Anthony Hilton: People feel the system works to serve an elite and that has to change

The most popular thing Miliband has done is to attack energy companies

We smugly say in this country that we don’t do corruption but perhaps we just don’t define it properly. Corruption is about paying money to get the system to work to favour one interest group over another.

Lobbying may not be thought of as corruption, but in the United States and to a lesser extent in Britain it is the use of money to buy influence and direct power. It is not always open and transparent, but even when it is it favours those with the money.

At a conference in Madrid this week organised by the Corporate Research Forum, the noted economist John Kay observed that when corporations use  their power to manipulate politics in their favour it is potentially as damaging as corruption of the conventional brown-envelope kind.

This is because economic efficiency and fair outcomes depend on the market being able to function properly.

Anything which dilutes the requirement that corporations only survive by satisfying the needs of the market undermines the efficiency of the economy and the fair allocation of rewards.

Once companies are no longer in thrall to their customers and held to account by them, then they can quickly exploit the economic system to their advantage.

Coincidentally this theme found echoes in a just-published book by Andrew Smithers* in a section in which he described how banks have used their contacts borne of a history of political donations and social contacts to persuade politicians to water down regulations which would have forced them to change their behaviours.

The result is that the regulatory drive against them has been blunted. They still receive a vast explicit subsidy via the guarantee of the security of bank deposits, which means they pay significantly lower interest rates to attract money than they otherwise would.

They receive even larger implicit subsidies because they know the state will rescue them if they get into trouble and this allows them to take excessive risks, which in turn make excessive profits from which management derives excessive bonuses.

As Mr Smithers says in this book…“we are therefore in effect currently subsidising bankers to make political contributions aimed at both preserving their subsidies and their industry’s ability to obtain excessive profits through inadequate competition. 

“It would be hard to invent a more absurd arrangement and one more obviously contrary to the interests of taxpayers and more likely to bring both banking and politics into disrepute.

“Excessive rewards for finance mean lower rewards for the rest of the economy. The distortions which result mean it is both unbalanced and unstable, and  with a high propensity to crash again. Even if it doesn’t crash it will not prosper.” 

In the book Why Nations Fail, published a couple of years ago, the authors said that countries divided into two. There were those in which the institutions and levers of power were inclusive, meaning they acted in the interests of everybody and economic rewards were reasonably shared among all society’s different groups; and there were countries where the institutions were exploitative, meaning they  were controlled in a way which funnelled a disproportionate share of the rewards to a select few, an elite. 

The authors’ conclusion  was that the nature of these institutions determined whether nations flourished or failed. Lasting economic growth  could only come from the open, fair societies. 

Countries with alienated and excluded populations can have short-term success but they will not prosper in the longer term because they cannot mobilise and motivate all the population. This surely is a danger for this country. It is still obviously a long way off but the seeds are there.

The banks are despised; polls say more than half the population would like the railways to be renationalised; the most popular thing Ed Miliband has done since becoming leader of the Labour party is to attack the energy companies and attitudes to business generally have been poisoned by the excessive pay of directors.  

Rightly or wrongly, the popular view is that the system is being manipulated for the benefit of the few.

Separately in London on Thursday evening, at an awards dinner focused on building trust in business, PricewaterhouseCoopers senior partner Ian Powell said… “there is an increasingly pressing need for a new settlement between business and society – a common understanding founded on trust, shared honesty and integrity and an embedded culture of doing the right thing”.

He is right. But it is not going to happen unless more people at the top of business share Mr Powell’s sense of urgency. Sadly, too many think this storm will pass and don’t see the need to change.

* ‘The Road to Recovery: How and why economic policy must change’ by  Andrew Smithers

PROMOTED VIDEO
News
Johnny Handle, Northumberland, Ted Relph, President of Lakeland Dialect Society, and Sid Calderbank, Lancashire, founder of the National Dialect Day
newsMeet the enthusiasts determined to stop them dying out
News
The data shows that the number of “unlawfully” large infant classes has doubled in the last 12 months alone
i100Mike Stuchbery, a teacher in Great Yarmouth, said he received abuse
Arts and Entertainment
The starship in Star Wars: The Force Awakens
filmsThe first glimpse of JJ Abrams' new film has been released online
Sport
Rio Ferdinand returns for QPR
sportRio Ferdinand returns from his three-game suspension today
News
The Speaker of the House will takes his turn as guest editor of the Today programme
arts + ents
News
ebooksNow available in paperback
Arts and Entertainment
St Peter’s Seminary in Cardross. Argyll, has remained derelict for more than 25 years
arts + ents
News
people

Watch the spoof Thanksgiving segment filmed for Live!
Sport
Billy Twelvetrees will start for England against Australia tomorrow with Owen Farrell dropping to the bench
rugbyEngland need a victory against Australia today
Arts and Entertainment
The cover of The Guest Cat – expect to see it everywhere
books
Sport
Tyson Fury poses outside the Imperial War Museum in south London ahead of his fight against Dereck Chisora
boxingAll British heavyweight clash gets underway on Saturday night
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Austen Lloyd: Company Secretary

Excellent Package: Austen Lloyd: EAST ANGLIA - SENIOR SOLICITOR LEVEL ROLE** -...

Citifocus Ltd: German Speaking Client Specialist

£Attractive Package: Citifocus Ltd: Prestigious asset management house seeks a...

Citifocus Ltd: Performance & Risk Oversight

£Negotiable: Citifocus Ltd: This is a varied role focusing on the firm's mutua...

h2 Recruit Ltd: Sales Director - SaaS (SME/Channel) - £140,000 OTE

£90000 - £140000 per annum + benefits: h2 Recruit Ltd: Are you a high achievin...

Day In a Page

Homeless Veterans Christmas Appeal: ‘We give them hope. They come to us when no one else can help’

Christmas Appeal

Meet the charity giving homeless veterans hope – and who they turn to when no one else can help
Should doctors and patients learn to plan humane, happier endings rather than trying to prolong life?

Is it always right to try to prolong life?

Most of us would prefer to die in our own beds, with our families beside us. But, as a GP, Margaret McCartney sees too many end their days in a medicalised battle
Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night - is that what it takes for women to get to the top?

What does it take for women to get to the top?

Thomas Cook's outgoing boss Harriet Green got by on four hours sleep a night and told women they had to do more if they wanted to get on
Christmas jumper craze: Inside the UK factory behind this year's multicultural must-have

Knitting pretty: British Christmas Jumpers

Simmy Richman visits Jack Masters, the company behind this year's multicultural must-have
French chefs have launched a campaign to end violence in kitchens - should British restaurants follow suit?

French chefs campaign against bullying

A group of top chefs signed a manifesto against violence in kitchens following the sacking of a chef at a Paris restaurant for scalding his kitchen assistant with a white-hot spoon
Radio 4 to broadcast 10-hour War and Peace on New Year's Day as Controller warns of cuts

Just what you need on a New Year hangover...

Radio 4 to broadcast 10-hour adaptation of War and Peace on first day of 2015
Cuba set to stage its first US musical in 50 years

Cuba to stage first US musical in 50 years

Claire Allfree finds out if the new production of Rent will hit the right note in Havana
Christmas 2014: 10 best educational toys

Learn and play: 10 best educational toys

Of course you want them to have fun, but even better if they can learn at the same time
Paul Scholes column: I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season

Paul Scholes column

I like Brendan Rodgers as a manager but Liverpool seem to be going backwards not forwards this season
Lewis Moody column: Stuart Lancaster has made all the right calls – now England must deliver

Lewis Moody: Lancaster has made all the right calls – now England must deliver

So what must the red-rose do differently? They have to take the points on offer 
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game