Cash for Cameron

A major shitstorm erupted over the weekend after a sting by the Sunday Times, in which one of their journalists posed as a potential donor to Tory party funds. The then Tory party treasurer Peter Cruddas, who has since resigned, was filmed explaining that a donation of £250K would buy access to the Prime Minister and influence on government policy.

Shock horror! People who donate huge sums of money to political parties end up having influence on the party! Who knew?

David Cameron's initial reaction to this was to go with his gut instinct as a politician, and do what any seasoned politician would do in these circumstances: he lied through his teeth. He said that this was unacceptable and not all all how they do things. Oh no.

That's bollocks, of course. It's not exactly a secret that donating large sums of money to the Tory party gets you access to the Prime Minister. In fact, the Tory party website itself advertises dinners with David Cameron as one of the perks of making large donations.

But really, how much of a surprise is any of this? Surely no-one is naïve enough to think that people would donate a quarter of a million quid to the Tory party just for fun? Why would you donate that sort of money if you didn't expect anything in return?

Well, the Labour party were quick to get on their high horse and say how shocking it is. As if they'd ever let their funders influence them. Oh wait, didn't Ed Miliband only get elected as party leader because he was the choice of Labour's funders, the trade unions? The Labour party MPs or members didn't want him.

But hold on, I hear you cry, that's completely different. At least trade union funding of the Labour party is based on deep historical reasons and is completely transparent. Well, maybe. But do we really think that individual wealthy donors don't also get to influence Labour party policy? Remember Bernie Ecclestone? He was the boss of Formula One racing, and donated vast sums of money to the Labour party. When the Labour government introduced a ban on tobacco sponsorship of sporting events, amazingly, Formula One was exempt from the ban. Coincidence? I don't think so.

So for the Labour party to look shocked at this and pretend it's a party political issue is the height of hypocrisy.

And let's not pretend the LibDems are exempt from this. The Tories let them share the chocolate Hobnobs at cabinet meetings, which in percentage terms represents a gigantic contribution to LibDem funds. And in return, the Tories get to dictate LibDem policy on tuition fees, the NHS, and a whole host of other things.

It's not as if the latest revelations are a one-off for the Tories. Doesn't it seem a little fishy that Andrew Lansley, the Health Secretary, received significant donations from a private healthcare company shortly before introducing a bill that seeks to dramatically increase the role of private providers in the NHS? The fact is that of course donating large amounts of money to party funds buys you influence. Why would anyone do it if it didn't?

The response of the mainstream media doesn't really seem to have recognised this reality. It's gone for the knee-jerk reaction of “Ooh, here's a scandal! Shock horror! How terrible!”, and I haven't seen much attempt to look at the wider issues. Yes, many in the media have started talking about the wider issue of political party funding. Banning donations above a certain amount is back on the agenda, and rightly so. But I think there's a deeper problem that even a thorough clean-up of how parties are funded wouldn't solve.

The problem is that an elite group at the top of political parties, whether or not they are influenced by outside donations, has too much power. This isn't democratic. In theory, we vote for an MP, and the MP who best represents a constituency gets to vote on the issues of the day in parliament in accordance with the wishes of their constituency members. But it doesn't work like that in practice, because of the whipping system. Most MPs vote the way their party whips tell them to. On the whole, it's not good for an MP's career to defy the whips. So we don't really get the policies of the person we voted for, we get the policies that are imposed on them by their party elite. I'm pretty sure most of the Labour MPs who were elected in 2001 weren't belligerent warmongers, but nonetheless they mostly voted to invade Iraq in 2003 because Tony Blair told them to.

Many LibDem MPs promised before the 2010 election to vote against increasing student tuition fees, but many of them broke that promise because Nick Clegg (having presumably been bribed with some chocolate Hobnobs) told them to. This isn't democratic. The LibDems have traditionally prided themselves on being more democratic than the other parties in the way they make policy, but they can't pretend that that's true any more. Their recent conference voted against supporting the controversial Health and Social Care Bill, but the LibDem leadership told LibDem MPs to support the bill, and most of them did. This is not democratic, and LibDem voters have every right to feel thoroughly betrayed.

