Brainwashed by the cult of the super-rich

Followers, in thrall to Harrods and Downton Abbey, repeat the mantra that the greed of a few means prosperity for all

• 
• • Priyamvada Gopal
  • The Guardian, Wednesday 25 December 2013 17.00 GMT

'We are invited to deceive ourselves into believing we are playing for the same stakes while worshipping the same ideals, a process labelled ­'aspiration'.' Photograph: Alamy

Last week, Tory MP Esther McVey, Iain Duncan Smith's deputy, insisted it was "right" that half a million Britons be dependent on food banks in "tough times". Around the same time, the motor racing heiress Tamara Ecclestone totted up a champagne bill of £30,000 in one evening. A rich teenager in Texas has just got away with probation for drunkenly running over and killing four people because his lawyers argued successfully that he suffered from "affluenza", which rendered him unable to handle a car responsibly. What we've been realising for some time now is that, for all the team sport rhetoric, only two sides are really at play in Britain and beyond: Team Super-Rich and Team Everyone Else.

The rich are not merely different: they've become a cult which drafts us as members. We are invited to deceive ourselves into believing we are playing for the same stakes while worshipping the same ideals, a process labelled "aspiration". Reaching its zenith at this time of year, our participation in cult rituals – buy, consume, accumulate beyond need – helps mute our criticism and diffuse anger at systemic exploitation. That's why we buy into the notion that a £20 Zara necklace worn by the Duchess of Cambridge on a designer gown costing thousands of pounds is evidence that she is like us. We hear that the monarch begrudges police officers who guard her family and her palaces a handful of cashew nuts and interpret it as eccentricity rather than an apt metaphor for the Dickensian meanness of spirit that underlies the selective concentration of wealth. The adulation of royalty is not a harmless anachronism; it is calculated totem worship that only entrenches the bizarre notion that some people are rich simply because they are more deserving but somehow they are still just like us.

Cults rely on spectacles of opulence intended to stoke an obsessive veneration for riches. The Rich Kids of Instagram who showed us what the "unapologetically uber-rich" can do because they have "more money than you" will find further fame in a novel and a reality show. Beyond the sumptuous lifestyle spreads in glossies or the gift-strewn shop windows at Harrods and Selfridges, and Gwyneth Paltrow's Goop website, shows like Downton Abbey keep us in thrall to the idea of moolah, mansions and autocratic power. They help us forget that wealthy British landowners, including the Queen, get millions of pounds in farming subsidies while the rest of us take back to the modest homes, which we probably don't own, lower salaries and slashed pensions. Transfixed by courtroom dramas involving people who can spend a small family's living income on flower arrangements, we don't ask why inherited wealth is rewarded by more revenue but tough manual labour or care work by low wages.

Cue the predictable charge of "class envy" or what Boris Johnson dismisses as "bashing or moaning or preaching or bitching". Issued by its high priests, this brand of condemnation is integral to the cult of the rich. We must repeat the mantra that the greed of a few means prosperity for all. Those who stick to writ and offer humble thanks to the acquisitive are contradictorily assured by mansion-dwellers that money does not buy happiness and that electric blankets can replace central heating. Enter "austerity chic" wherein celebrity footballers are hailed for the odd Poundland foray, millionaire property pundits teach us how to "make do" with handmade home projects and celebrity chefs demonstrate how to "save" on ingredients – after we've purchased their money-spinning books, of course.

Cultish thinking means that the stupendously rich who throw small slivers of their fortunes at charity, or merely grace lavish fundraisers – like Prince William's Winter Whites gala for the homeless at his taxpayer-funded Kensington Palace home – with their presence, become instant saints. The poor and the less well-off, subject to austerity and exploitation, their "excesses" constantly policed and criminalised, are turned into objects of patronage, grateful canvasses against which the generosity of wealth can be stirringly displayed. The cult of the rich propounds the idea that vast economic inequalities are both natural and just: the winner who takes most is, like any cult hero, just more intelligent and deserving, even when inherited affluence gives them a head start.

