Within the space of two days the vast inequalities in the UK in
remuneration for “work” done have been exposed to public gaze. On the
one hand it was announced on August 18th that public sector workers are
to be limited to a 2% pay increase this year, whilst the day before the
press reported on the bonuses paid at the start of the year to those
who inhabit the boardrooms of big companies and the dealing rooms in
the City.
Chancellor Gordon Brown has sent a letter to the chairs of the public
sector pay review bodies urging them to limit pay rises to 2% for
teachers, nurses, doctors, dentists, health professionals, prison
officers and the armed forces. The letter stresses the importance of
“public sector pay increases (not contributing) to inflationary
pressures”. Brown also warns that rising mortgage rates and increasing
fuel costs should not be used as an excuse (sic) to offer higher salary
increases. In other words public sector workers are expected to suffer
a fall in their living standards whilst Brown attempts to reduce the
public debt and control inflationary tendencies in the economy. Those
who therefore work to provide a healthy, educated and trained workforce
are to be rewarded with cuts in their standard of living!
Yet a day earlier, on August 17th, it was announced that bonus payments
to City workers had jumped by 16% to a record £19 billion, some £10bn
of which will go to those who work in the financial sector, an average
of £25,000 for every City worker. In the space of just two years these
bonuses have risen by a staggering 25%.
The money, however, will not be shared out equally. The really big
bonuses will go to a very small number of investment bankers or
financiers who “achieved” large merger deals or large amounts of
business for their employers. Banks have reported vast increases in
profits because of rising share prices and increasing numbers of
mergers and acquisitions. Whilst increasing numbers of people face
rising debts and personal bankruptcies, the banks made a record £33bn
in profits in 2005 and are set to make even more this year.
And what have been the effects of these bonuses apart from making a
small number of people very rich? House prices in London are rising at
their fastest rate for two years due to a “healthy financial services
sector” and farmland prices have risen by an average of 9% per hectare,
the fastest rate for 12 years. City yuppies are buying up an increasing
amount of the countryside. But don’t think that they are investing to
increase agricultural production. What attracts City bankers are the
attractions of a rural retreat and the tax advantage of buying
agricultural land. Income tax on bonuses can be avoided by buying
agricultural land. The result of all of this is that local people are
being priced out of the market as bonuses push up land prices! Who said
something about inflationary pressures?
City bonuses have been defended by leading figures in the government on
the basis that hard work should be rewarded. Peter Mandelson once said
that New Labour was relaxed about people getting “filthy rich”. If
those bonuses were being paid as a result of effort to develop the
productive forces and take society forward, then perhaps they could be
defended. Recent reports, however, have indicated that those who work
in the City have not been working harder to increase productive
capacity.
In an article entitled……”Chief executives quietly enrich themselves for mediocrity” The Guardian
(23/01/06) reported that in 2002 the boss of a FTSE 100 company could
expect to make about £1.4 m a year – some 54 times more than an average
worker. In 1985 the ratio was 25:1. In 2005 it was 120:1 with the same
bosses raking in an average of £3.3m per year! How does this rise in
income relate to what the bosses are doing to increase the productivity
of their companies?
From 1983 to 2002 the sales of the top 100 quoted companies on the
Stock Exchange rose by an annual 2.7%. Pre-tax profits rose by roughly
the same amount, whilst the market valuation of the companies rose
annually by 18.2% and the pay of Chief Executive Officers (CEOs) rose
by 26.2% per year. The study referred to in the article also revealed
that the increase in the market valuation of the companies had nothing
to do with the management of the same companies. In other words the
bosses had done nothing to increase the wealth-producing capacity of
industry.
The study also reveals that those who benefit from corporate “success”
are no longer the workers or the public at large, but shareholders.
What a revelation! Despite the much-vaunted claim that we live in a
share-holding democracy, the reality is that only households in the
richest half of society actually own shares, so therefore the rich have
got richer. In addition, there are others who are making a lot of
money. CEOs, the article says, have been “value skimming”, an
interesting term to describe people who have been “making a big show of
doing all the things beloved of management gurus but in reality quietly
enriching themselves for mediocre performance”.
We can now see that management in the form of CEOs has done little if
anything to boost productivity and production but have been very well
rewarded. Perhaps, however, there are other sections of the capitalist
class who have been doing what they are supposed to do – develop the
productive forces and take society forward. Don’t you believe it!
The Guardian of April 1st 2006, which initially looked like an
April Fool’s joke, reported that “escalating personal fortunes are not
closely linked to record levels of wealth creation. Rather, the ranks
of the rich contain many tycoons, investment bankers and business
executives who, far from creating wealth, have taken advantage of our
pro-rich culture to grab a larger slice of the cake”. So wealth flows
to wealth and larger amounts get concentrated into fewer and fewer
hands.
