Sorry, I just deleted a couple of genuine comments by mistake.

The Royal Bank of Scotland’s loans to Kraft Foods of the USA, to finance the purchase of the British chocolate company Cadbury,  raises all sorts of issues about national identity and the role of the nation state.  Kraft raised billions of pounds for its £11.5 billion acquisition of Cadbury, from the Royal Bank of Scotland and other supportive financial institutions. The money talked so loud that Cadbury’s shareholders voted for the deal. The Royal Bank of Scotland, let us remember, is 84% owned by the UK government.

Kraft lost no time in announcing job losses at Cadbury. The Somerdale factory at Keynsham, Bristol, is to close, resulting in 400 lost jobs. The work is transferring to Poland. True, Cadbury was itself planning to to stop production at Somerdale, but workers hoped that Kraft would — as business secretary Peter Mandelson had apparently pleaded — protect British jobs.

The migration of jobs to lower-cost locations is all too familiar now, an inevitable consequence of our global capitalism in which certain corporations have become more powerful than the elected governments of nation states, through methods that include the ‘revolving door’ for senior personnel, who move between business and government and back again.  The development of global busno-politico networks threatens to make the views of national populations almost irrelevant. How many British taxpayers would have supported Royal Bank of Scotland in its venture to aid Kraft take control of Cadbury, which was an iconic British brand, founded by a Quaker family for whom social justice was crucial? After all, the UK government owns Royal Bank of Scotland on behalf of the UK population, doesn’t it? For me, the fact that a bank controlled by the UK government can lend what is in effect our money to a company that is destroying our jobs poses a big question: who exactly is government working for?

It seems to me that we have lost control over our national life. If we are to feed ourselves adequately in future, to return to the theme of ‘Empty Plates Tomorrow’, that control needs to be regained. To a great extent, a government’s freedom to act in the interests of its own citizens has been circumscribed by the free-trade rules of the World Trade Organisation. Who, exactly, benefits from the World Trade Organisation? Your answers, please.

Tony Blair is reported to receive up to £200,000 for a single spech. I don’t know if this is accurate, but I am certain that per minute of ‘work’, Mr Blair’s pay rate is hundreds of times more than that of a care worker, a cleaner or a childminder. In fact, probably approaching 1,000 times more. I reckon this is an excellent example of social justice, 21st century style, from the UK’s first ‘New Labour’ prime minister. After all, Peter Mandelson was ‘intensely relaxed’ about people becoming ‘filthy rich’, and we might view huge income disparities as equality of opportunity in action: everybody has the chance, but only a few make it to the top of the pyramid.

Unlike Mr Mandelson, I am intensely unhappy about colossal income differentials, because of their future as well as their current impact. Large proportions of big incomes can be saved or invested to generate more wealth, but people earning the national minimum wage can barely scrape by. The unbridgeable gap between the toilers and the superstars grows ever wider, threatening social cohesion.

The current government’s response has been to focus on tax credits and means-tested benefits, but these are redistribution mechanisms between bottom and middle, leaving the super-rich bankers, lawyers and tax accountants largely alone. The excuses trotted out are that they are job creators, wealth creators, vital to the UK’s (ailing) economy. Yet a new report from the New Economics Foundation demolishes the myths linking high rewards with high social utility. The report, A Bit Rich: calculating the real value to society of different professions, published in December 2009, points out that:

“Early theories of value neglected the extent to which the production and trade of goods and services may have a wider impact on society that is not reflected in the cost of producing them. These ‘externalities’ are often remote or hard to see but that does not mean that they are not real or that they do not affect real people — either now or in the future.”

The ‘externalities’ arising from the activities of investment bankers are such that these mega-earners destroy £7 of social value for each £1 that they generate, the report calculates. Childcare workers, in contrast, generate between £7 and £9.50 of benefits to society for each £1 they are paid.

The A Bit Rich report has not received as much media coverage as I think it deserves.

I wonder why not.

