Top salaries

There have been two main arguments advanced by those who support the payment of massive bonuses to bankers.  The first is that such bonuses represent payment for results, and the second is that the banks are in competition with each other for their top management and therefore have to pay competitive packages.

Those arguments are, however, based on two assumptions.  Those assumptions are self-evidently true to those making them; but I’m not convinced that they stand up to more objective scrutiny.  The first assumption is that the actions of the individuals concerned make such a significant difference to the performance of the organisation as a whole that it is essential to retain them, and the second is that there is a vanishingly small pool of talented people who can undertake such roles.

The question about the extent to which the performance of an organisation is affected by the performance of an individual is far from straightforward.  It’s probably true that poor decisions by individuals can wreck an organisation – and the banking industry has seen the effects of that probably more than any other sector.  It’s far less obvious that the actions of top management can make an organisation succeed. 

That doesn’t stop them claiming the credit for success when it happens – but there’s often a huge amount of luck.  They just happen to be in the right place at the right time.  And if things go wrong, there’s usually someone else to blame.  So when things are going badly it’s down to the problems of the Eurozone; when they are going well it’s due to the brilliance of the top bankers.  (And it’s hard for politicians to criticise bankers for pulling this trick when they do it so often themselves.)

Competent management teams at banks will generally do better than incompetent ones, but I suspect that a huge proportion of the factors which affect overall success will always be outside their control.  If that’s true, then the pool of people who could manage a bank competently is much larger than we are led to believe.  And if that pool is much larger, then the need to compete by paying huge salaries is correspondingly reduced.

To look at things another way, do we really believe that we couldn’t find competent people to run our banks at salaries very much lower than those being paid currently?  After all, it’s not so very long ago that the banks were indeed run by people whose salaries, in both absolute and comparative terms, were very much lower than today.  And the banks were, I recall, rather more successful too.

Only the rich need apply

It appears that some in government circles are starting to feel a little disappointed that most of the names emerging for the elections to the new posts of Police Commissioners are past or present party politicians.  Apparently, they had really hoped to see some strong independent characters coming forward, rather than simply having a traditional party battle.

I can understand that hope – after all, possible politicisation of the police is one of the main planks of opposition to their proposals.  But I cannot understand why they might have thought for a moment that there would ever be a significant number of non-aligned candidates.

Elections are the business of parties; parties are structured and organised precisely for that purpose.  They are also funded for that purpose.  And the areas covered by police forces are large, much larger than the average constituency; the chances of a one-person band ever communicating effectively with a significant proportion of the population are slim.

Why would anyone think that there would be many independent candidates who would be able to organise an election campaign over such a large area on anything like the same basis as a political party?  And how would they fund it – unless they are significantly wealthy in the first place?  I cannot imagine how anyone involved in politics could ever have expected the elections not to be dominated by party political candidates.

Friends like these...

I’ve long-known that politics is a business in which friendship and loyalty count for little, but I was still surprised at the candour of Peter Hain’s description of the events surrounding the replacement of Ron Davies as Labour’s candidate for First Secretary.

Hain was completely convinced, he tells us, that Rhodri Morgan was the right man for the job; right for Wales and right for Labour.  However, instead of supporting Rhodri, he ran Alun Michael’s successful campaign.  He did this, he says, because Alastair Campbell told him that it was ‘what Tony wanted’.

Perhaps Hain expects Rhodri, Labour, and Wales to forgive him, now that he’s been so candid - the repentance of a sinner, as it were.  I suspect that it will just make his ‘friends’ – if he has any left – even more wary about their backs.  With friends like Hain, they hardly need political enemies.

What is to be done?

I quite enjoyed David Davies’ little outburst yesterday about the likely outcome from the Silk Commission.  It’s a real problem, isn't it, when opinion is moving so strongly in one direction that it becomes difficult to find anyone willing to put the opposing case.

I suspect that his suggestion – just publish the report now, and scrap the consultation and evidence taking – was born of frustration and intended to be sarcastic.  But what would he have people do?  Ban most of those supporting further powers from giving evidence so that the committee only hears an equal number of fors and againsts?  Fund some new groups to argue against to try and even the numbers out a bit?