When capitalism was seen as a revolutionary force in the sense that
massive investment took place in factories and technology to rapidly
expand the productive forces, the “entrepreneur” was seen a “risk
taker”, a motor force for capitalist development. Today the “modern
entrepreneurs” are “more likely to have made their money not through
building up firms and products from scratch, or by adding value by
introducing new processes, but through financial raiding, deal-making
and speculative share-dealing, which involves less risk and arguably
create less, if any, wealth” (ibid).
It gets worse. These spivs and speculators at the top of society, who
we are supposed to admire and seek to emulate, have negotiated
contracts that guarantee rewards and huge pensions even when they fail.
They get generous payoffs known as “golden parachutes”. In the USA,
known for its more down-to-earth language, these payoffs are known as
“golden condoms” because they protect the CEO and screw the
shareholder. The cynicism of those at the top towards this situation
was revealed when a former deputy chairman of Lloyd’s, the top London
City-based insurance company, stated that, “God would not have made
them sheep if he didn’t intend them to be fleeced” (ibid).
So now we can see where the bonuses in the City come from. Huge fees
are charged for transferring or sometime destroying wealth, rather than
creating it. So “mergers and acquisitions are often driven by the
prospect of fat bonuses and fees for directors and their City advisers
rather than the long-term financial interests of the companies.
Financial speculation, the source of many modern fortunes, is rarely
associated with creating value. As one leading figure in the hedge fund
industry has admitted: ‘When I first went into the City, I could not
believe that anyone would pay me so much for creating nothing’”.
Perhaps all is not lost. For those who have grown richer now face the
prospect of paying higher taxes of their newfound wealth. Don’t you
believe it! An increasing number have now set up home in the sunnier
climes of Monaco in order to avoid paying tax. Inland revenue tax
loopholes allow them to commute from there to “work” in Britain. Such
figures include the retail tycoon, the recently knighted Sir Philip
Green, whose family fortune is put at £4.9bn, and the Easyjet boss
Stelios Haji-Ioannou, with a family fortune of only £727m. These two
illustrious citizens “have been joined by a new class of astonishingly
wealthy hedge fund managers, property developers and internet
entrepreneurs” (Guardian 10/07/06). The same paper adds that it
has traced 650 directors of British companies who give their current
address as Monaco, and the top 10 residents there with British
interests alone control family assets worth more than £13.5bn.
Whilst Gordon Brown exhorts public sector workers to show restraint,
the rich get richer. “The richest 1% have been taking an increasingly
disproportionate share of the nation’s wealth: 23% today compared with
17% at the end of the 1980s. In contrast, the share going to the bottom
half of the population has fallen from 10% to 6%.” (Guardian 01/04/06)
You have to pity those at the top however as this wealth is not
distributed evenly! The rich, according to Tulip Financial Research,
are divided into four classes!!
“First is the “mass affluent”, 4% of the population, who now have
average liquid assets of £144,000. Then come the High Net Worth (HNW)
individuals, 0.7% of the population, with average liquid assets of
£665,000. There are 135,000 people in the third class, the ultra-HNWs.
What this means is that Britain contains a community the size of
Peterborough whose average liquid assets (which does not include their
first or second home) average £6.4m. This one group, 0.3% of the
population, owns almost half the liquid assets in Britain, and they are
on average 66% richer than they were five years ago. The last group,
the super-rich, the 1000 richest individuals in Britain, have seen
their liquid assets increase by 79% in five years, to an average £70m
each.” (Guardian 17/04/06)
So there you have it – obscene concentrations of wealth at the top and
wage restraint for the rest of us! And in the process the rich do
absolutely nothing to take society forward, to develop the productive
forces, to increase society’s ability to create wealth.
Historically speaking, the justification for the existence of a ruling
class in any society was precisely that it fulfilled its historical
mission by developing the productive forces. Capitalism in its heyday
did exactly that, a revolutionary force ushering in a new society,
taking humanity out of the serfdom of feudalism into a higher level of
existence, creating world markets and technological innovation. Today,
the facts show that these erstwhile revolutionary forces have now
become parasites, have become both a relative and an absolute barrier
to the development of society, to taking humankind forward.
What more proof do we need to show the absolute bankruptcy of this
system and the need to transform society along socialist lines so that
the productive forces can be developed and the wealth created thereby
is used for the benefit of all, not the “value-skimming” parasites we
now have?