We are mildly baffled rather than galvanised into righteous indignation when told that the rich are being persecuted – bullied for taxes and lynched for bonuses. The demonising of the poor is the flip side of the cult of the rich or, as a friend puts it, together they comprise the yin and yang of maintaining a dismal status quo. It is time to change it through reality checks, not reality shows.

Europe is haunted by the myth of the lazy mob

It suits the wealthy to turn the debate about poverty into a morality tale, but the reality is that inequality is structural

• 
• • Ha-Joon Chang
  • The Guardian, Tuesday 29 January 2013

'Markets are frequently rigged in favour of the rich.' Photograph: Justin Lane/EPA

"A spectre is haunting Europe." Thus began the famous opening passages of The Communist Manifesto by Karl Marx and Friedrich Engels.

Today, once again, Europe is haunted by a spectre. But, unlike back in 1848 when Marx and Engels wrote those passages, it is not communism, but laziness.

Gone are the days when the upper classes were terrified of the angry mob wanting to smash their skulls and confiscate their properties. Now their biggest enemy is the army of lazy bums, whose lifestyle of indolence and hedonism, financed by crippling taxes on the rich, is sucking the lifeblood out of the economy.

In Britain, the coalition government constantly slags off those welfare slobs in the working class suburbs, sleeping off their hard night's slog with Sky Sports and online casino. It is their shameless demand for "something for nothing", pandered to by the previous Labour government, we are told, that has created the huge deficits that the country is struggling to get rid of.

In the eurozone, many believe that its fiscal crisis can be ultimately traced back to those lazy Mediterranean types in Greece and Spain, who had lived off hard-working Germans and Dutch, spending their time sipping espresso and playing card games. Unless those people start working hard, it is said, the eurozone's problems cannot be fixed.

The problem with this story is that it is, well, just a story.

First of all, it is important to reiterate that the fiscal deficits in the European countries, including Britain, are largely due to the fall in tax revenues following the finance-induced recession, rather than to the rise in welfare spending. So, attacking the poor and eviscerating the welfare state is not going to cure the underlying cause of the deficits.

Moreover, on the whole, poorer people typically work harder. They usually work in jobs with longer hours and tougher working conditions. Except for a tiny minority, they are poor despite the welfare state, not because of it.

The point comes into a sharper relief, if we compare nations. According to the Organisation for Economic Co-operation and Development, people in Greece, that famous nation of skivers, worked on average 2,032 hours in 2011 – only a shade less than the supposedly workaholic South Koreans (2,090 hours). In the same year, the Germans worked only 70% as long (1,413 hours), while the Netherlands was officially the "laziest" nation in the world, with only 1,379 hours of work per year. These numbers tell us that, whatever else is wrong with Greece, it is not the laziness of their people.

Now, if the laziness story has such flimsy bases in reality, why is it so widely believed? It is because, in the past three decades of dominance by free-market ideology, many of us have come to believe in the myth of the individual fully in charge of his/her destiny.

Starting from Disney animations we watch as young children telling us that "if you believed in yourself, you can achieve anything", we are bombarded with the message that individuals, and they alone, are responsible for what they get in their lives. This is what I call the L'Oreal principle – if some people are paid tens of millions of pounds a year, it must be because they're "worth it"; if others are poor, it must be because they are either not good enough or not trying hard enough.

Now, it is politically difficult to criticise the poor for their incompetence, so the attack is focused on the mythical lazy slob, who has no moral leg to stand on. But then the end result is the dismantling of a whole set of policies and institutions that help all poor people in the name of punishing the lazy.

The beauty of this worldview – for those who disproportionately benefit from the current system – is that, by reducing everything down to individuals, it draws people's attention away from the structural causes of poverty and inequality.

It is well known that poor childhood nutrition, lack of learning stimulus at deprived homes, and sub-par schools restrict capability developments of poor children, diminishing their future prospects. When they grow up, they have to contend with all sorts of prejudices that constantly discourage and deflate them, especially if they have the wrong gender or the wrong skin colour.

With these sandbags on their legs, the poor find it difficult to win the race even in the fairest market. Markets are frequently rigged in favour of the rich, as we have seen from a series of recent scandals surrounding deliberate mis-selling of financial products, lies told to the regulators, to the rigging of the Libor rate.

