How did we allow them to get away with it?

Ferdinand Mount is an eminent member of the English political elite. He wrote the Conservative Party's 1983 election manifesto and led Thatcher’s Policy Unit for a few years. He is not the sort of person you expect to find  penning in 2012 an explosive book called “The New Few – a very British oligarchy” and arguing that the salaries of the Business and financial elite are obscene and totally unacceptable.

I had picked up a remaindered copy of his book last week and soon realised that, when I wrote recently about Burnham’s 1941 “The Managerial Revolution”, I had forgotten that it was based on an earlier book – “The Modern Corporation and Private Property” published in 1932 by Princeton law Professor Adolf  Erle and his Harvard economist friend Gardiner Means – which basically transformed how the world understood corporate power.

Until then, everyone believed that company shareholders were all-powerful. Berle and Means exploded that myth and proved that the managers had gained the upper-hand. I remember the respect in which we held that book in my economics course in the early 1960s…

“The New Few” not only tells that story but goes on to remind us that, in the 1980s, new financial devices such as Investment Trusts and the consolidation of Pension Funds placed immense power in the hands of another set of managers (those in the financial sector) who cosily worked with the Directors of companies to do exactly what they wanted – not least in matters relating to their own remuneration…  

Time was when the maximum ratio between the boss’s pay and that of the average worker was about 30 to one. How many people realise that that ratio is now almost 1,000 to one??? Totally and absolutely indefensible.

Mount then moves the focus to banks and financial institutions with a little chapter suggesting that the system has suffered from “three illusions” –

-       That markets knew best

-       That big was beautiful

-       That greater complexity meant more progress

And goes on to indicate that there have always been four “escape routes” from financial disasters

-       Laws to regulation monopolies and mergers

-       Proper ratios between reserves and loans

-       The level of reserves considered “prudential”

-       Separation  of bank activities between “basic” and “speculative”

The Vickers’ Independent Commission on Banking was set up in 2010 to explore some of these questions and reported a year later. 

There seems to be mixed views about whether they (and subsequent government actions) achieved significant change. 

This academic says no – and Vickers says yes but not quite enough….

I’m not an expert on such questions but my feeling is that inertia won out….