Tuesday, 11 January 2011

Bankers and Bonuses - An Ever Burning Issue

As we enter the bonus season yet again, the ever controversial argument surrounding banker's bonuses flares up, prompting the same criticisms and arguments. However, this time around these arguments take on a new tone. With the country reeling from both the economic recession and the incoming cuts and job losses, more and more people are beginning to focus their anger at the "Bankers", especially over the notion of bonuses. To most people, bonuses seem like an extra reward on top of a wage if you have performed well. It's an extra. It's a reward.

The cause of this economic downturn is generalised as Bankers, although reading books such as David Harvey's Enigma of Capital is great for focusing the cause of the recession into a more specific target. The arguments put forward by those such as the advocates for the Robin Hood Tax, a tax on the financial sector, are as relevant as ever as we are seeing public services and jobs being decimated. However, it is always useful to look at the defence from the targets, the bankers, and how they lay out their position.

Today, Barclays' Bob Diamond appeared before the Treasury Select Committee for questioning. Mr. Diamond has long used the defence that cracking down on the financial sector, either through taxation or lowering bonuses, would drive companies and individuals from the United Kingdom towards friendlier climbs. This is a particularly weak argument, especially since Barclay's has 300+ companies operating in tax havens around the world anyway. It assumes the only thing that keeps companies and individuals in the country is a friendly atmosphere, tax wise. This is clearly wrong, as Mr. Diamond demonstrates himself by stating that things such as "the English language, time zones, the support of foreign trade and wealth of talent available". The latter factor, that of talent, is also a defence that appears. If companies are unwilling to leave, then surely the talented individuals will? It's only rational to move to a country where they will acquire the best wage for their abilities. Once again, this is based on the flawed assumption that the only thing holding an individual in a country is his economic situation. This is clearly false, as each country has its own benefits outside of the rate of wages. Elements such as culture, family and location itself play greatly into an individual's desire to move or stay. An individual is much more likely to stay in a country if he has existing family there, or that the country itself provides a stable environment for themselves or for their family, perhaps through elements as security and quality of education. People are not rational, robotic beings that act on what benefits them economically at all costs.

Another defence of bonuses that has seen a little bit of light in the past week or so is that bonuses are necessary to keep talented individuals within companies, which in turn keeps the companies competitive. Obviously, the entire notion of wages will provide competition between companies for talented labour, but we are not dealing with wages. We are dealing with bonuses. Extra pay for performing well. It is supposed to be a reward, but if we take the argument that they are necessary, then what incentive do they have? Most will agree that the banks and bankers performed horribly, but they still received this reward of a bonus, in some cases a massive one. What is the purpose of a reward for productive work if you are rewarded when you manage to fuck up a global economy? It loses all meaning, all value and becomes nothing but an expected supplement to an already generous wage. An entitlement, not a reward. And this is where the public anger lies, the anger which Mr. Diamond and others complain is misplaced or too harsh.

The whole anger over banker's bonuses is that the public views a bonus as a reward, whereas bankers view it as a necessary and expected supplement to their wage, in order to keep companies competitive. Perhaps it is a mechanism, a poorly functioning one, to mask the egregious amounts bankers are paid? Or perhaps the notion of bonuses has been corrupted under the ultra-profitable financial sector? With the coalition government unwilling to confront the banks on this issue and with public anger continuing to build, the issue over bonuses will continue to rage and fester, until something breaks.

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