"Beware bail-out kings and backbench barons
By John Kay
Published: May 19 2009 20:44 | Last updated: May 19 2009 20:44
Simon Johnson’s comparison of corporate financiers with Russian oligarchs has justifiably attracted attention. Mr Johnson, a former chief economist at the International Monetary Fund, has written an article for the May issue of The Atlantic entitled “The Quiet Coup”. He exaggerates for effect. But his underlying point is important.
When a group becomes too rich and powerful, it can wield influence over politics and over commercial activities in which its members are not directly involved. The effect is to enhance that wealth and power. This process is likely to end in political and economic crisis. That was the history of royal courts across Europe, from Versailles to St Petersburg. More recently, it has been the experience of many developing countries and transitional economies. In the three decades since Margaret Thatcher and Ronald Reagan inaugurated the market revolution, it appears that Britain and the US have joined their ranks.
There is no direct connection between the financial turmoil and political sleaze. Britain’s row over MPs’ expenses and America’s scandals over congressional lobbying have their own specific origins. Yet there is an indirect connection. Parliamentarians believe the taxpayer should pay for their widescreen televisions and gardeners. Senior executives award each other ever more generous remuneration packages. Bankers genuinely believe that the state should carry off their toxic assets while they continue with business and bonuses as before. All demonstrate an exaggerated sense of entitlement.
Dukes and cardinals, oligarchs and financiers, fixers and traders become very wealthy not by virtue of their talents but as a result of the position they occupy. Legislators and the heads of large corporations readily come to feel that their functions deserve similar recognition. We may be relaxed that some people do become filthy rich, but we should not be relaxed about how they become so or how they behave once they are.
Few people quibble about Bill Gates’ fortune, although they may occasionally think that $50bn is rather a lot. They see the evident benefits of the personal computer revolution that he helped to bring about. They can admire the essential decency that has led him to devote much of his time to finding charitable ways to spend his money. It is difficult to think about bond salesmen in the same way, as it was difficult to feel positive about the hangers-on at the court of Louis XVI.
We need to reassert the notion that roles of authority are positions of responsibility rather than declarations of personal merit and routes to personal enrichment. That notion goes with old-fashioned concepts of social obligation and public service. An insistence that power is a duty, not a prize, is probably the most important reason why some countries in the world are rich and others poor. The point needs to be brought home in equal measure to legislators, chief executives and bankers.
Historians would find much that is familiar in today’s developments. In Washington, the young, fresh King Obama finds his economic councils filled by representatives of the same interests who advised his predecessor so unwisely. At the Palace of Westminster, the failing, flailing King Gordon surrounds himself more tightly with his trusted advisers, venturing forth occasionally only to address his subjects from a safe distance by YouTube.
When crisis strikes, the powerful barons react initially by using their power to protect themselves from the worst of the storm. So the banks receive trillions in state aid. Only if the anger of the populace grows large enough, or the resources of the state are exhausted, does a counter-coup provoke change. Breaking the political power of the financial services industry will not happen easily. That power may survive this crisis – as it survived the last. When the New Economy bubble burst in 2000, enough money was pumped into the system to sustain the establishment and pacify the population. Minor courtiers were executed but the essential power structure remained. But, as Louis XVI learnt as the guillotine fell, the longer reform is delayed, the bloodier the revolution. And the more unsettled and chaotic would be the eventual outcome for us all.