments and regulators will fail miserably when they involve themselves in the mechanics of how commercial entities conduct their businesses. They have always failed at this and always will – people who understand business work in business and not for governments or regulators – they simply couldn’t bear to.
However, if an institution poses a systemic risk (i.e cant be allowed to fail) it needs to shrink or cast off the parts of its business that pose a systemic risk. That is a task that regulators can perform as it is actually relatively simple to see when a bank could take down your economy if it went under. The banks could choose what to chop and change but would have to become non-systemic to the satisfaction of the reggulators.
This has been touted by the tories and the Bank of England and makes sense. It could be introduced unilaterally by the UK without hurting the competiveness of our banks for the simple reason that they are now international and the UK is but one of their markets (as it is for the foreign banks that operate here).

Here we are, $15 billion capital flight so far: http://online.wsj.com/article_email/SB125115257255854987-lMyQjAxMDI5NTIxNTEyNTUyWj.html

And remember, hedge funds didn’t play any significant role in the crash so it is not even as if the higher taxes are chucking out the right people!

It’s not quite right to call that $15billion of “capital flight” – those hedge fund assets will not be (or will only minimally be) invested in UK productive assets.

But it is certainly pretty clear that – as the IFS and others predicted – that the 50% tax rate will reduce the tax take not increase it as the managers of those assets and others move overseas, also taking the lower but decently paid admin jobs with them alas.

But Brown we know cares little and understands even less about the economics – it’s all about the politics.

By Tommy Stubbington and Andrew MacAskill
Aug. 26 (Bloomberg) — Andrew Wesbecher moved to London from New York in 2006 to sell software to banks and hedge funds.
This month he joined the exodus of American expatriates fleeing high taxes and the city’s shrinking financial industry.
“I’m the last guy to leave that I know,” said Wesbecher, 29, who worked for Tibco Software Inc. and lived in Notting Hill, the London neighborhood that’s home to billionaire Richard Branson and model Elle Macpherson. “We are all packing up.”
The number of U.S. citizens in Britain fell 3.8 percent to 126,000 in the 12 months through September, according to the Office for National Statistics. The trend probably continued this year, with the Confederation of British Industry estimating the U.K. financial industry will lose about 45,000 jobs in the first nine months of 2009, or 4.3 percent of the total.
Americans are heading home as Britain plans a 50 percent tax rate for those who earn more than 150,000 pounds ($248,000) a year and employers cut benefits for workers living abroad, reducing the allure of London. That comes a year after the U.K.
said foreigners who have lived in the country for more than seven years must pay 30,000 pounds annually or give up the special status that shields overseas income from British taxes.
“Expats feel the tone has changed; it’s less welcoming,”
said Mark Tilden, a consultant at CRA International Inc. who wrote a report for the City of London last year on the impact of taxation on corporate relocation decisions. “London’s ability to attract talent has gone down.”

@73 – I have no time for the pointless PR guff of the city’s spin machine.

Dont worry about the guff then, focus on the stats. The stats are that multinational companies, expats and now british professionals are leaving the UK in droves and have been for a while now. The tax hike was only announced recently so most of these (like my friends and colleaues) haven’t actually moved yet, they are in the process of doing so. As has been said many times before in this blog, the UK has lost manufacturing and it ain’t coming back – we are on the verge of losing much of our service industry and if that happens the decline in our living standards will be precipitous.

Wow, people are leaving a boom town now the boom is over!

But of course it must all be because the government are fiddling with the rates of taxes those people don’t even pay. Of course…

Rufus – It is clearly PR, being pushed in the political interests of high earners, bit that’s another story.

I always get very alarmed when people talk about the “growth” of our financial industry or the need for it to remain “comptetive”, I don’t think that finance can be treated in the same way asother industries. Finance does not produce anything, it’s simply facilitates other purchases, it’s a middle man.

What we have now is a situation where 25% of the profits of useful economic activity is going to middle men. We have economic problems, no doubt, but the solution is does not lie in sucking up to the finance industry.


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