Why is all our fury directed at Bob Diamond and the 'fat cat' bankers?

If we want to have a fair society, says Sean O'Grady, we must face up to human nature and treat all rich the same

Thursday 13 January 2011 01:00 GMT

Why is it easier for a man to pass through the eye of a needle than it is for a rich man to enter the Kingdom of Heaven?"

When John Mann, Labour member of Parliament for Bassetlaw – and an agreeably awkward member of the Treasury Select Committee – asked this of Bob Diamond, boss of Barclays, during his testimony this week, Bob responded with the alacrity of a stunned goldfish. He could not have looked more perturbed if had been hit over the head with his pay packet. It was an effective bit of banker bashing: God against Mammon; north Notts versus Massachusetts-via-Canary-Wharf; socialism confronting finance capital.

Mr Mann and his colleagues (salary: £65,738) told Mr Diamond (salary: £1.35m) to be grateful for the help the taxpayer had given the banks; Mr Diamond told them the time for remorse is over. Cue outrage.

Maybe Mr Diamond is right, though. Maybe Boris Johnson, too, is right when he says the banker bashing season should be declared closed.

Right, that is, in the sense that all the emotive stuff about "obscene" bonuses, "fairness" and rich men entering the kingdom of Heaven misses the point a bit. Is this debate really about creating an efficient, safe banking system (but one which has the same right as any other bit of the economy to pay people very well indeed)?

Or is it about what kind of society we want: the old, but perfectly respectable argument about what is an "acceptable" distribution of wealth, income and opportunity in a country.

Is paying Eric Daniels, boss of Lloyds, a £2m bonus bad because it is bad for the strength of his bank, or because it's rather a lot of money for one chap?

Would it be "acceptable" if it was £1m? If so, why? Do we wish to be more like Sweden; more equal? Or more like the US or Brazil, with more billionaires and more shanty towns? If we want to argue these points, then we ought to be more honest about it.

If it is more about the way we supervise banks, then we should de-emotionalise and sub-contract it to the Bank of England and the other central banks and regulators around the world who are even now bending their minds to the task. Maybe the money Mr Diamond, Mr Daniels and the rest are getting should be put to better use, building up the capital of their banks or lending it out to small businesses.

If so that is something we ought to entrust to the Bank of England to secure. But those banks would still need bosses and would still need to be paid the going rate, hefty as it is. There is clearly the possibility that, in a good, healthy bank in a good year, appropriate, going-rate rewards for bosses and traders will be many times what a nurse or head teacher gets and the Bank of England will be OK about that.

Are we happy with that or not?

Or put it this way: is the £75m that Mr Diamond has made from his involvement in Barclays over the past few years offensive because it is such a lot of dosh and "unfair", or because it has been detrimental to financial stability? Would it be all right if he had received it as an oil executive? Or as a hedge fund head; an investment house; in other words, one that has made no demands on taxpayers at all? Would it be satisfactory if the Barclays board paid less than the going rate to Mr Diamond and his colleagues and they lost a competitive advantage to other banks? The same goes for the taxpayer-owned banks. The state-owned BBC and Post Office pay execs the rates for the job, so why not state-owned banks?

If this is a question about "fairness", then let's please stop demonising the bankers per se and start demonising the rich generally in all their, well, rich and varied forms – East Anglian grain barons, Jonathan Ross, Zac Goldsmith, the Duke of Westminster, top barristers, tax accountants, non-banking corporate bosses, local authority chief executives: the lot.

Bankers occupy a special place in the economy, to be sure. Their mistakes can indeed ruin societies and plunge the world into a slump. But they are not extraordinary human beings in any other sense. They do not deserve to be singled out by the Archbishop of Canterbury. They are not X-Men or shape-shifting mutants. They do not have an extra special chromosome that makes them greedy.

Despite the caricatures of fat cats in pinstripes, they are not universally chubby chaps. They probably had no more extra roast parsnips at Christmas dinner than the national average.

Their financial motivations are not more base than those of, say, postmen, actors, orthopaedic surgeons, bicycle repair men, horse breeders, bespoke tailors, tyre fitters or, ahem, journalists and MPs. Apart from the odd Buddhist monk or Mr Mann MP, greed is endemic, whether it is "good" or not in the Gordon Gekko sense. We are all of us, let us face facts, out for what we can get. I cannot recall the last time a union went on strike for lower pay, or a work colleague turned down a bonus as they wanted to "show restraint".

Human beings are economic actors and asking bankers to show restraint is as sensible as asking a rattlesnake to refrain from biting you. It is in their – and our – nature to maximise their income. The banks, I agree, might well reflect on whether it does much or their image, but that is probably a much overestimated asset and certainly not much use if you cannot recruit the staff you need to do the job in the first place. It is, in fact, just indulging the sort of "responsible corporate citizen" whitewashing which is cobblers; the sort of nonsense David Cameron used to shovel in his days as a PR flannel.