In fact, his tongue-in-cheek suggestion may well be the best and most sensible one, even if he’s likely to be the last one to recognise that.  On those issues where there is an overwhelming consensus, perhaps moving straight to a recommendation and decision really is the easiest way to proceed.  After all, the only reason for holding long drawn-out commissions to consider matters is to appease the vociferous minority who want to stop progress.  People rather like David Davies, in fact.

Somebody must do something

The collapse of Peacocks is a tragedy for all those who work there, and a major blow to the Welsh economy, given that Peacocks is one of the few large companies to be headquartered here.  Whatever happens by way of salvage, it seems inevitable that what emerges will be a smaller and leaner company – with a much reduced workforce.

It isn’t the only company to be facing difficulties of course; many others have already been hit, and we can be certain that more will be hit in the future.  The reaction from opposition politicians (and it really doesn’t matter which party or parties are in government and which in opposition) is that somebody must do something.

The somebody is invariably code for ‘the government’; and given the essential similarity of economic policy of the government and the opposition, the something inevitably means the use of public money, since the differences in economic policy between opposition and government are too small and too long term to make a difference at the point at which a company has failed. 

As an instinctive interventionist, I don’t see anything wrong, in principle, with the use of public funds to rescue private firms and save jobs and livelihoods.  It’s the practice which concerns me, not the principle. 

It is a fundamental tenet of the capitalism whose image the UK parties are all busily trying to burnish that capital gets rewarded for taking risk, and that capital gets the lion’s share of the rewards of success.  The question is over how much risk they’re really taking if public funds are being used for rescues when a capitalist enterprise fails.  It’s another example of privatised rewards and socialised risk.  And it often looks as though the biggest risks of all are borne by those who have little choice but to work for a capitalist enterprise.

The danger in using public money to bail out private companies is that governments are usually asked to step in only after the banks have already decided that the risk of default is too great for them to loan the money.  I’m not sure on what basis anyone believes that governments are better placed than banks to predict the success or failure of an enterprise; it seems a highly unlikely proposition to me.

Perhaps rather than lending or giving money direct to the companies to bail them out, the government might think about lending or giving it to the employees for them to take a growing stake in the companies for which they work.  It would not only give them a greater stake in the success of the enterprise, but it would also start to rebalance the economy away from a pure capitalist model.  After all, Marx said that capitalism contains within itself the seeds of its own destruction.  All we need is the mechanism to give effect to that, and the failure of capitalist company after capitalist company might even be creating opportunities if we look for them.

Diverting attention

The Labour and Conservative leaders seem to be vying with each other to see which can offer the most trenchant critique of the style of modern-day capitalism.  It will never lead to any real action, though.  Once they’ve milked this one for all the sound bites they can get, they’ll just move on to something else. 

And, for all his bluster, Cameron seems either unwilling or unable even to intervene in remuneration decisions at RBS, despite the Government owning 83% of the company.  How serious can he really be about empowering shareholders?

More significantly, an argument about the style of capitalism avoids any discussion about the substance.  With capitalism suffering an enormous crisis, and the dependence on borrowing and growth shown to be unsustainable, it’s not an alternative style that we need, but an alternative model.

Sure, as its supporters regularly trumpet, capitalism has been a huge driver of affluence from which we have all benefited.  Even Marx recognised that.  But the idea that it can or will continue indefinitely owes more to faith than fact.  And to point to the benefits without discussing the disbenefits is to arrive at a very unbalanced conclusion.

Capitalism may well have driven growth and affluence, but it has also driven rising levels of inequality, and by externalising costs in pursuit of private profit has left human society as a whole with the costs of the environmental damage caused by rampant growth and exploitation of natural resources.

Criticising fat cats and boardroom pay may attract media attention, but it’s a diversion form the real issue, which is about how we move from a global competitive economic model to a local co-operative one.  It’s about fairness in allocation of finite resources rather than power and strength.  And it means the sort of changes which Tory-Labour politicians will never propose.

Funding gaps and outrage

The howls of outrage from those more interested in having a stick with which to beat the government than they are in either statistics or education are hardly a surprise.  The Lib Dems, in particular, have been obsessed for years with the alleged 'funding gap' between schools in Wales and schools in England (although both Plaid and the Tories have been known to join in from time to time as well).