So what we have is a system in which an elite few get to make policy, and the votes of the electorate have only a limited effect. Obviously it's completely wrong that wealthy individuals should be able to buy influence over that policy, so if recent events push reform of party funding up the political agenda, then that will be a good thing. Personally, I would like to see a ban on large donations to political parties just to be sure that people cannot buy influence. And I'd define “large” fairly meanly. £500 sounds about right to me.

Of course, this will leave the political parties short of money, and some will argue that they should receive taxpayer funding to make put the shortfall. That would be a travesty. Using our money to prop up the political elite would be completely indefensible. It makes the assumption that political parties serve a public good. They don't. They serve only their own purposes. Political parties have no automatic right to exist. If they do not have a wide enough appeal that they can get the funding they need from modest subscription fees from their own members, then frankly, that's their problem. It simply reinforces the point that they do not appeal to the general public, and only strengthens the argument against taxpayer funding.

I hope that recent events will result in progress being made on cleaning up our political system. But please let's not fall into the trap of thinking that how parties are funded is the only problem.

 

I was struck by the juxtaposition of 2 stories I heard on the radio this morning: the problems that some benefit claimants are facing because of delays by the medical assessment company, Atos, and a debate in Parliament about the terrorist suspect Abu Qatada. I think it says something quite worrying about the state of our society.

Atos first. If you didn't know, Atos is a private company which is contracted by the Department of Work and Pensions to assess claimants for certain disability-related benefits, such as Employment and Support Allowance (ESA), to make sure that claimants genuinely have a level of disability that entitles them to whatever benefits they are claiming.

The rules for ESA require that an assessment be done within 13 weeks of claiming. Benefits are initially paid at a reduced rate, but the rate is increased after the assessment is done, assuming that it finds the claimed level of disability is genuine (whether the assessments are done fairly is a whole other story, but one I'm not going to get into here).

But there is a problem.

Although Atos are required to do the assessments within 13 weeks, they are not doing so. There is a huge backlog. This means that many claimants are still on the initial reduced rate even after 13 weeks. The reason for this is simple: Atos are crap. Oh sure, I dare say they have their excuses: it was the wrong kind of snow, it was the Royal Wedding, etc etc, but the simple fact is that they're crap.

So what happens when an important organisation providing a vital service to government doesn't fulfil its obligations because they're crap? Does it lose the contract? Are the directors fined? Are the people in government who chose Atos in the first place sent to jail for gross incompetence?

Er, none of the above. Nothing happens.

The second story is that of Abu Qatada. The British government would like to deport him to Jordan to face trial for terrorism charges, but the European Court of Human Rights have ruled that they can't, because he would not face a fair trial. The court found that the case that would be brought against him in Jordan was based in part on evidence obtained by torture.

Now, the British government clearly doesn't have a problem with torture as they would be quite happy to send Abu Qatada to Jordan despite their use of torture if they were allowed to do so, but torture has no place in a civilised society. Not only is torture itself reprehensible, but evidence obtained by torture is completely unreliable — when you're having your fingernails pull out you're probably going to tell your interrogator whatever it is you think he wants to hear, whether it's remotely true or not — so no civilised justice system should use it.

Thankfully, however, the we have the European Court of Human Rights to remind us that torture is bad.

This didn't seem to be good enough for some MPs. I felt a sense of utter dispair listening to the debate about Abu Qatada in Parliament yesterday. One MP, Jason McCartney, suggested that the British government simply ignore the court's ruling and pay the fine, and offered to chip in £50 out of his own pocket (presumably to be claimed back on expenses). Another, Peter Bone, similarly asked the Home Secretary to ignore the court's ruling and send Abu Qatada to Jordan anyway.

I find it a matter of great concern that MPs consider themselves to be above the law in this way, and that they are making perfectly serious suggestions (which, to her credit, Thereas May resisted) that we should simply ignore the law when we don't like it. That's not how laws work. They need to be obeyed by everyone, even MPs.

I think we have a serious problem in this country with the accountability of government to its citizens. Government should be accountable to the law in the same way that everyone else is. If Atos, acting on behalf of the government, is required to assess benefit claimants within 13 weeks and they don't, then there really need to be some serious consequences. Any benefit claimants who didn't comply with the rules of the benefits system would be likely to find themselves in prison: why don't the same rules apply to those running the system?

MPs also seem to think they are above the law, no doubt heartened by how few of them faced any meaningful sanctions after more than 300 of them had fraudulently claimed expenses. Most of those who did simply offered to pay back what they had claimed fraudulently, and that was the end of the matter. Do you think the same thing would happen to someone making a fraudulent claim for disability benefit?