More importantly, money gives the super-rich the power even to rewrite the basic rules of the game by – let's not mince our words – buying up politicians and political offices (think of all those former banker-turned-US treasury secretaries). Many deregulations of the financial and the labour market, as well as tax cuts for the rich, in the last three decades are results of such money politics.

By turning the debate into a morality tale of laziness, the rich and powerful can divert people's attention away from all of these structural problems that create more poverty and inequality than is necessary.

All of this is not to say that individual talents and efforts should not be rewarded. Attempts to completely suppress them can create societies that are ostensibly equal but fundamentally unfair, as in the former socialist countries.

However, it is vital to recognise that poverty and inequality also have structural causes and start a real debate on how to change those things. Ridding the debate of the pernicious and baseless myth of the lazy mob is an important first step in that direction.

David Cameron has to maintain that the unrest has no cause except criminality – or he and his friends might be held responsible

These riots reflect a society run on greed and looting

• 
• • Seumas Milne
  • guardian.co.uk, Wednesday 10 August 2011 22.39 BST
  • larger | smaller

David Cameron talks to acting borough commander superintendent Jo Oakley during a visit to Croydon to view the destruction from the riots. Photograph: Wpa Pool/Getty Images
It is essential for those in power in Britain that the riots now sweeping the country can have no cause beyond feral wickedness. This is nothing but "criminality, pure and simple", David Cameron declared after cutting short his holiday in Tuscany. The London mayor and fellow former Bullingdon Club member Boris Johnson, heckled by hostile Londoners in Clapham Junction, warned that rioters must stop hearing "economic and sociological justifications" (though who was offering them he never explained) for what they were doing. When his predecessor Ken Livingstone linked the riots to the impact of public spending cuts, it was almost as if he'd torched a building himself. The Daily Mail thundered that blaming cuts was "immoral and cynical", echoed by a string of armchair riot control enthusiasts. There was nothing to explain, they've insisted, and the only response should be plastic bullets, water cannon and troops on the streets. We'll hear a lot more of that when parliament meets – and it's not hard to see why. If these riots have no social or political causes, then clearly no one in authority can be held responsible. What's more, with many people terrified by the mayhem and angry at the failure of the police to halt its spread, it offers the government a chance to get back on the front foot and regain its seriously damaged credibility as a force for social order. But it's also a nonsensical position. If this week's eruption is an expression of pure criminality and has nothing to do with police harassment or youth unemployment or rampant inequality or deepening economic crisis, why is it happening now and not a decade ago? The criminal classes, as the Victorians branded those at the margins of society, are always with us, after all. And if it has no connection with Britain's savage social divide and ghettoes of deprivation, why did it kick off in Haringey and not Henley? To accuse those who make those obvious links of being apologists or "making excuses" for attacks on firefighters or robbing small shopkeepers is equally fatuous. To refuse to recognise the causes of the unrest is to make it more likely to recur – and ministers themselves certainly won't be making that mistake behind closed doors if they care about their own political futures. It was the same when riots erupted in London and Liverpool 30 years ago, also triggered by confrontation between the police and black community, when another Conservative government was driving through cuts during a recession. The people of Brixton and Toxteth were denounced as criminals and thugs, but within weeks Michael Heseltine was writing a private memo to the cabinet, beginning with "it took a riot", and setting out the urgent necessity to take action over urban deprivation. This time, the multi-ethnic unrest has spread far further and faster. It's been less politicised and there's been far more looting, to the point where in many areas grabbing "free stuff" has been the main action. But there's no mystery as to where the upheaval came from. It was triggered by the police killing a young black man in a country where black people are 26 times more likely to be stopped and searched by police than their white counterparts. The riot that exploded in Tottenham in response at the weekend took place in an area with the highest unemployment in London, whose youth clubs have been closed to meet a 75% cut in its youth services budget. It then erupted across what is now by some measures the most unequal city in the developed world, where the wealth of the richest 10% has risen to 273 times that of the poorest, drawing in young people who have had their educational maintenance allowance axed just as official youth unemployment has reached a record high and university places are being cut back under the weight of a tripling of tuition fees. Now the unrest has gone nationwide. But it's not as if rioting was unexpected when the government embarked on its reckless programme to shrink the state. Last autumn the Police Superintendents' Association warned of the dangers of slashing police numbers at a time when they were likely to be needed to deal with "social tensions" or "widespread disorder". Less than a fortnight ago, Tottenham youths told the Guardian they expected a riot. Politicians and media talking heads counter that none of that has anything to do with sociopathic teenagers smashing shop windows to walk off with plasma TVs and trainers. But where exactly did the rioters get the idea that there is no higher value than acquiring individual wealth, or that branded goods are the route to identity and self-respect? While bankers have publicly looted the country's wealth and got away with it, it's not hard to see why those who are locked out of the gravy train might think they were entitled to help themselves to a mobile phone. Some of the rioters make the connection explicitly. "The politicians say that we loot and rob, they are the original gangsters," one told a reporter. Another explained to the BBC: "We're showing the rich people we can do what we want." Most have no stake in a society which has shut them out or an economic model which has now run into the sand. It's already become clear that divided Britain is in no state to absorb the austerity now being administered because three decades of neoliberal capitalism have already shattered so many social bonds of work and community. What we're now seeing across the cities of England is the reflection of a society run on greed – and a poisonous failure of politics and social solidarity. There is now a danger that rioting might feed into ethnic conflict. Meanwhile, the latest phase of the economic crisis lurching back and forth between the United States and Europe risks tipping austerity Britain into slump or prolonged stagnation. We're starting to see the devastating costs of refusing to change course.

• © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved.

The Super Rich Sabotage The Arab Revolutions

By Shamus Cooke

20 June, 2011
Countercurrents.org

With revolutions sweeping the Arab world and bubbling-up across Europe, aging tyrants or discredited governments are doing their best to cling to power. It's hard to over-exaggerate the importance of these events: the global political and economic status-quo is in deep crisis. If pro-democracy or anti-austerity movements emerge victorious, they'll have an immediate problem to solve -- how to pay for their vision of a better world. The experiences thus far in Egypt and Greece are proof enough that money matters. The wealthy nations holding the purse strings are still able to influence the unfolding of events from afar, subjecting humiliating conditions on those countries undergoing profound social change.

This strategy is being ruthlessly deployed in the Arab world. Take for example Egypt, where the U.S. and Europe are quietly supporting the military dictatorship that replaced the dictatorship of Hosni Mubarak. Now Mubarak's generals rule the country. The people of Egypt, however, still want real change, not a mere shuffling at the top; a strike wave and mass demonstrations are testing the power of the new military dictatorship.

A strike wave implies that Egyptians want better wages and working conditions; and economic opportunity was one of the central demands of the revolutionaries who toppled Mubarak. But revolutions tend to have a temporarily negative effect on a nation's economy. This is mainly because those who dominate the economy, the rich, do their best to sabotage any social change.

One defining feature of revolutions is the exodus of the rich, who correctly assume their wealth will be targeted for redistribution. This is often referred to as "capital flight.” Also, rich foreign investors stop investing money in the revolutionary country, not knowing if the company they're investing in will remain privately owned, or if the government they're investing in will strategically default and choose not to pay back foreign investors. Lastly, workers demand higher wages in revolutions, and many owners would rather shut down -- if they don't flee -- than operate for small profits. All of this hurts the economy overall.

The New York Times reports:

"The 18-day [Egyptian] revolt stopped new foreign investment and decimated the pivotal tourist industry... The revolution has inspired new demands for more jobs and higher wages that are fast colliding with the economy's diminished capacity...Strikes by workers demanding their share of the revolution's spoils continue to snarl industry... The main sources of capital in this country have either been arrested, escaped or are too afraid to engage in any business..." (June 10, 2011).

