Greed is no longer good. It's now considered really bad. And it isn't just the Archbishop of Canterbury saying so. The leaders meeting at the G20 this weekend in Pittsburgh will declare their determination to clamp down on it. Politicians of all hues have said they revile it. The media have leapt onto their moral high horse to denounce it. Only the bankers seem oblivious of the whirlwind they have loosed about them.
They shouldn't be. For the public mood a year after this crisis first broke is still one of fury – fury against the financiers who would still pay themselves seven-figure bonuses despite the losses they have made; against the five so-called entrepreneurs who could strip £42m from the ailing MG Rover and then let it slide into bankruptcy while they walked away with their personal profit; against BBC presenters paid millions for bad-mouthing celebrities; and, above all, against the bank chiefs who brought down the whole pack of financial cards, accepted billions in state aid and still haven't had the grace to say, in the words of the Archbishop: "Well, actually, no, we got it wrong and the whole fundamental principle on which we worked was unreal, empty."
The "fundamental principle on which they worked" was hardly what was being questioned over the last decade, of course. Only a few years ago, the same politicians who now decry the bankers were at their feet asking for funds and favou and, the media were making the rich superheroes of their gossip columns.
When exactly did we – for, let's face it, we were nearly all complicit in the process – move from being a country that lauded excess to one which now lambasts the drive for personal gain behind it?
You could argue it was ever thus. The whole history of Britain could be written in the swings between puritanism and excess as the the Protectorate gave way to Charles II's Merrie Monarchie, George III's ponderous seriousness was swept aside by George IV's licentiousness and the prissiness of late Victorianism was succeeded by Edwardian pomp.
So will the present outburst of anger subside as the economy recovers, profits return and the Cavalier rises again to replace the Roundhead? Perhaps. But I'm not sure that something more fundamental isn't going on, one of those moments when calamity exposes a deeper malaise and brings forth more radical change.
Britain, after all, hasn't always been a country that pandered to profit and espoused the virtues of Anglo-Saxon finance against the Continental models of social democratic dirigisme. When I was a boy after the war, a culture much nearer the European model held sway. Restraint in income, as in consumption, was considered a British virtue.
It was partly because of the war. For those, like my parents, who had lived through the dark years of Dunkirk and Singapore, there was a genuine sense of everyone pulling together, of accepting the same rations and benefits as everyone else. Queue jumping became an object of contempt, the black market was frowned on, if widely used.
To this day I can remember the resentment, the tut-tutting directed at anyone felt to be avoiding the rules. The anger of the Parisians against the collaborators at the end of the war was directed less at their acts than the way they were able to avoid the shortages everyone else had to suffer.
The British desire for shared restraint didn't only result from the war, however. At the back of it was also the memory of the Depression and the long strand of non-conformism that so coloured the Labour and Liberal parties. My grandfather, a real craftsman, would never pick up a paint brush or a saw on the grounds that those in employment should not deprive those not so fortunate of a possible job. Even now I find the sight of a large car offensive and retain a residual feeling that anyone who makes their money by gambling on the exchanges is somehow not doing a proper job.
It was when Harold Wilson was Prime Minister that it all started to dissolve. Denis Healey might talk of taxing the rich "till the pips squeak" but the pips didn't squeak, they slipped out of his hands into endless tax avoidance schemes. Anyone who could – which was a good many in the middle as well as upper classes – sought ways of minimising their dues to the Inland Revenue. Lord Goodman owed half his influence at the time to the clever wheezes he came up with that enabled ministers to earn good money out of their memoirs.
Expenses became a means of additional income. It was considered almost the done thing to take them to the maximum, just as MPs now have. Pension arrangements became part of the tax avoidance racket.
Whether in reaction or as part of the general trend, the unions went down the same path. Unofficial strikes, broken agreements and fictitious names on the employment list became the order of the day. It is almost impossible to remember now – and there are fewer and fewer who do – just what damage the winter of discontent of 1976/7 did not just to the reputation of the unions but to the mood of the country as a whole. It was as if getting what you could whenever you had the means was the motto of the country.
Mrs Thatcher didn't invent that, but she did give it economic validity. The daughter of a grocer, she herself was probably nearer the old Northern spirit of thrift, although her oil-executive husband was very much a product of revulsion against tax and rationing, a man who believed indulgence was not only a good thing but a right for those of his class. But she gave the imprimatur, and recruited economists to lend intellectual authority, to the idea that the individual had a right to the rewards of his labour, that earning good money was something to take pride in, not hide. Essex man, with a gold medallion, a wad of cash and little time for anyone who wasn't a success, was born.