In a democracy, government should not be above the law. We should all be worried when our lawmakers believe that they are.

I like Twitter. I really do. It's not only fun, it's also very useful. I have two Twitter accounts: my official work Twitter, @dianthusmed, in which I tweet worthy things about medical writing, clinical research, etc, and my personal one, @adam_j666, in which I do all the ranty sweary stuff.

As an example of how useful it is, I recruited someone to my company entirely through Twitter earlier this year. This probably saved me thousands of pounds in recruitment agency fees. But that's just one example among many. If you're reading this blog, it's quite likely that you're doing so because you saw me Tweet about it.

One of the great things about Twitter has been that you get to decide which bits of the huge amounts of activity you see. You can follow people if you find them interesting, and ignore them if you don't. You can monitor tweets containing certain key words that you find interesting. It's really a wonderfully ingenious way of filtering gargantuan amounts of information so that you only see what you want to see.

However, there is now a disturbing development, which is that Twitter are inserting "promoted tweets" into places where they are not wanted. This is a real threat to that model. Now, in addition to the things I have chosen to see, my Twitter experience is spammed by completely irrelevant and unwanted Tweets that someone has paid to have inserted into my searches. Some Twitter users are also having them inserted directly into their timelines, which seems even more intrusive.

According to Twitter, promoted tweets are supposed to be relevant to particular searches. Well, sorry, but I had a promoted tweet advertising wrapping paper in a search for "medical writing". If they really were relevant, perhaps it wouldn't be so bad. Twitter also claim that promoted Tweets can be deleted with a single click. Perhaps they can on the Twitter web interface, but like millions of other Twitter users, I use the TweetDeck interface (which is owned by Twitter), which does not allow promoted Tweets to be removed in any way. They just sit there, staring at me, no matter how many times I try to block them. I have occasionally managed to get rid of one or two after repeatedly blocking and reporting as spam, but then they come back again, zombie-like, the next time I open Tweetdeck.

Sorry, Twitter, this really isn't on. Promoted Tweets are far too intrusive. Now, I realise that Twitter needs to find a way of making money somehow. But surely there are ways of doing so that don't degrade the user experience so badly? I can't help thinking that there must be scope to use the freemium model, ie that Twitter is free to the majority of users, but there is an option of having premium added-value services to users who don't mind paying a fee. This appears to be working well for companies such as LinkedIn or Skype, and I don't see why it shouldn't work for Twitter with a bit of imagination.

But Twitter really need to come at this problem with a bit more imagination. Spamming our Twitter timelines is not going to lead to a successful business model.

 

I was shocked, if not surprised, to hear in the news this morning that some GPs have been removing patients from their lists for flimsy reasons and without following due process.

This is bad in itself, but I think that it’s also symptomatic of two wider problems.

The first problem is that the NHS is generally under-resourced, and this certainly appears to be true of the GP system. I don’t know if my own GP surgery is typical, but my partner has been unwell recently, and phoned our GP surgery first thing on Monday morning to try to see a doctor. There were no appointments with a doctor available all week, and the best they could manage was an appointment with a nurse on Thursday. If our surgery is anything other than a ridiculous outlier, then that is simply not acceptable. When GPs are struggling to meet the demands of more patients than they can reasonably manage, perhaps it is not surprising that they are willing to take any opportunity to remove patients from their list, and some are tempted to cut corners.

I have written and podcasted about the problems of NHS resourcing before, and I won’t go into all the arguments again here.

No, today I want to focus on another problem of which I think the latest GP story is a symptom: that our society has a serious problem with the unequal distribution of power.

There is an obviously unequal power distribution between GPs and their patients. In a caring and just society, there would be appropriate safeguards to ensure that the rights of patients are respected and that GPs do not abuse the power they have, for example, to refuse to see patients. Clearly, some GPs have abused that power. This is in breach of their contracts.

So what consequences do they face for breaching their contracts? Legal action? Losing their job? Well, as far as I can tell, the only consequence is that they get a letter from the Health Ombudsman which says something along the lines of “Dear Doctor, that was very naughty, please don’t do it again”. And that’s just the ones who get reported to the Ombudsman. No doubt there are many others who are not reported.

