Friday, March 18, 2011

Bonuses and Distribution of Wealth in the UK

UK society, like the US, is skewed horribly in favour of the rich and against the poor. Some 53 of the UK’s richest 1,000 are billionaires. The wealth of these 1000 people has increased from £98.99 billion in 1997 to £335.5 billion today. Over the past 12 months, they got richer by an incredible 29 per cent. Despite the worsening economic situation, this is the largest annual increase in the wealth of this rich minority. What these figures show is an increasingly unequal society that has enriched the already megarich at our expense. The amount of gross domestic product (GDP, annual national production) dedicated to wages and salaries has declined over the past three decades. There is no way that such a distribution of wealth can be said to favour the common good.

The injustice of wealth distribution is in need of urgent debate. Why is the argument for higher taxation on the highest earners continually rejected out of hand? If the country wants better services then they have to be paid for. It is not possible to have something for nothing. And those who earn the most—and usually have got most out of the system—should pay more tax. Justice should be applied to the economic system by restoring higher levels of tax on those most able to pay. If they want to leave the country, then the country can put an even higher tax on any wealth they propose to take with them? Then we can say good riddance to bad rubbish, and let our youth have the chances they are now being denied.

In 1976, wages and salaries accounted for 65.1 per cent of GDP, this had reduced to 52.6 per cent by 1996, a time when the wealth of the richest 1,000 increased threefold. But society took a fairer proportion of that wealth increase. Levels of taxation were far higher on the rich. Tax rates above 80 per cent on those earning the most were not uncommon. Society was more equal and cohesive as a result. Reagan’s pandering to the megarich demands for tax cutting spread to his lapbitch, Margaret Thatcher, then to Bush’s lapbitch, Tony Blair, leading to today’s gross inequality and unfairness, in imitation of the USA.

Top FTSE 100 chief executives earned 47 times median earnings in 2000 and 88 times in 2010. In the public sector the ratio is far lower, more like 12 to one. Even so, the top 1% of public officials earned an average of £120,000. Why does a senior executive need a financial incentive, when every other worker does not get them and makes do with an agree wage? Would executives refuse to work? Would a hospital director let people die if not awarded a bonus?

The Big Society is an austerity program. The coalition government cynically chants its slogan “we’re all in it together” in reducing the deficit. Yet the policy implemented cuts public services, freezes public sector workers pay, cuts jobs and reduces pension rights, while inviting billionaires from everywhere to live here untaxed! When we discover that 1,000 people in Britain now have over £300 million each, we should be seriously complaining that the entire cost of deficit reduction is falling on the poor 65 million of us. At present it is the poorest who continue to pay for the deficit while the megarich grow ever wealthier. This cannot be right.

It has been suggested that there would be no deficit at all, if the treasury recooped some of the wealth the rich have robbed us of in the last thirty of forty years. MP Austin Mitchell thinks this 1,000 people with the most wealth could yield 25 per cent of it for the sake of the economy upon which the rich depend for future wealth. It would clear £84 billion from the deficit. Another suggestion was that the top 1 percent of the richest people, about 650,000 in the UK, could give up 20 percent of their accumulated wealth, clearing the deficit all together. Note that these megarich people would still be megarich under either scheme. They would still have 75 to 80 percent of their amassed riches.

The proposals are all the more attractive because of the neglible tax that most of these people pay and have ever paid, through their use of corporate lawyers to exploit taxation loopholes, and simply defraud the exchequer. Strict taxation on the rich is a basic justice that should be implemented now. The complaint of ordinary middle class people in the late Roman empire was that their megarich paid no taxes, or simply increased rents to cover any they had to pay. Soon after, the western empire collapsed. The people preferred barbarians to their own rulers.

A recent government inquiry considered that there should be a maximum pay ratio of 20:1 between top and bottom. It was meant to be only in the public sector, but, if it was considered just, why not overall? It was a hostage to fortune even to suggest it, so it disappeared in the final report. Instead, it recommended bonuses as being fair! CEOs should have a marginal element of their pay “at risk”, subject to meeting agreed objectives. Then public services would not be offering rewards for failure.

No research has shown that bonuses improve performance, nor do firms paying them do better. Paying students to get better passes did not work. The ones who did well, did it because they enjoyed what they were doing. The same should be applied to bankers and CEOs. If they don’t like it, then let them quit and join the oridnary Joes who have to like it or survive in frugality on benefits. In any case, who would judge the CEO’s performance? A team of bureaucrats?

Schemes like this are bogus, even where performance can be measured. Sir Fred Goodwin of RBS was awarded a discretionary £16m pension pot, while he wrecked the biggest bank in the world. The package was approved by the bank’s remunerators and non-executives, his friends and associates. Directors rip off shareholders with the collusion of institutions, so they get bonuses whether good or useless. Bankers’ bonuses are the biggest because the City is a massive gang of monkeys scratching each others’ backs furiously.

Bonuses are not incentives. They are measures of greed and selfishness, and are possible because corporate leadership is no longer properly accountable. Such schemes were thought up in the 1980s to let top earners take ever larger sums of money from their companies. It was unfair, dishonest, and, for the banks, disastrous. Top executives are paid above the average to work harder and more successfully than the rest of us. If they fail, they should be fired, with no golden handshakes.

Pay should be fixed and pay scales fairly flat. The bonus anyone should get is acclaim by peers and the public for doing a good job.

Reporting from the UK Morning Star and the UK Guardian.

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