This wasn't just a cultural shift, it was an economic one. As the British manufacturing industry went into steep decline, with the redundancies and tax loss funded by North Sea oil, Britain moved towards becoming a service economy (the first major economy to do so) where experience and training became less important than energy and entrepreneurial flair. It was no longer "spivvy" to be a trader, in the City or on the street. And if you made a lot of money, bully for you.
As the private sector rose, so the public sector declined in prestige and income. Civil servants were seen as not just dull but lacking in the wherewithal to make things move. Alongside privatisation came the American concept of bonuses. To the horror of the old establishment, Ian McGregor was brought over to run British Steel and offered substantial bonuses as part of his package (the taxpayer never did find out what he needed to do to earn them or whether indeed he ever did).
And something else went too. The professions and the civil service had always operated on an implicit understanding by society that what they lacked in pay they made up for in prestige. To be a teacher was to be regarded highly and offered security. It was accepted – as it still is in large parts of Europe – that you would earn less than those in commerce but with more social standing. That too corroded in the 1980s and 1990s as the demands for performance and the desire to punish those who failed to deliver it increased. To be a teacher was from now on considered a job for those who could not make it in the real world, not those who preferred a higher calling.
Tony Blair, as he did in so many other ways, took Thatcherism and made it cool. Mrs Thatcher's hero was the small entrepreneur who, through his wits and energy, had made a success for himself. Blair's hero was the international star, the footballer earning millions, the financier making billions, the pop star lavishing it all on country homes and fast living.
What Blair did was to take acquisitiveness and make it into a form of almost national pride. Greed was good because it showed that Britain was top of the world. Cool Britannia was the signal of success for a country, and its capital, which could now do anything bigger and better than anywhere. The US was not only our natural ally but also the measure of that success. London was overtaking New York as the financial hub of the global economy. Its fashion, sportsmen and bankers were the best and proved it by earning and spending more.
The huge sums earned by footballers were not an indication of a sports business spiralling out of control, but the demonstration of how the best talent on earth was being drawn to our clubs. The vast bonuses earned by the bankers weren't the fruit of dangerous gambling, but the badges of honour of an international breed who were now choosing London as their home.
It's all imploded now. Nobody should be in any doubt about that. Within the country there is the sense of a giant hangover after a binge of debt and display, with the banks being blamed for having led us astray. Go abroad and there the feeling is that Britain is a medieval morality tale, a ship of fools that lost its bearings and has now hit the rocks.
And, indeed, even here there are those who see the credit crunch as the just result of a system that went wrong, a bubble whose bursting should now force us to start again. For the Archbishop of Canterbury it is a moral question, the old Christian belief (shared by Muslims) that money is the root of all evil and the pursuit of it as an end in itself is an act of deliberate separation from God.
Others, in this more secular age, look to the past, when salaries were all you got and footballers earned a weekly wage no more than a bricklayer's. Or they cast their eyes across the Channel in hope of a different model, where people actually make things and the banks only lend out what they have taken in deposits. Nicolas Sarkozy, France's President who came into power declaring that France had to become more American in its business ways, now trumpets a French model of state direction that points the way to a future free of Britain's busted Anglo-Saxon model.
There is a lot of hypocrisy in this. France's semi-state owned companies have seen corruption that would make even a Russian oligarch blanch, whilst Germany's core of family-owned businesses have witnessed (just as in Britain) an open door for the professional managers to rip off the family owners. Look at the figures involved in the golden handshakes of the Porsche chief in the Volkswagen debacle if you doubt it. But it is a view that finds a powerful echo in this country among politicians and commentators who would have us return to a more sober way of economic life.
If only it were that easy. But Britain has gone too far down the road to return to being a manufacturing nation financed by old-fashioned small deposit institutions. Nor is there any real sign that people want to go back to the days of Wilsonian tax evasion and avoidance. The Dutch have just introduced a law making it illegal for an institution to offer more than a relatively small proportion of earnings. Back here the public would be happy to pay Fabio Capello ten times his salary in bonuses if he gets England to the World Cup finals and a hundred times his salary if we won them.
That's the problem with so much of the present debate here. Obsessed with anger at the banks, the public demand action on pay and performance as if they only existed in the financial sector. And they see control of bonuses as a whip to scourge the sinful. The banks may be sinful (they most definitely are) but publicly flailing them doesn't get anywhere near the root of the problem. Banks pay big bonuses on gambling because they make big profits on it. If you want to curb that then you have to curb the profits and that means international regulation of capital ratios, tax and very probably a higher interest rate regime.