Now, it’s not my intention to have a go at GPs here. I’m sure that the vast majority of GPs care deeply about their patients and that the cases described here are highly unrepresentative. But I do think that what has happened here is extremely representative of the different consequences that ensue when people in a position of power misbehave compared with those who lack power.

There are many examples of this, and it worries me. For example, this week a long-running legal battle between a group of Irish travellers and Basildon Council finally came to an end. The travellers, who set up home on the site of an old scrapyard (which they own) without planning permission, will soon be evicted from their homes. Compare what happens when Tesco breach the conditions of their planning permission. No-one sends the bailiffs in to tear down an illegally built Tesco store. Why are the two situations treated differently, if not that one of the groups who breached the planning permission regulations is a marginalised minority group, and the other is a powerful corporation?

Another recent example of abuse of power was the arrest of a member of the public at a meeting of Carmarthenshire Council. She had clearly broken no laws, and was arrested simply because the chief executive of the council asked the police to do so. This was a flagrant abuse of power, for which no-one has been held accountable.

And are taxes applied equally to those of all statuses? I don’t think so. A couple of years ago, the small business that I run was a month late with an instalment of our business rates, purely as a result of an oversight. Despite paying the instalment the very same day we received a reminder from the council, and despite having no previous record of non-payment, we were still fined for late payment at the local magistrates’ court. Vodafone, on the other hand, a huge multinational corporation, seem to be able to dictate to HM Treasury how much tax they are willing to pay, and funnily enough, they don’t pay very much.

Perhaps the most flagrant example of the different treatment for people with different levels of power can be seen in two recent cases of mass law-breaking. Following the riots that took place this summer, those taking part in criminal activity were hunted down assiduously, and when caught, faced very stiff penalties.

Compare this with what happened in 2009 when it was discovered that a great many MPs had been dishonestly claiming expenses. Eventually, 4 MPs were convicted for fraud, receiving short prison sentences. But there was a good prima facie case that hundreds more had claimed dishonestly. Many of them were allowed to get away with no further action if they simply repaid the money that they had claimed dishonestly. Would those caught looting during the riots have been treated similarly leniently if they had offered to return the goods they had looted? I really can’t see any moral difference between the two. The only reason seems to be that MPs are in a position of power, and those involved in the riots lack power.

I really worry that in our failure to treat all sections of society fairly and apply the same rules to all, we are storing up immense trouble for the future.

A story in the news today has intrigued me. This is the story that 5 local councils in the north of England are launching a scheme to help first-time house buyers by loaning them money for the deposit on their house.

On one level, this sounds great. Although mortgage rates are currently low by historic standards, many first-time buyers struggle to save enough money for the deposit on a house, given that few mortgage lenders these days are prepared to loan more than about 80% of the value of a property, and some much less. It's not affording the mortgage that's the problem, it's finding a big enough pot of cash for a deposit up front. The size of the pot of cash required is outside the reach of most normal people.

We are told in the news story that the councils get a generous rate of interest on the loan. That seems entirely fair and reasonable. So in theory, this isn't costing council tax payers any money, as presumably it's being done at commercial rates of interest. I don't know what rate of interest, and when I phoned the first contact on the press release announcing the scheme, she also didn't know. Apparently it's up to Lloyds TSB, who are participating in the scheme, and I would guess that the rate of interest would vary according to the circumstances.

However, this scheme raises some interesting questions. If the loan is being given at a commercial rate of interest which is expected to cover the risk of people defaulting on their loans, then you have to ask why the banks themselves aren't providing a similar service? After all, one of the main functions of banks is to lend money, isn't it? Banks could easily make the councils' scheme unnecessary, either by offering 95% mortgages, or by offering specific loans for deposits, separately from a mortgage.

I can only think of 2 possible explanations why banks are not making these kinds of loans themselves. One is that the loans are a perfectly viable commercial proposition, and the banks are acting irrationally in not offering the service. It wouldn't be the first time that banks have acted irrationally. The second explanation is that the local councils simply haven't understood the risks of people defaulting on the loan, and are putting council tax payers' money at risk. Both explanations seem perfectly plausible. I have no idea which is correct.