The lack of information this year can hardly have come as a surprise to anyone, however - not if they'd read beyond the headlines last year, at any rate.  Because last year's report (available here) clearly stated:

What happens next year?
If England are able to provide education outturn expenditure for 2010-11 on a comparable basis with the new local authority responsibilities removed then the outturn data could be compared.
The position of comparability of budgets for 2011-12 is not yet clear due to further changes in the way education is funded in England but we will be exploring this with the Department for Communities and Local Government.

I would have hoped that the absence of a meaningless high level comparison of the Welsh average and the English average might lead people to start to concentrate on the substance of the education problems in Wales instead.  Hoped, but not expected.

Graduate premiums

This report from an investment advice company makes for interesting reading.  It’s long been claimed that possession of a university degree leads to a boost in lifetime earnings, but the level at which this report sets that boost is much higher than previous estimates.  Government ministers have talked in the past about the premium being around £100,000, but this report suggests that it’s at six times that level – a cool £600,000.

Now, assuming that the recipients of this extra salary manage to avoid higher rate tax throughout their working lives, and that the whole amount is therefore ‘only’ to be taxed at the UK basic tax rate of 20%, that means that the average graduate will pay £120,000 more in income tax over his working life than the average non-graduate.

One of the main arguments for tuition fees is precisely that graduates earn more and should contribute more as a result; but these figures show the extent to which they already do that through the tax system.  Those of us who’ve argued that from the outset will feel vindicated by such a finding; why charge them an extra £27,000 on top of the extra £120,000 they’re already paying?

There’s a sting in the report as well though, because the figures I’ve used so far are based on averages over a working life.  The report also says that, unless a graduate starts his or her working life on a salary of at least £50,000 (and the average first year graduate salary is a mere £19,653 by way of comparison), then the terms of the student loans are such that the graduate is unlikely to earn enough to pay off the loan and added interest, and the government will end up writing off the greater part of the debt.

So, after saddling graduates with debts for the first 30 years of their working life, the government will end up writing off somewhere “between £30,649 and £64,935 for every full-time university student who graduates in 2015”.  That’s more than the three year cost of fees at £27,000, because of the interest added.  Far from transferring the cost of Higher Education from the state to the individuals, the Government will, to a significant extent, merely have deferred the expenditure for 30 years.

This isn’t so much reducing the deficit as putting part of the debt off balance sheet; hiding it away as an unstated liability for the future.  It may not be on the same scale, but it’s not too far removed from some of the accounting practices which Greece used to hide the true extent of its deficit.

I’ve never been convinced that the policy made sense educationally, or that it was fair; and I’ve also been concerned that it would deter bright students from less privileged backgrounds from studying.  If the figures in this report are anywhere near accurate, it suggests that the policy doesn’t even stack up in economic terms either.

Internal funding gaps

I’m always a little wary of any newspaper stories where the lead-in uses the words ‘we can reveal’.  It’s usually followed not by any great revelation of something secret, but by a story on a widely-available report.  So it was with this story in Monday’s Western Mail.

It shows that the differences in amounts per pupil passed to different schools in Wales – even within the same authority – are bigger than the headline gap between the Welsh average and the English average.  But this is no revelation; it’s not even a surprise.

It’s a point that I made on this blog some months ago; the obsession with comparing overall Welsh averages with overall English averages in order to score a political point has been blinding people to the much greater internal differences, although at that point I didn’t have figures to the same level of detail.  It also underlines another point that I’ve made a number of times on this subject – there is no obvious causal link between amount spent per pupil and the level of educational success achieved by a school.

Looking at the detail of the figures, they do suggest that smaller schools spend more per head than larger schools; some might see that as economies of scale, others as an urban/rural split in the cost of providing education reasonably close to home.  They certainly do not suggest that simply increasing the amount of money passed to schools across the board is going to solve any of the problems facing the education system in Wales.

That’s not to say that schools couldn’t do more with more money; merely that it doesn’t necessarily follow that they would.  If we want to sort out education in Wales, we need to do a lot more analysis than simply dividing budgets by numbers of pupils and highlighting the ‘gaps’ which result.  That is just a diversion from getting to grips with the real problems.

