Following Royal Bank of Scotland CEO Stephen Hester’s rejection of his £963,000 bonus, bankers and their salaries have come under a large amount of scrutiny. This issue has been ubiquitous since the recession began, with the public questioning whether during a time of financial austerity bankers should be allowed to receive such large amounts of money as a top-up to their already high wages.
Bankers’ bonuses are largely derived from the overall success of the company they work for and the success of the individual. However, there are an increasingly large amount of bonuses written into individual’s contracts. Bankers’ bonuses have rapidly increased since the financial sector expanded over the past thirty years or so. As such, and perhaps ironically, bankers’ bonuses are effectively no longer bonuses, but financial requisites of working at a bank. As bankers’ lifestyles have become increasingly more extravagant – at least for the upper echelons of the industry – bonuses have turned into a given rather than a hard-earned reward.
For the most part, this apparent underlying greed in banking has been the result of decades of systematic encouraging of bankers to take riskier business ventures for larger gains. Under Thatcher’s government, banking became the largest industry in England and ever since, it has taken pride of place in the English market. Privatisation, budget cuts and moves against the working class were all presented as necessary measures to fault inflation and economic recession. Oddly enough, one of the largest advocates of this Thatcherite policy was Gordon Brown; during his tenure as Chancellor of the Exchequer, he furthered deregulation, so it didn’t really come as a surprise that when the recession reared its ugly head during his Premiership, he strongly backed the banks. To this day, the British government still supports these policies, hoping that the market will right itself and everything will go back to how it was before. UK finance ministers met Barclays at least 15 times in the first year of the coalition, demonstrating a clear link – and possibly a dependency – between the banks and the government.
This is a trend which has been seen all across the world; the progressive deregulation of the financial sector by politicians has significantly weakened the power of the government and allowed for the financial sector to make huge gains by widening the gulf between the rich and the poor. Unfortunately, the power structure on either side of the Atlantic is easily manipulated by banks; between 2008 and 2011, Royal Bank of Scotland spent £2.5 million on lobbyists in Washington opposing measures to enable Banking Reform. When approaching this subject matter, I debated whether to focus on British or American bankers, but it soon became apparent that it was largely global. Whether in Kensington, the Upper East Side or Victoria Harbour, bankers and their spending habits are very much the same. Global economics has meant that the opulence of banking has permeated across the world, transcending nationality to become a nationless entity in itself.
The perfect analogy for the disastrous effect of deregulation is the partitions in oil tankers; in order for an oil tanker to avoid capsizing, it has compartments all across the cargo area. When the boat is at sea, the sloshing of the oil is contained to the smaller compartments rather than one large one, thus making the tanker more stable. Hence, if the tanker is the economy, and the oil is the financial section, then deregulation is the removal of these partitions.
The bitter irony is that in the immediate aftermath of the financial crisis, the bankers quietly complained to their respective governments, insisting that the government should have stepped in and that by not regulating the banks more harshly, they encouraged the vicious cycle.
The power was transferred from the government to the bankers, which meant that the banks had to self-regulate, but they didn’t, instead making way for a rampant gambling culture that inevitably pushed worldwide economies to go critical. However, in a lot of ways, we are merely seeing capitalism taken to its logical end. Capitalism promotes competition, ambition and greed, so this bonus culture is a natural by-product of the unrelenting evolution of banking.
Then there is the gruelling reality that some of these exorbitant bonuses have come out of the taxpayer’s pockets since governments across the world had to bail out banks in 2008. Hester’s rejected bonus was made up of mostly taxpayers’ money, as HM Treasury is the majority shareholder of The RBS Group. The same is true stateside: in 2009, the AIG Financial Section received $218 million in bonuses, which came at the US taxpayers’ expense following the $170 Billion bailout at the end of 2008; the resulting 90% tax on bonuses was perhaps the first step in tackling the lavish spending of bankers.
That said, the debate surrounding bankers’ bonuses is one that looks unlikely to be resolved. If the public were able to encourage the government to impose regulations on bankers’ bonuses – and with Vince Cable’s increased involvement with RBS, this could be a viable eventuality – the banks would just export themselves overseas. As much as we may protest the excessive nature of the banks, I’m sure we would prefer the current state of affairs to a society without financial institutions at all. The only other alternative seems yet more unlikely: the only way you could guarantee that the bankers were regulated would be to ensure that every major capitalist country in the world consented to impose regulations simultaneously. So, short of the United Nations stepping in to regulate the banks, we better get used to the idea of bankers receiving extravagantly large bonuses.
Moreover, the demonization of bankers and the financial sector ultimately gives momentum to the whole problem. It further separates the banks from the general public. I’m not proposing we stop scrutinising the banks. They wholeheartedly deserve to be criticised. But nonetheless, the financial sector is one of the cornerstones of our contemporary civilisation and we need to reclaim it rather than distance ourselves from it. The banks already do their best efforts to widen the gulf between themselves and the rest of society and we shouldn’t help them in this effort.