It's worth noting in passing that this scheme may be an example of the "Big Society" in action, as it has been organised by Sector Treasury Services, a private company who appear to be running public finances for some local councils. I assume they are being paid for this scheme, and whether that had any bearing on encouraging councils to go down that route is something we can only speculate about. No, what am I talking about: that's totally far fetched, isn't it? Surely commercial interests would never have anything to do with important decisions about public finances made by responsible public servants, would they?

Anyway, all that aside, there is something else that worries me about this scheme. A big part of the reason why so many people struggle to buy their own home is that house prices are way too high. Housing minister Grant Shapps has recently argued, very sensibly in my view, that a period in which house prices fall in real terms would be a thoroughly good thing.

Helping a few first-time buyers by loaning a deposit will of course be a great help to those buyers who are able to take advantage of the scheme. But in the long run, I fear it will only make things worse for first-time buyers, as it will help to fuel increases in house prices. In some ways, first-time buyers being unable to afford houses could be a good thing if you take a longer-term view, as that situation is unsustainable, and will have to result in house prices stabilising or falling. That's just the sort of outcome that Grant Shapps has said he wants, and which I think most other sensible people would also want.

Surprisingly, then, we are also told in the story I linked to at the top if this article that Mr Shapps welcomes this scheme enthusiastically. That puzzles me. If he would like to see house prices stabilise, why is he supporting a scheme that is likely to contribute to their continued inexorable rise?

Last month, I wrote a couple of blog entries (here and here) about the decision I was trying to make about whether to trade in my old mobile phone for one of the latest smartphones. I was a little reluctant, partly because I suspected that it would all go badly, as indeed it seems to be doing.

Anyway, I eventually decided to take the plunge, and on Saturday, I phoned up Vodafone and asked them to send me 2 nice shiny new HTC Desires (the second one for my other half, in case you were wondering). I'm still not totally sure I really need one, and suspect I have just been seduced into getting a new toy by the marketing hype, but as most of the people I know who have smartphones think they are brilliant, I finally gave in.

My new phone hasn't even arrived yet (it's due to arrive sometime today), but already, things seem to be going badly.

When I phoned Vodafone on Saturday, I asked if they would be prepared to offer any kind of discount on their standard tariffs, given that I was ordering 2 phones on a single account. They said they would, and I was happy. But I was conscious that this was something agreed only on the phone, and that I had nothing in writing. Many years of experience of dealing with big faceless utility companies have taught me the wisdom of making sure that anything that's agreed is agreed in writing.

Anyway, the person I spoke to said that they would confirm all the details in an email, so I gave them my email address, and felt reasonably content about the whole thing.

As of this morning, no email had arrived, so I phoned Vodafone to try to chase it up. It was about 7.30, and I wasn't sure if they would be open at such an early hour, so I checked on their website. It said that their customer service lines were open 24 hours, but some services may be limited between 10 pm and 7 am. That sounded like it should be pretty safe, given that it was now after 7 am.

So I phoned them.

"Please press 1 to..."

Beep

"Please enter your account number"

Beep beep beep beep beep beep -- oh bugger

"Please press 1 if correct, press 2 if incorrect"

2

"Please enter your account number"

Beep beep beep beep beep beep beep beep beep beep beep beep beep

"Please press 1 to..."

Beep

"Please press 1 to..."

Beep

"I'm sorry, we are closed until 8 am. Please phone back later".

Well, that was 5 minutes of my life I was never going to get back.

Anyway, I tried again after breakfast, and after going through all the rigmarole of pressing various options and entering my account number, I finally got to speak to Paul, who sounded like he wasn't completely awake yet.

I explained that I had not received the email confirming the deal I had been given, and Paul seemed to struggle to understand this concept.

He pointed out that terms and conditions were posted on the Vodafone website. That's not the point, I explained, I wanted confirmation of the specific tariff that I was being offered. I pointed out that the person who signed me up had promised to send me an email. Paul said that they don't do business by email, so they didn't send emails to customers.

I asked why the person who signed me up had asked for my email address and promised to email me the details.

Paul didn't know.

However, when pressed, Paul did say that they had sent an old fashioned letter in the post to confirm the terms under which I'd signed up. I'm not sure I believe him. It took a lot of prompting for me to get this information out of him, and I can't see why he wouldn't have volunteered it earlier had it been true. I suspect that this was just a ruse to get me off the phone, given that there was no way in which I could immediately prove him wrong, as he said they only sent the letter yesterday and today's post had not yet arrived. This seems to be a common tactic by people in call centres for big utility companies. They know that when you phone back later even more annoyed that not only did what was supposed to happen not happen, but also they lied to you about it, the chances that they will have to take the call again will be miniscule and it will now be someone else's problem.

