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Diamond geezer or structural sinner?

2011 March 11
by Paul Vallely

Is it a sin to pay someone a £6 million bonus? That’s what Barclays is to pay its new chief executive Bob Diamond. With salary and other bonuses his total pay package for 2010 will be £9m.

The logic justifying this is simple. Profits at the investment banking division Mr Diamond ran last year almost doubled to nearly £5 billion. He is just getting a thousandth of that, which is fair reward. The bank is simply paying what’s required to retain the services of an acknowledged star. And if they didn’t pay the industry’s top performers would just go off to New York, Frankfurt or Hong Kong – perhaps taking their banks with them. Britain would lose the business – and the tax that comes from it. Since 10 per cent of our national income comes from financial services the economy could lose billions in taxes. Unpalatable though bankers’ bonuses may be, they are a necessary evil.

Pope John Paul II had a phrase to describe this kind of set-up. He talked about “structural sin” which he defined as any system which creates “influences and obstacles which go far beyond the actions and brief life span of an individual” but undermine the universal common good. The notion originated in Liberation Theology which spoke of “structures of sin”  but the original idea was too Marxist, and too determinist, for the Polish pontiff. So he insisted that structural problems are “rooted in personal sin, and thus always linked to the concrete acts of individuals who introduce these structures, consolidate them and make them difficult to remove”.

Those who fail to tackle these problems out of laziness, fear, complicity are to be condemned – as are those “who take refuge in the supposed impossibility of changing the world and … sidestep the effort and sacrifice required, producing spurious reasons of a higher order.”

There are not just moral problems with bankers’ bonuses but practical ones. They are not truly performance-related; bankers still drew bonuses when the banks made a loss. They are assessed on too short a time-frame which undermines stability. The global financial meltdown showed how the bonus culture encourages reckless risk-taking and debt.

Shareholders might also note that £100 invested in Barclays in 2005 would have been worth just £53 – including dividends – at the end of 2010. (Had it been spread across all FTSE100 companies it would have increased to £126.) And banks can hardly afford to be paying out massive bonuses at a time when they are supposed to be recapitalising.

Barclays might counter that, unlike RBS and Lloyds, they didn’t take money from the taxpayer. But Barclays, like all banks, benefits from the psychological safety net of knowing that the big British banks are regarded as “too big to fail” and will in the end always be bailed out by the government if necessary.

It is time for the government to call the bankers’ bluff, as their shareholders don’t seem to have the guts to do it. The bonus pool should be capped at a certain percentage of bank profits. Perhaps the big talent would go abroad. But I suspect we can manage with slightly lesser talent.  And as for the tax-take, Barclays accountants ensured that it paid just £100m in corporation tax on last year’s £5bn profits.  Other European countries manage to sustain good lifestyles without relying on amoral banking. And there is considerable evidence that the less inequality a society has, the happier its people are.

When it comes to choosing between well-being and social justice sometimes you just have to do the right thing. The time for remorse and apology from banks was over, Bob Diamond said recently.  Maybe it should just be beginning.

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