Bankers’ ‘talent’ is a burden for taxpayers

Taxpayers control Royal Bank of Scotland.
The liabilities heaped upon British taxpayers, just for the bank bailouts of 2008, are in £ billions, while the expenses of Members of Parliament, which have caused so much anger, are just in £ millions. £1 billion is one thousand times more than £1 million. So surely we should be a thousand time angrier over the financial collapse than over MPs’ expenses? Not a bit of it, maybe because we can grasp the concept of a million, but not of a billion. But grasp the concept we must because we will have to pay back the debts taken out in the name of ‘taxpayers’.
Meanwhile, the rampant greed in the City continues unabated. Big bonuses are back, allegedly to recruit and retain ‘talent’.
It’s precisely this ‘talent’ that got us into our present financial mess, by creating deals with no better purpose than to earn commission for their arrangers.
UK Financial Investments, which is supposed to look after taxpayers’ ‘investments’ in failed banks, approved a pay deal worth up to £9.6m for Stephen Hester, chief executive of Royal Bank of Scotland, if the bank’s share price reaches 70p.
This arrangement assumes that if the share price crosses the 70p threshold, it will be due entirely to Stephen Hester’s talent. This is not a valid assumption. Chance events might well propel the share price up, and then drive it down again. Why is it that bankers take the credit (and the money) when share prices rise, but demand to be rescued by taxpayers when the stock falls disastrously? Why is individual effort supposed to cause stock appreciation, but individual stupidity is rarely blamed for failure?
Answers please.

Uncivilisation

Could your neighbours be fiddling a few pounds each week from Social Security? Would you get on the phone and denounce them to the authorities? That’s what our government tells us to do, on the basis that it’s wrong to fiddle the taxpayer.

How strange that fiddling a few millions, or billions, of pounds doesn’t carry the same stigma. It all depends what you mean by ‘fiddle’, of course. To my mind, bankers who gambled recklessly with investors’ and shareholders’ cash, lost, and then expected taxpayers to rescue them, have been fiddling – misappropriating money that did not belong to them, metaphorically fiddling while Rome burned.

The last straw for me was the case of Fred Goodwin’s tax. Not the laugh-in-your-face £703,000-a-year pension, although it is justifiable only in an upside-down world of reverse ethics, where the rich are deemed deserving and the poor have only themselves to blame for their plight. This argument blames the poor for failing to get themselves into positions where they can take what they like from the nation’s treasuries. No, in the case of Fred Goodwin, ex-chief executive of the now almost completely nationalised Royal Bank of Scotland, it was the revelation that the bank paid his personal tax of £1.8 million on a lump sum he withdrew from his pension fund.

The bank paid. That means, investors and shareholders paid. My 90-year-old mother, a shareholder, and thousands like her, paid. What moral right did the oh-so-generous directors have to decide that ‘the bank’ would pay Fred Goodwin’s personal tax bill?

I do not know if their decision was legal or illegal according to the small print of the relevant regulations, but I do regard it as unethical. If it was ‘legal’ then there is a chasm between law and morality, and we are in deep trouble as a nation.

This begs the question of how, in a globalised economy, a single nation can apply ethical principals to business, when ethics are ignored throughout much of the rest of the world as companies scramble for profits, and directors enrich themselves, whatever the cost to the wider community?

Maybe we should take a hard look at questions of business ownership. Is it co-incidental that the Co-operative Group, perhaps the most ethically aware large business in the UK, is wholly owned by members? Will there be a new dawn for mutuality?

Short memories are, perhaps, the major barrier. Remember all the mutually owned building societies that members voted to float on the stock market, all through the 1990s? Abbey National was first, in July 1989. Subsequent demutualisations included Alliance & Leicester (April 1997), Halifax (June1997), Northern Rock (October 1997), and Bradford & Bingley (December 2000). They all converted into banks. The demutualised Halifax bought the Birmingham Midshires building society in April 1999. Lloyds TSB purchased the Cheltenham & Gloucester society (August 1995). Bank of Ireland bought Bristol & West (July 1997). The Woolwich demutualised in July 1997 and three years later, in October 2000, was bought by Barclays.

