Same story over there

Them and Us: Changing Britain, why we need a fair society
Will Hutton
Little Brown; £12.59

ALTHOUGH this book is written about Britain, its critique could equally apply to Ireland or the United States.

The author’s argument is that capitalism is good, but that its results are becoming increasingly unfair. Its defects can be put right by government action through taxation and public spending decisions.

The author, Will Hutton, goes to quite an amount of trouble to analyse what economic “fairness” means. He cites philosophers and psychologists. He concludes that fairness does not require equalising pay and rewards, but rather that people get their just desserts for the effort and skill they have applied, the risks they have taken and the contribution their work has made to the general welfare. If the results are not seen to be fair in this sense, he believes trust and solidarity between people will eventually break down and the economy itself will not work.

He does not think it is fair that the salaries of MBAs who went into investment banking have increased three times as quickly as MBAs who have gone into other lines of work. Nor does he think it fair that between 1980 and 2008, bank pay rose 40% faster than that of other workers. Since then the size of banks has not shrunk, notwithstanding their having to be rescued by taxpayers.

He attributes the present credit crunch to a rapid over-expansion of credit which was fuelled by a greedy pursuit of personal profit by financiers who devised an ever more complex and opaque series of transactions to increase the so-called “leverage” of the assets of banks. The personal link between the lender and the borrower was broken.

Mathematical formulae replaced human judgment. Warning signals were ignored, he claims, because nobody was concerned about the fairness of what was happening because the notion of fairness had simply gone out of fashion.

In this he overstates his case. It is true that these bankers did not ask themselves if what they were doing met a real social need and their bonus system did encourage them only to look to short-term return. But, even without any concern for fairness, prudence alone should have suggested that all that borrowing for construction, assuming that prices would always keep on rising, was reckless.

His outline of how things went wrong is, nonetheless, excellent. The inability of shareholders, boards of directors and regulators either to see what was going on, or to do anything about it, is presented clearly.

He calls for a reconstruction of capitalism. He wants much tougher enforcement of competition policy to prevent banks becoming too big to fail, and to keep firms small enough to have to remain innovative. He advocates an overhaul of company law to give voting preferences to shareholders who have held their shares for a long time and to give them much more clout in boardrooms. He wants takeovers to be made more difficult.

Given that even the pension funds of trade union members have to compete for contributions by keeping their short-term returns high, I doubt if the author’s proposed reforms would change things all that much, especially when money can migrate so easily to other places where there are fewer restrictions. But I am sure he is asking the right questions.

His critique of society ranges much more widely. He shows how those who have gone to private schools get a disproportionate share of the top positions in British society. He is alarmed by the trivialisation of serious issues in the media. He wants a tough Press Standards Commission.

Although a man of the left, he is deeply disappointed by the record of the Labour party in government. He believes Labour lost its nerve after it lost the 1992 election to John Major. When it eventually won in 1997, Blair and Brown committed themselves to managing the Thatcher legacy.

Hutton seems now to be a sceptical supporter of the Conservative/Liberal Government, sensing that its broader electoral base will enable it to tackle vested interests in ways that Tony Blair never dared to do.

This is a highly opinionated but worthwhile book.

John Bruton is a former Taoiseach


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