The gap between the rich and the rest of us is getting absurdly wide. It wasn’t that long ago that if you managed to pull in £150,000 a year, people thought you were rich. Now, if you haven’t got a good £5m you
will be considered so poor by the City you’ll have difficulty getting a reputable private banker to take you on. And you’ll certainly feel rather small in the presence of anyone remotely senior at Goldman Sachs or one of the other big banks, where some people are taking home the kind of money in bonuses it would take the average worker 900 years to earn.
In the FT this week, John Stuttard defends the ‘million dollar’ bonus culture. The recipients of the biggest bonuses, says Stuttard, have rare and special skills, so if banks want to get them and keep them, they have to pay them this kind of money. This is a nonsense argument. To see why, you have to look at how the big banks got to be making such amazingly excessive profits in the first place. Antony Hilton explains it well in the Evening Standard. The banks, he says, are making colossal amounts of money because of a “series of historical accidents”: the huge flood of labour from China’s rural areas into its cities has pushed down wages (and inflation) across the world with the result not only that interest rates have stayed low for longer than we used to think possible, but that company profits across the developed world are massively above their long-term average.
It is these profits that “provide the high octane fuel for the global financial services engine”. Bank employees may have cleverly exploited this situation with new, sophisticated financial products, but they most definitely didn’t create it. Are they skilled? Yes. Are they £20m-a-head skilled? No. They have just found themselves in the right place at the right time. And whether they like it or not, the truth is that, if they decide to leave that place, there are any number of numerate alpha males who’d be qualified to replace them.
Still, Stuttard has another argument for those who aren’t going for his first. It might seem like only a few people benefit from the cash, he says, but that’s not true. Don’t forget that “City bonuses are taxed at 40% – and the firms and individuals also pay national insurance. That amounts to a lot of hospitals, schools and roads.” Well, perhaps it does. But let’s not forget where the money came from in the first place. First, from our foregone wages; and second, from the many fees, charges, and commissions the financial industry removes from our savings and investments every year. My guess is that most of the world’s population would prefer that the cash had been paid to them (or not taken from them) in the first place, rather than go to the City and then be recycled back to them in a much reduced state via an increasingly inefficient government.