Bank of England chief Mark Carney warns of rising inequality as average US chiefs’ pay tops $10m

Carney warns excesses of capitalism destroy equality and fairness

The Bank of England’s Governor Mark Carney has warned that a more unequal society was “amplifying the rewards of the superstar” as he pledged to help build a “more trustworthy” capitalism.

Mr Carney, speaking on Tuesday at the Inclusive Capitalism conference in London organised by Lynn Forester de Rothschild, said financial sector excesses and “market fundamentalism” in the build-up to the global crisis were breaking down the “social contract” of equality of outcomes, opportunity and fairness across generations.

The Canadian warned of “disturbing evidence” of declining social mobility in the US as well as widening inequalities “virtually without exception” at a time of soaring executive pay.

“Returns in a globalised world are amplifying the rewards of the superstar and, though few of them would be inclined to admit it, the lucky. Now is the time to be famous or fortunate,” he said.

His comments came as an Associated Press/Equilar survey showed the average pay of top US executives breaking through eight figures for the first time. The head of an average large public company earned a record $10.5m (£6.2m) in 2013, up nearly  9 per cent on 2012 and the fourth annual year of rises since the Great Recession. Chief executives now earn about 257 times the average salary – up from 181 times in 2009, the figures showed.

The Governor stressed that the capitalist system could not be taken “for granted” and added that financial reform – via measures such as curbing pay and tackling the problem of too-big-to-fail banks – would help to rebuild trust.

“Through all of these measures, finance can help to deliver a more trustworthy, inclusive capitalism – one which embeds a sense of the systemic and in which individual virtue and collective prosperity can flourish,” he added.

Mr Carney’s fellow speaker, the International Monetary Fund’s managing director Christine Lagarde, also attacked the unreformed bonus culture of the financial world at the conference.

She called for the G20 to push ahead with pay reforms “because the behaviour of the financial sector has not changed fundamentally in a number of dimensions since the financial crisis” and accused the industry of resisting reforms.

Against the backdrop of scandals such as Libor fixing, foreign-exchange rigging and money-laundering, Ms Lagarde said: “While some changes in behaviour are taking place, these are not deep or broad enough. The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship.”

Ms Lagarde attacked banks for resisting efforts to reform the system to allow the biggest financial institutions to fail safely. “The bad news is that progress is still too slow, and the finish line is still too far off,” she said.

“Some of this arises from the sheer complexity of the task at hand. Yet, we must acknowledge that it also stems from fierce industry push-back, and from the fatigue that is bound to set in at this point in a long race.”

She argued that rising income inequality was casting a “dark shadow” across the global economy. She called on capitalism to become more inclusive by making income tax “more progressive without being excessive”, making greater use of property taxes and expanding access to education and health.

The 30 Second Briefing: The $10m bosses

What’s the fuss about chief  executives’ pay in America?

The median annual pay package of chief executives rose above $10m (£6m) for the first time last year, according to an Associated Press/Equilar study. US bosses are now making roughly 257 times the average worker’s salary, according to the research, which is up sharply from 181 times in 2009.

Don’t Americans get angry when their bosses earn so much more?

Some do, many don’t. It is either the genius or the tragedy of America that many people think that they too can get rich if their boss can get rich. They truly believe it. As bizarre as it sounds to a European, many US workers take a perverse pride in their boss’s pay package.

So who made the most last year?

Oilfield services company Nabors Industries chief Anthony Petrello made $68.3 m, CBS boss Leslie Moonves made $65.6m, and the highest paid female CEO was Carol Meyrowitz (above) of retailer TJX, which owns TK Maxx. Wall Street bosses enjoyed a median rise of 22 per cent last year, the same as in 2012. BlackRock chief Larry Fink made the most, with a $22.9m rise.

Any other interesting stats?

Women chief executives made a median $11.7m versus $10.5m for men, but there were only 12 female CEOs in the study.

Aren’t these guys just smarter and harder working than the rest of us, and worth $10m a year?

If you drink the Kool Aid called The American Dream, yes they are. If you drink PG Tips – absolutely not.

Mark McSherry

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