The New Few: warning from a Tory radical

The New Few, or A Very British Oligarchy: Power and Inequality in Britain Now 
By Ferdinand Mount (Simon & Schuster 305pp £18.99)

From the ES review:

The New Few then races through some corrosive examples. The still-shocking £9bn HSBC takeover of sub-prime vultures Household, culminating in £53bn set-aside to sweep up this folly; the “festering morass of bad debts” that was HBOS; vainglorious Fred the Shred, and many more. The central concern is the arbitrary power of the CEO and decline of the active shareholder, interlocked with the rise of the fund manager with their top-slice off every transaction: a “croupier’s take”. In short, there was systemic collusion between the two dominant groups. “One set of oligarchs- the fund managers – approve the size of salaries, bonuses and pension pots for another set of oligarchs – the CEOs, board members and senior managers”.

Why so little appetite to confront these excesses? Mount identifies three basic reasons- or excuses, or illusions – that sustain the system. “The market is always right”; “big is beautiful”, and “complexity equals progress”: they echo the dominance of neo-liberalism, of a system too big to fail, due to the sheer complexity of financial products with no appreciation of moral hazard. A brief history of oligarchy follows, and the forces that shape it: war, technology, bureaucracy, forms of ideology – the links between money and power.

From Nick Cohen’s review:

Companies, most notably banks, have been run in the interests of their managers rather than the interests of shareholders, customers and workers. In the process, executive reward has slipped its moorings to corporate performance. If you can remember only one statistic from the boom and bust, remember that between 2000 and 2008 the FTSE All-Share Index fell by 30 per cent but cash payments to executives increased by 80 per cent – and carried on increasing, even after the bubble burst. Nothing, not the worst crash since 1929 and the longest stagnation since the nineteenth century, could stop the manageriat lining its pockets.

The public sector mimics the private, in quangos and ‘arms-length’ agencies. The director-general of the BBC pockets over £800,000 and vice-chancellors of universities £300,000, for no obvious reason. What others see as public service, sharp operators see as private profit. Mount notices what all outsiders notice about the British system: once you are in, you are in. Once you are on the board of one company or quango, you soon join the boards of other companies or quangos.

From Andrew Anthony’s review:

Mount’s use of oligarchy is to some extent a provocative conceit, designed to make us look again at how unaccountable the business elite have become. He doesn’t seriously argue that a tight circle of unelected figures run the country, rather that the chief executives of major companies, particularly in the financial industry, have been allowed free rein to shape corporate policies with profound social and economic implications. Perhaps plutocracy would have been a better term.

What most disturbs Mount is the increasing gap between the super-rich and the mass of society – a separation that he sees reflected at the rioting end of the social ladder. Without excusing looters, he writes that “the unbridled greed of the oligarchs and their indifference to the normal obligations and restraints… engender a sense that society has lost its recognisable moral shape and, with it, its legitimacy”.[…]

Mount notes that between 2000 and 2008 the FTSE All-Share Index fell by 30%, yet cash payments to executives increased 80%. Some chief executives are paid hundreds – and even a thousand times – more than the average pay of their workers.

Symbol Price Change
RBS.L 25.22 0.67
BARC.L 209.15 -3.70
HSBA.L 562.90 -0.40

From the Telegraph review:

The persecution of Fred Goodwin of RBS (LSE: RBS.L – news) focuses too much on the monsters. This diminishes the extent of the catastrophe. Mount rightly draws more attention to the mistakes made even by those who were, in personal terms, the good guys. HSBC (LSE: HSBA.L – news) , for example, is considered the least culpable of our big banks. Stephen Green, who was HSBC’s chairman and is now Lord Green and a government trade minister, is a clergyman in the Church of England and the author of an improving work about business ethics. No one suggests that he is greedy. Yet Green was the bank’s chief executive officer at the time when it bought an American firm called Household International for £9 billion. The three-year pay package negotiated for Household’s CEO, William F Aldinger III, as part of the purchase, gave him £35 million and lifelong dental care for himself and his wife, Alberta.

But in 2007, HSBC announced the first profits warning in its history, caused chiefly by Household’s huge losses on US sub-prime mortgages. Eventually, HSBC had to set aside $53 billion for bad loans. Yet in 2011, the company’s new chief executive was being paid £6.2 million a year. And the Rev Lord Green — who sounds like a character in a financial version of Cluedo: did he do the dastardly deed with the sub‑prime mortgage in the boardroom?  is being touted as the next Governor of the Bank of England.

