Bankers’ bonuses-the great evasion

4 09 2009

images[9]The G20 meeting of finance ministers this weekend and the G20 itself two weeks later both look set to be dominated by the issue of bankers’ bonuses. Gordon Brown has joined with President Sarkozy and Chancellor Merkel in signing a ‘letter of intent’ to find a way of bringing banking remuneration under control.

Why are they focussing on this issue? Is it because the question of toxic finance, which triggered the recession, has gone away? Not at all, in fact banks around the world are still sitting on trillions of dollars worth of rubbish investments. The only reason they have not been written off as losses in their entirety is that such a move would render the banks bankrupt. Instead the bust banks continue to be propped up by government guarantees. The response of the banks has been to desperately save as much cash as possible to rebuild their balance sheets instead of lending it, which after all is their prime function as businesses, leading to a continued credit crisis, particularly in the UK and the US.

Is the focus on bankers’ bonuses  because the impact of the recession has gone away? Absolutely not. Unemployment is rising throughout the developed world and while there are some signs that the fall in production has stopped, there is little evidence that the world economy is back on a growth trajectory.

So, if there is still much to be done to get the world economy back into growth mode why the focus on bankers’ bonuses? Firstly, political leaders  are under pressure politically to find scapegoats for the crisis. The bonus issue has been the one thing that has stuck in the public mind as an ‘explanation’ for the crisis. The absence of any serious public debate about the recession and its causes has reduced the public discussion to a mere scapegoating exercise. Politicians posturing on the world stage about the need to contain bonuses is a cheap political gimmick aimed for domestic audiences. As there is almost no possible way in a market economy to restrict the pay of the rich, it is doomed to failure even were the political will really there to carry it through.

Secondly, a debate focussed around bankers’ pay  helps to distract attention from the fact that the world’s leaders have very little to say about the real long term problems facing the world economy. There is little evidence of a willingness, for example, to address the question of global trade imbalances which lie at the heart of the world recession. The G20 will discuss bankers’ pay because they have little else meaningful to discuss. The prevailing mood is to hope that we are out of the worst and that ‘business as usual’ can be resumed as soon as possible.

There are good reasons to oppose any restrictions on bonuses, but we should be clear that the fact that any debate about it at all is taking place is a clear sign of how empty the public discussion of the economy has become. It is a warning that there could be much worse to come down the line.