Understanding this dynamic, the rich G8 nations are doing their best to exploit it. Knowing that any governments that emerge from the Arab revolutions will be instantly cash-starved, the G8 is dangling $20 billion with strings attached. The strings in this case are demands that the Arab countries pursue only "open market" policies, i.e., business-friendly reforms, such as privatizations, elimination of food and gas subsidies, and allowing foreign banks and corporations better access to the economy. A separate New York Times article addressed the subject with the misleading title, Aid Pledge by Group of 8 Seeks to Bolster Arab Democracy:

"Democracy, the [G8] leaders said, could be rooted only in economic reforms that created open markets ...The [$20 billion] pledge, an aide to President Obama said, was “not a blank check” but “an envelope that could be achieved in the context of suitable [economic] reform efforts.” (May 28, 2011).

The G8 policy towards the Arab world is thus the same policy the International Monetary Fund (IMF) and World Bank have pursued against weaker nations that have run into economic problems. The cure is always worse than the disease, since "open market" reforms always lead to the national wealth being siphoned into the hands of fewer and fewer people as public entities are privatized, making the rich even richer, while social services are eliminated, making the poor even poorer. Also, the open door to foreign investors evolves into a speculative bubble that inevitably bursts; the investors flee an economically devastated country. It is no accident that many former IMF "beneficiary" countries have paid off their debts and denounced their benefactors, swearing never to return.

Nations that refuse the conditions imposed by the G8 or IMF are thus cut off from the capital that any country would need to maintain itself and expand amid a time of social change. The rich nations proclaim victory in both instances: either the poorer nation asks for help and becomes economically penetrated by western corporations, or the poor country is economically and politically isolated, punished and used as an example of what becomes of those countries that attempt a non-capitalist route to development.

Many Arab countries are especially appetizing to foreign corporations hungry for new investments, since large state-run industries remain in place to help the working-class populations, a tradition begun under the socialist-inspired Egyptian President, Gamal Abdel Nasser that spread across the Arab world. If Egypt falls victim to an Iraq-like privatization frenzy, Egypt's working people and poor will pay higher prices for food, gas, and other basic necessities. This is one reason, other than oil, that many U.S. corporations would also like to invade Iran.

The social turmoil in the Arab world and Europe have fully exposed the domination that wealthy investors and corporations have over the politics of nations. All over Europe "bailouts" are being discussed for poorer nations facing economic crises. The terms of these bailout loans are ruthless and are dictated by nothing more than the desire to maximize profits. In Greece, for example, the profit-motive of the lenders is obvious to everyone, helping to create a social movement that might reach Arab proportions. The New York Times reports:

"The new [Greece bailout] loans, however, will only be forthcoming if more austerity measures are introduced...Along with faster progress on privatization, Europe and the [IMF] fund have been demanding that Greece finally begin cutting public sector jobs and closing down unprofitable entities." (June 1, 2011).

This same phenomenon is happening all over Europe, from England to Spain, as working people are told that social programs must be slashed, public jobs eliminated, and state industries privatized. The U.S. is also deeply affected, with daily media threats about the "vigilante bond holders" [rich investors] who will stop buying U.S. debt if Social Security, Medicare, and other social services are not eliminated.

Never before has the global market economy been so damningly exposed as biased and dominated by the super-wealthy. These consciousness-raising experiences cannot be easily siphoned into politicians promising "democracy,” since democracy is precisely the problem: a tiny minority of super-rich individuals have dictatorial power due to their enormous wealth, which they use to threaten governments who don't cater to their every whim. Money is thus given to subservient governments and taken away from independent ones, while the western media never questions these often sudden shifts in policy, which can instantly transform a longtime U.S. ally into a "dictator" or vice-versa.

The toppling of dictators in the Arab world has immediately raised the question of, "What next"? The economic demands of working people cannot be satisfied while giant corporations dominate the economy, since higher wages mean lower corporate profits, while better social services require that the rich pay higher taxes. These fundamental conflicts lay just beneath the social upheavals all over the world, which came into maturity with the global recession and will continue to dominate social life for years to come. The outcome of this prolonged struggle will determine what type of society emerges from the political tumult, and will meet either the demands of working people or serve the needs of rich investors and giant corporations.

