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….