Reward and the way of distributing it matter, but they matter in a much wider sense than banking. As the culture of bonuses has spread through the economy, including local councils and civil servants, so has the distortion in rewards between managements on bonuses and those on ordinary salaries. Banking income is only the most extreme excrescence of a system that has got way out of kilter both with commercial logic and now public tolerance.
The British have always been prone to resentment with all its bitter and destructive consequences. As unemployment has risen and companies have gone to the wall, that resentment has broadened from banking to public sector pay and pensions, to those benefiting from house prices and those whose jobs are immune to the recession. If you want to start rebalancing – as we should – then you need to tackle the issue on several fronts.
One is in the tax system. Over the last decade the rules have become hopelessly skewed in favour of capital gains and with far too many loopholes for the top earners. The case for a simplification is long overdue. We need a system that is not only fairer but looks fairer, starting with a reordering of capital versus salary income.
And if it means some of the rich depart these shores and an effective international agreement to close down tax havens, then that seems to me to a be a fair price for a more cohesive society here. It's something that all parties have shied away from for fear of the dreaded "tax rise" spectre, but the mood has changed. A root and branch reform is possible in a way that hasn't been true in generations.
The second issue is bonuses themselves. It's easy enough to decry them in toto. But the concept of performance-related pay at a time of change when differences in leadership, say of head masters, and the demand for teamwork, say in trading floors, has obvious value. The problem is that it developed too far and has become just a means of topping up pay. The performance against which it is judged is often difficult to define, especially in the public sector. In the private sector it has all too often descended into schemes by which management reward themselves at the cost of their staff and their shareholders.
Part of the difficulty, as the banking scandal has shown, is that, while there is reward when things are going well, there is no financial punishment when they are going badly. No one's pay is docked when his company or division loses money, let alone busts the bank. The risk is all one way.
You can try and control this by setting caps on the amount a company can pay in bonuses. You can insist that bonuses be paid only over time, so that the bad can be weighed against the good. And you can ensure that it be paid, at least in part, in shares rather than cash. But then Lehman Brothers did pay its staff bonuses over time and in shares and that didn't prevent the company collapsing, bringing down the whole system with it.
Regulators can cap bonuses and/or tax them at a higher rate if they wish, but it is essentially a social rather than economic decision. So long as companies wish to induce higher performance and need to offer sweeteners for recruitment, they will find a way of doing it. The Bank of England, which is supposed to supervise the banks, has now revealed that it has paid its own staff some £16m cash bonuses in the last three years.
Which brings in the final, and deeper, question: how managements reward themselves. In the classic corporate model this should be controlled by the shareholders. That's no longer working. The rise of the institutional investor, the pension and insurance companies, has brought volume but not care into shareholding. Indeed the interests of the institutional investors are often in precisely the kind of short-term share-ramping and risk-taking that managements indulge in, for the managers of the institutions are paid by those results as well.
More regulation is the instant answer by the City's critics. But they forget that it was regulation before the City was set free that enabled managers to work their businesses without regard for the customer. Deregulation brought lower financing costs and wider loan availability. Governments are bad at risk assessment and poor at understanding competition. Yet these are vital if the economy is to find a way forward post-recession.
What the argument should be about is not a choice between regulation and laissez faire, but how to make the private sector, whether large or diminished, work more effectively in providing countervailing forces to greed and management self-protection. Sir David Walker made some suggestions in his report on the banking industry earlier this summer but they didn't go nearly far enough. A brave government now would institute a full inquiry into the City and work for radical change.
That doesn't get over the problem of risk and reward in the public sector as the calls for regulation and economic direction bring the state back into commercial life. Do you compete with the private sector to recruit the brightest and the best or do you instead try and restore the sense of social worth of public service that subsumes financial reward?
My fear is that, when growth returns, the pressure on change will reduce and the chance for some radical reconsideration of how the market works will be lost. Instead we will be led by the worst of the British appetite for punitive measures when it is in one of its puritan moods. Instead of reform, we will simply get the worst of British moral fervour as anything that smacks of excess – the value of homes, the size of bonuses, share remuneration – is banned, capped or taxed to extinction.
"Dost thou think because thou art virtuous, there shall be no more cakes and ale?" exclaimed Shakespeare in a cry that captures both the spirit of the British and the mainspring of so much of their humour. But then it is said by a character in Twelfth Night who, even by today's standards, was a cadger and reprobate to a man who was ever so "notoriously abused" – as we all have this past decade.Reuse content