Shamus Cooke is a social service worker, trade unionist, and writer for Workers Action ( www.workerscompass.org ) He can be reached at shamuscooke@gmail.com

Don't worry Kate, there will never be a royal expenses row

Independent.co.uk
Yasmin Alibhai-Brown:

The entourage to Canada and the US will be 'humble' with only seven adults accompanying the couple. The national self-delusion is now untreatable

Monday, 20 June 2011

Pictures of Kate Middleton appear daily on the front pages. Last week, she showcased clothes costing £12,000. Didn't she look lovely? She smiled and waved too – such an exhausting job, who would want it? All the aspirational young women lining up to apply to St Andrews where Katie bagged her prince. The university is about to team up with the elite American William and Mary College in Virginia (note the monarchist moniker) to charge £18,000 a year for a joint BA degree. Perhaps the next Mrs Simpson will also come from there – rich North Americans love aristocratic connections and all things royal. And this summer they are in for the biggest treat.

The Duke and Duchess of Cambridge (what do these titles mean? Is a duke higher than a prince? Who bloody cares?) are preparing to visit Canada and the US for their first official overseas tour starting 30 June. Expect a flood of images, nauseating sycophancy, endless smiles and airhead fashionista commentaries. The entourage will be "humble", say loyal watchers, with only seven adults accompanying the couple. So no lackey to put toothpaste on to a toothbrush, something Prince Charles must have. More modest still, no dresser or Lady in Waiting. And the people are lapping it all up, like hungry cats round a cream bowl. The downturn? Economic hard times? Cuts and public sector strikes? All the people need are the diverting accounts of the undeserving rich to get by. Only the really curmudgeonly or perfidious Commies would say otherwise. Those of us who can't stand the circus are made to feel treacherous outsiders – a cold place to be.

After the euphoria of the wedding, the phenomenal success of The King's Speech, the honeyed tributes to rude Prince Philip on his 90th birthday, I feel almost defeated. We republicans are losing the battle. There were moments when it seemed as if the nation was shaking, shuddering with righteous indignation at appalling royal behaviour. That fever went down, and we are back to the status quo.

In our flawed democracy, some are born to lord it over us, even if they are stupid, unattractive (in all senses), immoral, badly behaved, drunk, spoilt, adulterous, callous and irresponsible. Examples can be provided for all of these within the present lot of royals. Going back, the list would get more colourful still, with a long line of serious miscreants and corrupt blue-bloods. The point though is that even if they are perfect, they were handed status and wealth at birth and that is wrong. This Queen certainly deserves respect for her diplomacy and for embodying the transition from the British Empire to post-colonial nationhood. But she heads a morally indefensible institution and can't see the harm that does. This year, just after it was revealed that Prince Andrew, the wastrel "helicopter prince", was flying around doing deals with dodgy dictators, his mum stuck more medals on him and later on their irascible dad too, just a birthday present.

But, alas this country's not for turning. A cunningly managed restoration of popularity has ensured the future of the monarchy. Charles will be King; then William. Kate, the millionaires' daughter, will beget an heir and they will live happily ever after. And the people will happily pay for them. There is never going to be a royals expenses row. They are exempt from the Freedom of Information Act, though they cost us millions, including their tax-free allowances and gargantuan security costs. It still isn't enough. In 2010, the Queen tried to get money for palace repairs from a state fund set aside for energy-saving changes to homes and hospitals. "Relative poverty" took on a whole new meaning then, as does the "relative" frugality of the coming Canadian trip.

Defenders of the family say their palaces attract tourists. In India after independence, they got rid of their Maharajahs and Maharanis but retained the opulent residences. Tell me the country gets fewer tourists because they don't have real royals any more. And anyway, only a small part of our tourism industry (one fifth) comes from overseas visitors – the sector as a whole makes up about 9 per cent of GDP. Legoland in Windsor has more visitors by far than Windsor castle. Supporters also exaggerate the effectiveness of British royals. The Queen's remarkable visit to Ireland, her undoubted dignity and moving speech, are given as an example. Was the Irish President Mary McAleese any less dignified or impressive? If they believe that, the national self-delusion is now untreatable.

