Time for change: junk the Anglo-Saxon model* in 2018

The FT reports that senior executives at several of the largest US banks have privately told the Trump administration they feared the prospect of a Labour victory if Britain were forced into new elections.

It then referred to a report by analysts at Morgan Stanley arguing that a Corbyn government would mark the “most significant political shift in the UK” since Margaret Thatcher’s election and may represent a “bigger risk than Brexit” to the British economy. It predicted snap elections next year, arguing that the prospect of a return to the polls “is much more scary from an equity perspective than Brexit”.

Jeremy Corbyn gave ‘a clear response’ to Morgan Stanley in a video (left) published on social media reflecting anti-Wall Street rhetoric from some mainstream politicians in the US and Europe, saying: “These are the same speculators and gamblers who crashed our economy in 2008 . . . could anyone refute the headline claim that bankers are indeed glorified gamblers playing with the fate of our nation?”

He warned global banks that operate out of the City of London that he would indeed be a “threat” to their business if he became prime minister.

He singled out Morgan Stanley, the US investment bank, for particular criticism, arguing that James Gorman, its chief executive, was paying himself a salary of millions of pounds as ordinary British workers are “finding it harder to get by”.

Corbyn blamed the “greed” of the big banks and said the financial crisis they caused had led to a “crisis” in the public services: “because the Tories used the aftermath of the financial crisis to push through unnecessary and deeply damaging austerity”.

The FT points out that donors linked to Morgan Stanley had given £350,000 to the Tory party since 2006 and Philip Hammond, the chancellor, had met the bank four times, most recently in April 2017. The bank also had strong ties to New Labour: “Alistair Darling, a Labour chancellor until 2010, has served on the bank’s board since 2015. Jeremy Heywood, head of Britain’s civil service, was a managing director at Morgan Stanley, including as co-head of UK investment banking, before returning to public service in 2007”.

A step forward?

In a December article the FT pointed out that the UK lacks the kind of community banks or Sparkassen that are the bedrock of small business lending in many other countries adding: “When Labour’s John McDonnell, the shadow chancellor, calls for a network of regional banks, he is calling attention to a real issue”. And an FT reader commented, “The single most important ethos change required is this: publish everyone’s tax returns”:

• In Norway, you can walk into your local library or central council office and see how much tax your boss paid, how much tax your councillor paid, how much tax your politician paid.
• This means major tax avoidance, complex schemes, major offshoring, etc, is almost impossible, because it combines morality and social morals with ethics and taxation.
• We need to minimise this offshoring and tax avoidance; but the people in control of the information media flow, plus the politicians, rely on exactly these methods to increase their cash reserves.

But first give hope to many by electing a truly social democratic party.

Is the rainbow suggesting a new party logo?

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*the Anglo-Saxon model

 

 

o

Golden parachutes offer financial insiders an easy descent into government

Golden parachutes provide income when the executive leaves the company before the end of a specific period of time and – in the Financial Times – Ben McLannahan reports on top banking executives pocketing millions of dollars before taking jobs in government:

“Critics argue that such benefits, which do not apply to people quitting for other jobs in the private sector, have ensured a succession of financial insiders in senior policy positions and deferential treatment towards Wall Street”.

The revolving door

Citi is among a handful of big banks allowing government-bound staff to cash out of incentive programmes by accelerating the vesting of their stock awards. Citi has been a particularly rich source of state appointees in recent years, from Jack Lew, the Treasury Secretary, to Stanley Fischer, vice-chairman of the Federal Reserve. The latest to move was that of Antonio Weiss, a former banker now serving as a counsellor to Mr Lew, who acknowledged December that he would leave Lazard with up to $21m in unvested income and deferred compensation.

AFL-CIO, America’s biggest trade union federation which manages $94bn in assets, will begin a campaign against this practice at Citigroup’s annual shareholder meeting on Tuesday and put similar proposals to the shareholder meetings of Goldman Sachs, Morgan Stanley and JPMorgan Chase in coming weeks.

67.9% of those who voted in Switzerland’s referendum seeking constitutional limits on remuneration came out in favour of the initiative, which was passed in every canton. Swiss Justice and Police Minister Simonetta Sommaruga told reporters that the result was “the expression of widespread unease in the Swiss population about the level of salaries paid to top managers.” There is also widespread unease in the British population about such matters.

The Swiss have shown the way for Britain to start curbing its revolving door, conflicts of interest and golden parachutes or handshakes.

The Golden Parachute ban on excessive executive salaries and other means of compensation passed into Swiss law in 2014 but some parts only come into force this year, including the binding shareholder vote on remuneration.

Or will we need a Thomas Minder (above right) to come to the rescue?

Anglo-Saxon inequality: a moral, political and economic question

In the FT, economist Martin Wolf observes that the US – both the most important high-income economy and much the most unequal – is providing a test bed for the economic impact of inequality. The results are worrying. This realisation has now spread to institutions that would not normally be accused of socialism. A report written by the chief US economist of Standard & Poor’s, and another from Morgan Stanley, agree that inequality is not only rising but having damaging effects on the US economy.

Wolf asks: “When should growing inequality concern us? This is a moral and political question. It is also an economic one. It is increasingly recognised that, beyond a certain point, inequality will be a source of significant economic ills.

“According to the Federal Reserve, the upper 3% of the income distribution received 30.5% of total incomes in 2013. The next 7% received just 16.8%. This left barely over half of total incomes to the remaining 90%t. The upper 3% was also the only group to have enjoyed a rising share in incomes since the early 1990s. Since 2010, median family incomes fell, while the mean rose. Inequality keeps rising. The Morgan Stanley study lists among causes of the rise in inequality: the growing proportion of poorly paid and insecure low-skilled jobs; the rising wage premium for educated people; and the fact that tax and spending policies are less redistributive than they used to be a few decades ago”.

In March, an FT article by Edward Luce (America’s democracy is fit for the 1%) was subtitled ‘Both US parties are up for rent, and patriots of all stripes should be troubled’. He correctly forecast that the US Supreme Court would remove what remains of post-Watergate limits on campaign finance. In April it did so. He commented that “in a less unequal society, the downside would be limited. But in an economy where the top 1% of the population owns more than a third of national wealth, it corrodes the republic from which such riches sprung. People fret about America’s 1% economy. They should worry more about its 1% democracy.

Both ends of the spectrum should be concerned about the rising US oligarchy. Last week several Republican presidential hopefuls trekked to Las Vegas to pay their respects to Sheldon Adelson, the gaming billionaire, who owns casinos in Nevada, Macau and Singapore . . .

Wolf continues “The transmission of educational disadvantages across the generations is also a growing handicap to the economy. A debt-addicted economy with stagnant levels of education is likely to fare ill in future . . .

“American education has also deteriorated. It is the only high-income country whose 25-34 year olds are no better educated than its 55-64 year olds. This is partly because other countries have caught up on the US, which pioneered mass college education. It is also because children from poor backgrounds are handicapped in completing college . . .

“This is not just a problem for those whose talents are not fulfilled. The failure to raise educational standards is also likely to impair the economy’s longer-term success. Some of the returns to education may just be the reward to obtaining a positional good: the educated do better because they have won a zero-sum race. Yet a better educated population would also raise everybody to a higher level of prosperity.

“The costs to society of rising inequality go further. To my mind, the greatest costs are the erosion of the republican ideal of shared citizenship. As the US Supreme Court seeks to bend the constitution to the will of plutocrats, the peril is to the politically egalitarian premises of the republic. Enormous divergences in wealth and power have hollowed out republics before now. They could well do so in our age”.

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Ed: and this analysis ‘writ small” applies to England.

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