Banco Santander of Spain acquired Abbey in 2004, adding Alliance & Leicester and Bradford & Bingley Savings in 2008 (Bradford & Bingley Mortgages having been nationalised). Northern Rock was nationalised in February 2008. Halifax, which had merged with Bank of Scotland to form HBOS, was a hair’s breadth from collapse when the prime minister engineered a take-over by Lloyds TSB, with the outcome that by March 2009 the state owned about 77% of the newly minted but debt-ridden Lloyds Banking Group.

Demutualisation was a disaster. Building society members were persuaded for a few thousand pounds apiece to relinquish their ownership. It’s all ended in tears, and not one of the demutualised societies remains independent.

Short-term individual gains versus long-term benefits to society? In future can we rise above the Goodwin Factor? That means a universal code of ethics, for bankers as well as for social welfare claimants, and a commitment to mutual ownership strong enough to resist the temptation of a pocket of jingling coins.

Let’s face it, today many of our banks are social welfare claimants. There mustn’t be one rule for them and other, harsher rules for individual citizens who fall on hard times.

Pay Gap, Debt Cliff

Bankers and their suitcases stuffed with cash! HBOS – the bank that resulted from the merger between Halifax and Bank of Scotland – had 15 directors in 2007, and they sure took a lot of profits as ‘remuneration’. The directors shared a pot of £17.690 million, which if it had been distributed evenly, would have worked out at £1,179,333 each. The bank’s employees received an average of £31,584. Not a bad income, well over the national average – but each director got, on average, 37.3 times more. That is quite a gap.

We know now that HBOS was floundering. Government ‘rescued’ it by engineering a merger with Lloyds TSB to form Lloyds Banking Group, which opened its doors in January 2009. The government – us taxpayers, in the end – had to chip in a few billions of £s here and there to keep the whole show on the road.

Barclays’ directors raked in even more than their HBOS counterparts, a total of £29.273 million in 2007, a mean of £1,721,941. Barclays wasn’t treating the 17 directors at all meanly! Lots of the workers did quite well too, as their mean income was £54,251, but the directors were taking home 31.7 times more.

One of the more abstemious banks in 2007 was Northern Rock. Well, there was a run on it during the year and it was nationalised in February 2008, so it had to show a little restraint. The 13 directors received £3.376 million between them, an average of £259,692. The bank’s staff were not nearly so well paid as their fellows in Barclays, or HSBC, or even HBOS. Their average income was just £20,145 (well, it’s a northern bank, and everyone knows that northerners can live quite happily on scraps thrown from the London table). Northern Rock was verging on the egalitarian, though, as the gap between directors’ and workers’ income was only 12.9 times!

The UK government almost controls Lloyds Banking Group. It does control Royal Bank of Scotland Group, and it owns Northern Rock and the mortgage business of Bradford & Bingley. These banks were deemed too big to be allowed to fail. Their executives (OK, a few have moved on) remain very well paid.

Banks, and bankers, were allowed to get out of hand because government saw its job, its only real job, as helping the economy to get bigger and bigger. Society became the servant of the economy. Who was it who said that ‘Divitiae bona ancilla, pessima domina’ (Riches are a good handmaid, but the worst mistress)? Oh yes, it was the philosopher and scientist Sir Francis Bacon, 1561 to 1626, who died owing £22,000.

We owe rather a lot more than that now, as taxpayers. The UK’s national debt was £513 billion in June 2007. In just 18 months to January 2009 the national debt has quite possibly trebled to over £1,500 billion, or £1.5 trillion. We can’t put a definite figure on it because we don’t know exactly how much the bank bailouts and other economic ‘stimulae’ are going to cost us. In round figures, though, £1.5 trillion is £25,000 for every man, women and child in the UK.

Mission impossible?