One Quebec legislator, Amir Khadir, denounced the visit of the "parasites" and the Canadian premier quickly intervened, affirming that his people hold the couple "in very great esteem". That esteem should come only when the couple show they understand what so many of their people are going through. Britain is barely recovering from economic depths it reached last year. More than 100,000 disabled children will no longer receive extra money to help them cope; many families are already living below the poverty line and more will join them as new rules are passed. Kate, meanwhile, wears a gown costing nearly £5,000 to raise money for charity. A fat donation without the costly extravaganza would have done more good and appeared less self-serving.

Why aren't people more angry? They were with expense-claiming MPs who do long hours and put themselves up for tortuous elections. Even in Swaziland, where the King and his many wives rule absolutely, the women of the nation came out in 2008 to demonstrate against the outrageous royal lifestyles. Think about that.

The furious brigade will send off missives about how I have no right to criticise "their" Queen. Let them remember she was my Queen when I was born under the imperial sun. Previously her ancestors declared themselves rulers in India and elsewhere, without popular consent. Here, though, most of the people consent to the most blatant symbol of inequality and celebrate it. Kate has given them more reason and the jubilee next year gives them another boost.

Republicanism may well come to Swaziland one day. But not here. Not ever. Game, set and match to the wasteful Windsors.

Call the fat cats’ bluff and tax their preposterous pay fairly

September 2, 2007
Simon Jenkins

Prison officers last week went on strike over a pay rise of 2.5%, phased. The heads of Britain’s 100 biggest companies have had 37%, unphased, as presumably are its recipients. The bosses won 28% more last year, 16% the year before and 13% and 23% in the two preceding years, yielding an average pay of £2.8m a head or 20 times the rise in price inflation. Under Labour, these company directors have stretched their remuneration to almost 100 times average earnings, a gap unprecedented since the rise of modern taxation.

Is this a good or bad thing? Any pay package is, like beauty, in the eye of the beholder. But for an entire class of workers to receive sequential increases of 37%, 28% and 16% suggests a serious leakage of cash from businesses into the pockets of those at the top. Nor is there any noticeable relationship of pay to company size or success. Last week Eric Nicoli left as boss of EMI after eight years in which the company faltered and its share price fell by 40%. Yet he received £800,000 a year in salary and was given a leaving present of £2.8m.

Cash bonuses mostly in financial services are beyond the imaginings of wage slaves. Bob Diamond, who works at (but does not even run) the floundering Barclays Bank, took a bonus of £10.4m this year. Sir Fred Goodwin of the Royal Bank of Scotland took £2.7m. Last month’s Guardian/Office for National Statistics survey reported that bonuses overall increased 30% in 2007 to £14 billion, double last year’s rise. Readers may be tempted to ask how people contrive to dispose of such sensational winnings each year.

The apologists have been in full cry. A simple response is to play the comparisons game. These companies are the size of small states and their leaders have a right to tax their workers and shareholders accordingly. So implies Peter Newhouse, the survey’s author, and a consultant with Reward Technology Forum. He says we should publicise rewards as “an important message to able and aspirational young people”. The CBI adds that companies must pay “the going rate” or competitive talent will float offshore and something called UK plc will suffer. Britain now depends for a third of its income on financial services, so do not kill the geese that lay the golden eggs.

Nor is that all. As this money swills through the pockets of bonus recipients, say the apologists, it “trickles down”, finding an outlet not just in blue-chip properties but in cars, restaurants, holidays, nannies, clothes, hunting stables and Cotswold interiors, most with a high labour content. The incomes of the very rich allegedly redistribute to the poor faster through personal expenditure than through taxation. This is plausible given how much of the latter goes on white collar salaries, fees and subsidies.

But all this is special pleading. In allowing himself to be bluffed by the super-rich, that they will emigrate if he properly taxes their earnings, Gordon Brown falls for the Mandy Rice-Davies retort: they would say that, wouldn’t they. As for dangling £2m bonuses before the young, it is like Margaret Thatcher telling young women to find themselves rich husbands. Other proffered comparisons, such as between executives and Elton John and David Beckham, ignore the fact that such celebrities operate in a truly open market, do not determine their own incomes and, unlike City firms, receive no public money.