Time will tell.

I was also told on Saturday that the phones would arrive today, and that my other half (who often works at home and is doing so today) would receive a text message at about 8 am to advise her what time the phones would arrive. By the time I left the house at 8.30 this morning, she had not yet received a text message.

So, even before I have my phone, that's at least 2 things that have not turned out the way I was told.

I have a bad feeling about this. Fortunately, under the Distance Selling Regulations, I have 7 days to change my mind and send the phones back if I wish to. If I don't get written confirmation of the deal they offerred on the phone within that time period, I shall be making use of that facility.

Right now, I am so glad I haven't yet cancelled the contract on my old steam-powered mobile phone.

So, we have a new shadow chancellor. Alan Johnson has gone, and now we have Ed Balls.

Johnson famously said that he'd need to read a primer on economics. Well, at least he's honest about it. George Osborne, the real chancellor, is completely unqualified in economics too, although to be fair, managing the trust fund he got from his daddy is probably not that far off having to manage the budget for a small country.

Balls is a career politician who has never worked as an economist in real life, although of course he does have some experience in economics from having worked at the treasury. Whether the experience of being responsible for much of crashing the UK economy is good experience is another matter, of course.

But does any of this matter?

Actually, I don't think it does. I really can't see the point of a shadow chancellor. It's not as if the government are likely to listen to anything he says. And since we have a system of utterly tribal punch-and-judy politics, it doesn't really matter what the shadow chancellor thinks about any economic issue: in practice, if there is a vote on any economic issue in Parliament, the Labour party will vote against whatever the government does. No thought needs to go into that process.

In the last year or so before a general election, then the role of shadow chancellor is more relevant, as it is important in allowing the opposition to formulate their economic policy for their election manifesto.

But as we are potentially over 4 years away from an election, I really don't see that it matters whether the shadow chancellor role is taken by Alan Johnson, Ed Balls, or Donald Duck.

 

I wrote a few days ago about my dismay at the mobile phone industry, and the way in which they seemingly go out of their way to discourage me from replacing my old phone with a whizzy new smartphone. I have just seen some more information that reinforces my impression that the mobile phone industry have seriously lost their way.

One of the supposed advantages of smartphones is that they are capable of delivering rich multimedia content, such as YouTube clips. This is a feature of smartphones that is specifically advertised by the mobile phone companies in an attempt to persuade you that you should buy one. Here is an example of an advert for one particular smartphone on the T-Mobile website. Note the specific reference to watching YouTube videos.

But hold on a minute, another page on the T-Mobile website describes their so-called "fair use policy" for using internet data from smartphones. In that page, they tell you, in the sort of tone normally reserved for telling off naughty schoolboys, that you really shouldn't be using your mobile phone for downloading video. I quote:

"If you want to download, stream and watch video clips, save that stuff for your home broadband."

So, T-Mobile, please could you make up your mind? Are smartphones intended to be used for viewing rich content or not? If they are not, then why are you advertising them for that purpose? And if they are, then why are you telling off your users when they use their phones for what you tell them they can do in your adverts?

This does not make me more likely to want to buy a smartphone.

Update 12 Jan 16:35

It would appear that T-Mobile have now become rather embarrassed about the page I linked to, and have changed it. You can see the original here.

I wrote the other day about my suspicions that part of the problem for the economic mess we're in is a result of shareholders not taking a sufficiently keen interest in the governance of the companies they own.

One of the problems is bankers bonuses, a topic that has just reared its ugly head again.

Now, in this case, there is absolutely no excuse for shareholders in some of our banks not taking an interest. I refer specifically to the Lloyds Banking Group, RBS, Northern Rock, and Bradford & Bingley.

What do all those banks have in common? They all had to be rescued by the taxpayer during the financial crisis, and now the British government is a major shareholder, and indeed a majority shareholder in all but Lloyds Banking Group.

The government tells us they don't approve of excessive bonuses. And yet they seem quite content to let the banks pay billions of pounds of what is now taxpayers' money to some highly paid individuals within the banks.

Why are they doing that?

