London – The world’s most powerful financiers emerged last Sunday from a meeting in the cosy surroundings of the World Economic Forum at the plush Swiss resort of Davos after agreeing that maybe, just maybe, they would consider some reforms to the global banking system. The same morning, a small group of less influential people braved the cold to gather in a corner of Hyde Park, beneath London’s steely winter sunlight, to hear a man who thinks the banks’ irresponsibility has gone too far.
Speakers’ Corner is an enclave of free speech unsurpassed anywhere in the world. Here, in the northeast corner of one of the world’s largest metropolitan parks, anyone with a step ladder or a soapbox, a good set of lungs and a cause to defend can speak out. Naturally, this pulls in eccentrics and jokers but having been around since 1866, it has also attracted luminaries such as Karl Marx and Vladimir Lenin. Both would have been fascinated, if not surprised, to see an English singer-songwriter addressing an audience of less than 200 people about the unfairness of bankers’ excessive bonuses and the folly of capitalism.
Billy Bragg, a 52-year-old London-born musician, is not a natural choice to pick up the socialist baton from the founding fathers of communism but his presence at Speakers’ Corner on Sunday perfectly reflected the failure of our political system to display a social sensitivity as well as a financial one. “I am standing here today because there don’t seem to be any politicians willing to take up this cause,” said Bragg who refused to pay his taxes on January 31 in a bid to draw attention to a campaign that has attracted more than 25,000 supporters online.
Bragg wants to pressure the British government to limit the annual bonuses the Royal Bank of Scotland (RBS) pays its employees this year to 25,000 pounds (26,600 euros) per person. The reasoning behind this request is simple: RBS was on the brink of collapse last year when it was bailed out by the UK government thanks to an injection of 25.5 billion pounds (29.2 billion euros), which was a bigger financial package than the one Greece put together to prop up all of its banks. This cash bought British taxpayers 84 percent of RBS’s shares. As part of the deal, the government negotiated a veto on RBS paying bonuses of more than 25,000 pounds to any of its bankers.
So, unsurprisingly, Bragg and many others were incensed when they heard the bank’s chief executive Stephen Hester say that – thanks to the profits RBS has made on the back of state intervention – it would be paying its employees a total of 1.5 billion pounds (1.71 billion euros) in bonuses this year. Presumably, this is the sort of amount US President Barack Obama had in mind when he labeled some of the bonuses being paid to American bankers “shameful” and “obscene.” Bragg argues that as the majority stakeholder in the bank, the British public should be able to have a say in whether these bonuses are paid.
“I understand that the Treasury had little choice but to use taxpayers’ money to safeguard our savings and stabilize and restore confidence in the financial system,” the singer told his audience. “I also understand that we will all benefit if and when RBS becomes solvent again. What I don’t understand is why the chief executive of our bank thinks that the best way to restore the company’s fortunes is to indulge in the irresponsible behavior that got us into this mess in the first place, by paying excessive bonuses at the first possible opportunity.”
This is where Bragg’s campaign strays beyond just convincing British Chancellor Alistair Darling to exercise the veto he retains on RBS bonuses and into much broader themes, such as the viability of capitalism in the wake of the financial crisis. Hester’s response to critics of the bank’s planned payouts is that he is “a prisoner of the market.” In other words, if RBS does not offer these kinds of incentives, then it will not attract the best bankers and therefore won’t make the kind of profits that will allow it to pay back the public money that kept the bank afloat and in turn generate tax revenues.
It’s an argument that would deserve serious consideration were it not for the fact that the markets ceased to exist, in the form that we knew them at least, when they fouled things up so badly that governments around the world had to rescue them for fear of the whole financial system collapsing. Bankers may argue, with some justification, that practices which are now seen as reckless or greedy were once encouraged by governments looking for a tax windfall. But this does not change the essence of the situation facing us now: Market rules are being rewritten and the banking system, despite the procrastination of the financiers in Davos, is in need of urgent reform.
“Someone should explain to Mr Hester that when the government bailed out RBS they broke the biggest rule of the market – that when a business fails, it should cease to exist. Isn’t that how Adam Smith’s invisible hand works?” asked Bragg. “If the invisible hand of the market has to be replaced by the helping hand of the people in the form of taxpayers’ money, then the market system is broken and the whole free enterprise experiment of the past 30 years has failed.”
Perhaps this last statement from Bragg is too sweeping – although the invisible hand and helping hand have often pulled at each other, they have also worked together to make some things better during the last three decades. But he’s right to question whether we’ve learned anything from the mistakes made during years that led to the brink of financial meltdown. The lack of action on the political and financial front to ensure that the irresponsibility of the past serves as a lesson for the future illustrates that many governments and bankers are willing to play the waiting game when the game is already up. Obama’s plan to tax bankers’ bonuses in a bid to raise 90 billion dollars (64.2 billion euros) over the next 10 years and his call for them to invest their efforts in “meeting your responsibility” rather than fighting the measure was a small step toward setting up a new, fairer system.
In Davos, regulators and bankers failed to agree on how the amount of risk in the banking system could be reduced, so a global system of financial regulation is still out of reach. The closest the world’s top bankers got to making any concessions was discussing the establishment of a global financial insurance levy so the next bailout would be financed by the industry, not by taxpayers. But this is hardly a solution – it’s the equivalent of a chain smoker saving up money for the inevitable cancer operation rather than making an effort to kick the habit.
Although the archons of the financial system appear to be unrepentant, or at least unwilling to make the first move, Bragg plans to be on his step ladder at Speakers’ Corner again this Sunday to keep up the pressure on them. Perhaps, though, instead of delivering a speech, he might dedicate a few bars of one of his songs to those who face tremendous responsibilities but choose to shirk them: “Goodbye and good luck / To all the promises you’ve broken / Goodbye and good luck / To all the rubbish that you’ve spoken / Your life has lost its dignity / Its beauty and its passion / You’re an accident waiting to happen.”
This commentary was written by Nick Malkoutzis and first appeared in Athens Plus on February 5, 2010.