Anyone who has served on a corporate remuneration committee knows how it operates. It puts pay decisions out to consultants who, like the nonexecutives, the headhunters and senior management as a whole, have a vested interest in inflated incomes. Everyone scratches everyone’s back.

Discussion is not concerned with market forces but public relations. How will an outrageous bonus look to the press? Can shareholders and investors be fooled?

Apart from such rare company doctors as Stuart Rose of Marks & Spencer, who can add value out of proportion to their price, Britain is experiencing the same breakdown in top pay restraint that JK Galbraith noted in America. Corporate remuneration, he remarked, was nothing to do with the marketplace but was a heart-warming gift from executives and their friends to each other, a gift that had grown so large as to “verge on larceny”.

I suspect that wildly extravagant short-term “incentives” are as likely to distort performance as boost it, as is the case with Whitehall public service targets. As for the idea that a 37% pay rise will trickle down to help the poor, this might pass muster as an economics essay but it will get short shrift in the canteen where 2.5% is the norm. Why does trickle-down not apply to them?

The claim that executives with families well installed in London and country houses will suddenly vanish to Monaco or the Cayman Islands if not paid millions more each year (or if fully taxed on those millions) is absurd. It ignores the role of location, lifestyle and other nonpecuniary perks in a modern executive’s career package.

Being well regarded for running a successful company should be more satisfying than a reputation for greed, as BP’s Lord Browne and the privatisation “fat cats” of the 1980s found to their anguish. London’s financial preeminence is based primarily on its lax market regulation and its agreeable living conditions for those not reliant on public services. Businesses will leave Britain not when executives are properly taxed but when they start losing money.

I prefer to kick all this out of court. The rich, like the poor, are always with us. There is no morality in economics. The exponential rise in corporate pay is a hangover from the 1986 Big Bang phase of Thatcherite capitalism. If it had anything to do with free competition, there would have been a rush of talent into this market sector and a consequent fall in pay. That has not happened.

Two forces are influencing top people’s pay. The first is structural. The fortunes recently made in the City are largely due to a shift from lumbering corporate suppliers of financial services, such as banks and brokers, to fast-moving individuals and partnerships. I see no harm in this. More worrying is the new cartels, like those that the Big Bang supposedly smashed. Just four accountancy firms control large-scale audit and have spilt over into public/private finance. Half of management consultancy, again involving a small group of firms, relies on work from government. The rise in statutory regulation under Labour has sent legal and other professional bonuses soaring. As Adam Smith said, people of the same trade never meet “even in merriment” but to conspire to raise prices. This is government’s doing.

The other force is political. The widening of the pay gap, which has not occurred in continental Europe, followed the disempowering of organised labour by Margaret Thatcher and Tony Blair, vigorously supported by Brown at the Treasury. This has released corporate Britain from any sense of self-restraint. Indulging tax loopholes for the rich while ordering workers to shoulder the fight against inflation may help Brown sound macho in the City, but it is high-risk politics.

A real sense of unfairness greeted the revelation that a number of the richest participants in economic success were, de facto, being subsidised by the rest through private equity tax evasion and/or nondomicilary status. The same anger was unleashed by the disclosure that a shift in the economy from manufacturing to financial services had led to a shift in profits to offshore tax havens.

Any lobbyist can cobble together special pleading for such antics, but they will not wash for millions of hardworking, tax-paying Britons. Low taxes for all are good, but tax breaks for a privileged few are wrong. The rising tide of wealth should float every boat, not just executive yachts.

As most people see their incomes slide ever further behind those about whom they read in the papers, they will be more inclined to cry halt. Democracy may not be the force it was, but it can deliver politicians an occasional kick, as can industrial relations. The prison officers may yet prove a straw in a wind that sweeps up others in its tail.

The days of statutory pay restraint are mercifully past, replaced in Britain by the most fluid labour market in Europe. But government vigilance is needed to retain that fluidity, and a regard for fairness to back it up.

Capital and labour will never coexist in a climate of equality, but some respect for equity must underpin the nation’s social contract. Otherwise we shall be back to the bitter divisions of the 1970s, where nobody wants to go.