When people who are neither immoral nor stupid are making errors so colossal that, collectively, they impoverish whole generations, something very weird is happening. Oligarchy brings this about because it cuts off the power of the wider society to arraign the people who are making the mistakes. Oligarchs, even well‑intentioned ones, cease to receive the information they need to detect their own error. The amber light of shareholder complaint becomes invisible. The “end to boom and bust” of which Gordon Brown boasted deluded them into forgetting about risk. Their enormous salaries and bonuses seemed to them evidence of success rather than storm cones.

Finally, Mount himself:

For London is Metroland on speed, a world apart from the rest of the country and from large parts of itself. As Neil O’Brien, the director of Policy Exchange, said of “Planet London” in his Spectator article last week, “Places such as inner Rochdale, where 73 per cent are on benefits, were simply out of sight and out of mind for the Londonised political class who live in the parts of the city where unemployment is zero.”

During the banking scandal, some wit said that “never in the field of human commerce was so much paid by so many to so few”. The trouble is that the New Few are mostly concentrated in the metropolis. And in their mansions in Chelsea and Notting Hill they are insulated from the feeble cries of their fellow citizens, who still cannot see why the CEOs should be rewarded on such a scale after they have displayed such recklessness and incompetence or, at best, such mediocrity.

What is there in the performance of Barclays over the past 10 years that Bob Diamond should need a bigger wheelbarrow each year to take his loot home? The bank’s share price is shot to hell, its record of lending to small and medium-sized business is pathetic, and it emerges from last week’s report that last year the bank paid three times as much in bonuses as it did in dividends to shareholders.

And:

Until recently, the British middle classes felt quite good about themselves. The class war was over, and they had won it. Pretty much everyone wanted to join the middle classes. If they were not already members, the way things were going they very soon would be. ‘Embourgeoisement’ was the sociologists’ word for what was happening. Contrary to Marx’s flight plan, the bourgeoisie was turning out to be the preferred destination of History. No longer was British society shaped like a pyramid, with a steepling summit of idle toffs and an enormous broad base of deprived and discontented proles. It had already become more or less diamond-shaped, tapering sharply in numbers and influence at both the top and the bottom. At this rate, Britain would soon look rather like a cottage loaf, with both its upper and lower crusts nicely rounded into conformity with middle-class values and lifestyles. This was the ideal type of society, the sort that Aristotle had identified 2,500 years ago as the best possible, a society in which people of the middling sort formed the dominant class, ran the politics and grew the culture. For a century and more, that had been a glimmer on the horizon. Now it was here.

As a result, class was no longer a live subject of discussion. Its noxious effects had been eradicated by progress, just as TB and rickets had been. Bright young TV producers would not think of making programmes about it. Only fogeys were still noticing whether people said toilet or loo or put Esquire when addressing envelopes to other fogeys. Racism, gender, gay rights — these were hot topics, but class? Forget it, and we did our best to.

Yet as we crawled into the new millennium, class began to seep back on to the agenda, like the smell of an old drain you never knew was there.

There was, first, the unmistakable economic evidence. In terms of take-home cash, the differences between top and bottom were widening, not narrowing as they had been throughout the post-war years, and probably the years before that too. It was the crash of 2007-09 that really woke us up to the unwelcome news, but the trend had been gathering strength for some time. The average ratio of CEOs’ pay to that of their employees rose from 47 to 120 over the first decade of the 21st century. Sir Terry Leahy of Tesco was paid nearly 900 times as much as the average Tesco worker, Sir Martin Sorrell of WPP received 631 times the wage of his staff — and he considered himself somewhat underpaid. Real wages had nearly doubled over the past 30 years, but only 8 per cent of that growth went to the bottom earners. Their wages, in Britain as in the United States, remained more or less stagnant.

What’s more, the crash imposed no restraint at all on the appetites of the fat cats. Even larger dollops of honey stuck to their prehensile paws. Last October, at a time when average living standards were being severely squeezed and millions of workers were enduring pay freezes or actual pay cuts, Incomes Data Services reported that the annual pay packages of directors of FTSE100 companies had risen by no less than 49 per cent in a single year, to an average figure of £2.7 million.

Nor could we console ourselves that at least we were now living in a much more open society, in which children from the most disadvantaged homes had a far better chance of becoming fat cats themselves. On the contrary, social mobility seemed to have stalled, or, even on the more optimistic computations, slowed to the pace of Friday-night traffic on the M25. In many ways, Britain was still one of the more open societies known to history, as it had been for centuries. There were still plenty of cases where people made it from the most unpromising beginnings in life. But suddenly upward mobility seemed to be getting harder again.

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