The bankers would have us believe that it is necessary to pay enormous salaries and bonuses to attract talented people. That argument is very hard to believe. For one thing, exactly how talented are these people? They managed to screw things up on a scale seldom seen.

For another thing, what is the evidence that banks would not be able to recruit competent staff if they paid much smaller salaries? I dare say some of the things bankers do is quite tricky. Nursing is also quite tricky. Plenty of people are willing to be nurses despite being paid about as much per year as some bankers get paid per week.

A typical post-doctoral research scientist does an incredibly difficult job, requiring skills that very few people have, and typically is paid less than £30K (that's per year, not per week just in case anyone is still thinking in terms of bankers' salaries).

Although pay is an important motivator, it is certainly not the only thing that motivates people. Even in the absence of these huge bonuses, it is unlikely many bankers would be poorly paid. A good employer should be able to attract good staff without needing to pay stratospheric bonuses. In a properly functioning free market, bankers' pay would reach a level which is high enough to ensure that suitably qualified people are willing to do the job, but no higher.

In other words, a rational employer would not pay stratospheric bonuses if they didn't need to.

It seems to me that bankers pay themselves huge bonuses for one simple reason: because they can.

Shareholders should not allow this. It is understandable that they do for companies owned by institutional shareholders, as I wrote the other day.

But when the government owns the companies, it is much harder to understand why they are complicit in this injustice.

The bankers were a major force in the complete rogering of the economy that has caused so much pain for so many over the last couple of years. They are being rewarded for that with billions of pounds of our money.

Seriously, why are we not rioting in the streets about this?

 

I have recently started studying with the OU because I wanted to learn about economics. I find it a fascinating subject, but know almost nothing about it.

A cynic might say that makes me indistinguishable from most economists. I couldn't possibly comment, although I hope that by the time I've finished my studies, I will.

I am still at an early stage of my studies, currently doing DD101 "introduction to social sciences", which the OU recommend as the best place to start with studying economics.

So, this is going to be the first of an occasional series of blogs about the economics issues of the day, from the point of view of someone who doesn't understand very much about them. Hopefully they'll get better informed and more insightful over time.

The subject of today's blog is the role of shareholder involvement in the recent banking crisis. I heard a fascinating piece on Today this morning (listen to it here) talking about why the banking system went so horribly wrong. There were many reasons put forward, but one that particularly caught my attention was the role of shareholders.

The theory was that shareholders in banks were not exercising their duty to ensure that the banks were acting their best interests. In theory, shareholders in banks should always vote to ensure that banks act in their interests, because, well, it's in their interest. So for example, rational shareholders should never approve the payout of excessive bonuses (ie bonuses greater than strictly needed to attract and incentivise good staff), because keeping bonuses to more reasonable levels would leave more money to be paid to shareholders as dividends. Rational shareholders should also not allow the boards of banks to implement strategies involving crazy amounts of risk.

But clearly, they did. Why is that?

I don't really know, but there are 2 things that strike me as contributing to the problem. The first is the increasing popularity of high frequency trading, now estimated to account for 70% of all trades. High frequency traders have no interest in corporate governance. Their strategy is based on micro-fluctuations in share prices over minutes or even seconds, and the corporate strategies of the companies they are buying are therefore irrelevant to them.

The second is that a large number of shares are held by pension funds (and other equity based funds), and there is therefore an extra layer of separation between the shareholders and the companies they own. Much of my pension fund is invested in equities, but I have no involvement in the companies my fund has invested in, as I don't directly own the shares. That's the job of my pension's fund manager, and I have to trust that he or she is doing a good job of voting responsibly at shareholder meetings.

But can I trust in that?

I don't know. But I'm a bit worried that there may be a problem here. Pension fund managers are highly paid city types. People in banks who take excessive bonuses are highly paid city types. On the whole, people tend to look after their own. Whose interest is my fund manager most closely aligned with? It's probably easier to approve a payout of excessive bonuses when those bonuses are going to your mates.

And is my fund manager incentivised to look after the prospects for long-term stable growth of the companies my pension is invested in, or is there an incentive for taking risks with the potential for big gains in the short term, even if it does all go tits up a few years down the line?

I don't know the answers to any of these questions. This is part of the reason why I'm keen to study economics. But the questions do worry me.

Are you worried? Let me know in the comments below.