Terms of the divorce

Whilst the laws and unwritten constitution of the UK clearly support the view that Scottish (and the same applies to Wales) Independence is a matter which the UK Parliament would have to ‘allow’, I’ve never been in any doubt that the decision belongs to – and will be taken by – the people of Scotland.  Ultimately, ‘sovereignty’ can never be withheld from a people who wish to reclaim it, no matter what any law may say.  (I suppose that the use of military force might provide an exception to that, in the short term at least; but it’s not a realistic option in the UK context.)

Some have tried to compare independence to a divorce, arguing that that makes it a matter for both (or even all) parties.  It’s not a wholly unfair comparison; but those using that argument should bear in mind that whilst the terms of any divorce are indeed a matter for negotiation – or even acrimonious argument – the fact of the divorce can be decided by one partner acting alone.

Clearly, those opposed to independence have every right to seek to persuade the people of Scotland that divorce is a bad idea.  They even have a right to be awkward and petty about the terms of the divorce, although I’m not sure that it would be the wisest thing for them to do.  But arguing about the right to a divorce is an irrelevance; it’s missing the point.

If we start from the premise – as I do – that ‘sovereignty’ belongs to all of us, individually and collectively, rather then being bestowed miraculously on the head of state, then it follows that we can change the way that we choose to exercise that sovereignty.  We can choose how much to share or pool at community level, at national level, or at international level; and we can change those decisions as and when we like. 

It’s a very different model from that under which the laws and constitution – and those who enjoy power under them – currently operate; but those laws and constitution only operate as they do with the consent of the governed, even if we don’t always realise that.  (Perhaps if we did realise it more often, the governed might withhold consent more often as well.)

Thus far, I suspect that most nationalists would agree with what I’ve said, even if ‘unionists’ (perhaps ‘constitutionalists’ would be a better term here) might disagree.  How far do we take it though – because I’d go a lot further.

Part of my difficulty is that I find it hard to define a ‘nation’ in terms that are not, in the final analysis, based on subjective self-identity, which also means that I reject the idea that people can have one and only one ‘nationality’ in an exclusive and neatly packaged way.  For me, Wales is a nation because sufficiently large numbers of Welsh people believe it to be so.  For sure, place of birth, history, territory, descent, community, family and language all come into the process of arriving at that self-identity, but nobody can have that self-identity forced upon them.

It follows from that that I’d challenge the idea that ‘sovereignty’ is something which can only be exercised at a ‘national’ level.  What if the people of Ynys Môn (I pick on them because of their neat island status – I could equally have picked on the ‘down-belows’ of Pembrokeshire, or even the inhabitants of Upper Cwmsgwt) were to decide that they wanted to exercise full sovereignty – independence for Ynys Môn?

I can think of lots of reasons why it might not be the brightest idea ever, but I cannot think of any reason why anyone else should be able to refuse it, if it was what the people wanted.  And that has surely to be the driver for what power we individually and collectively cede to which institutions at the different levels – the will of the people.  If sovereignty truly belongs to the people, there can be no argument against them exercising it at whatever level they choose.

There is another side to sovereignty though, and that’s about accepting the consequences.  The relationships between sovereign states can only be decided bilaterally or multilaterally; not unilaterally.  It’s back to the question about the terms of the divorce.  Scotland, Wales – even Ynys Môn – can become independent if they wish, but there are consequences to that.

To date, those consequences have often been discussed in axiomatic terms.  For as long as it was little more than a theoretical possibility, it’s been possible to make sweeping statements about the economic consequences with little solid basis in fact.  The developing situation in Scotland will inevitably shed more light on the detail, and lead to more rigorous challenge of some of the underlying assumptions and high level numbers which have been thrown around – on both sides.

That can only be a good thing.  I remain as convinced that ‘small is beautiful’, and that the advantages of exercising more power locally outweigh the disadvantages, as I was in the 1970s.  The trend to increasing globalisation since then has only served to reinforce that view.  Welsh self determination is a step along that route rather than an end in itself, but it has often felt as though devolution has diverted attention from consideration of that step.  The debate in Scotland brings it very much back into focus; we need to have the courage to follow where they lead, not continue to hold back.