If bankers "don't get it" – it being public anger – it may be because that anger is badly targeted and illogical. If "getting it" means jeopardising your business, then getting it isn't really worthwhile. It was once famously said by the Chairman of the Financial Services Authority, Lord (Adair) Turner that it was not obvious to him that all the activities he observed going on in the City or Canary Wharf were "socially useful". You can see his point.

Shaving the last milliseconds from how quickly a financial instrument can be bought or sold, for example, can't add that much to human happiness.

My Mum spent most of her working life as a nurse and was paid less over her career than some of these bankers "earn" in a month. It is, palpably, not fair. But then is Wayne Rooney's pay – £250,000 a week – "fair?" Is what he does "socially useful" (I mean on the pitch, obviously).

Or take Vittorio Colao. No, he doesn't play for Chelsea. He happens to be the Chief Executive of Vodafone and he earned €2.2m last year. Is his pay less "obscene" because he is more obscure than Bob Diamond? Is a £25m bonus "unacceptable" in the Coalition Agreements terms, but £10m is OK? To which the usual reply is that the bankers are special because they have "caused" this crisis. Altogether the British state has stood £1trillion for these guys (and they are overwhelmingly men) to keep their banks alive and this is how they repay us and all that. Alan Johnson, the shadow chancellor, says that children are being made to pay the price for the crisis rather than bankers. It's not fair. It's all true and it's all nothing to do with morality.

Bankers were merely going about their lawful business, if not doing God's work, with no evil intent. Let's draw an analogy with the pharmaceutical industry, which is also involved in developing new, but risky products. If we suddenly decided to stop making them do extensive clinical trials and they went ahead and put drugs on the market that turned out to do harm and which cost the NHS billions to treat, who should we really blame? They ought not to do it, but it is the authorities' job to oversee what they do. In the go-go years everyone was happy watching the City make money and no-one mentioned the emperor's clothes.

If anyone should have done that it was the nation's financial journalists, so wise and so indignant now. They did not. Neither did the regulators. Should they also now have their pay docked for their failure? Does paying Bob Diamond huge amounts damage his bank? If it does, then let the regulators penalise Barclays – they are plenty of ways they can do that.

If not, let them get on with it.

Britain, unconsciously, seems to yearning for the medieval concept of a "fair price", or a more recent, equally-forgotten era when controlling pay and prices was routine. Nothing wrong with that, provided we acknowledge that it is really what we want. In the 1970s we had things like a "Prices and Incomes board" where a panel of the great and good would determine whether the price of a jar of Marmite should go up by 3p or whether the train drivers "deserved" a 17 per cent rise after all. We also had "penal" tax rates, with marginal rates up to 98 per cent.

Those were, contrary to myth, not levied on "Middle England" but on the equivalent of Bob Diamond and levied precisely to end "obscene "pay and deliver a sort of maximum income by the back door. The rich, obviously, dodged them by heading off to Monaco or wherever, but the country was more equal, if poorer. If we want a nation where the pay of everyone is planned and controlled by a panel of envious journalists and bitter trade unionists then bring it on. If not then we'd better leave the technical issue of bankers' bonuses to Mervyn King and the likes of the Basel Committee to make sensible recommendations about making banks hold, say, more capital in cash that they can't make much profit on; a quiet, but useful tax. What matters really is the structure of bank pay and bonuses, not so much their level and whether they encourage risk taking and whether any subsequent bank failure lands the taxpayer with a huge bill.

I doubt Mr Diamond will be taking many reckless risks right now. Besides, some folk can be incentivised to do some stupid things for a few quid.

Rewards for failure are hard to tolerate. Then again, they are usually matters for the shareholders. If they are dozy enough to let things pass, that's their look out. It is a shame that the Government doesn't want to make the banks be more open about pay.

Then again, no-one has to own shares in a bank. "Rewards for failure" is, in any case, hardly a new phenomenon in the world of business. Before the bankers, the demon "fat cats" were to be found in the boards of every large company; before that it was the bosses of the privatised utilities who were the villains. Remember Cedric the Pig? Cedric brown, boss of British Gas had an income too high for the tastes of the trades unions, so they bought a pig and paraded it at every AGM the company held. The porker made the point loquaciously: Cedric earned more in a year than most people did in a decade and his company was not always top of the pops for customer service.

It had the audacity to change money for the energy it supplied and it was altogether "so unfair".

Truth is, we don't much like rewards for success any more than rewards for failure. The only wealthy people we seem to like are lotto winners and footie stars, perhaps because they are "more like us".

So what really hurts? The injustice? Or the guilty knowledge that we would take the bonuses, same as the bankers – whatever the Holy Bible said.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in