The perennial controversy over bankers’ bonuses is symptomatic of a deeper public distrust of business in the UK
The bank bonus season is still around us, and a ritual now well established is being enacted once again: the investment bankers award themselves fortunes; whilst the politicians, press and commentators denounce their selfishness. Although this annual frenzy may be very entertaining, it actually obscures a deeper characteristic of the political economy of modern banking – and indeed of modern capitalism. This might be summed up as the problem of how to generate trust in the moral probity and operational competence of modern business.
The problem is neatly illustrated by the experience of banks in Britain. The British Social Attitudes survey periodically asks questions about public confidence in key business institutions. In 1983 it asked its sample of the population whether banks in Britain were well run. 90 per cent agreed that they were: the confidence expressed was higher than for any other institution surveyed. By 2009, when a similar question was asked, the figure had dropped to 19 per cent. John Curtice and Alison Park, in reporting these figures, remark that: ‘This is probably the biggest change in public attitudes ever recorded by the British Social Attitudes series’.
Nothing surprising about that you might think, given the revelations about greed and incompetence unearthed by the ‘Great Financial Crisis’. But two things are striking about the figures. First, when we examine them closely, they show that, while bankers did sustain a hit in the financial crisis, the decline in their reputation predated that crisis: already by 1994 that 90 per cent figure had declined to 63 per cent. Second, bankers are not alone in misfortune. Since the beginning of the 1980s we have lived in the UK under a succession of governments dedicated to fostering the interests of business; yet this age of business-friendly public policy is also an age when, by most measures, business, and especially big business, is widely distrusted by the population at large.
For over thirty years, for instance, Ipsos/Mori has asked people to rank a wide range of groups according to whether they are trusted to tell the truth. Some groups, like teachers and doctors, consistently ‘top’ the table. Some, like estate agents, are consistently bottom. But consistently near the bottom also, for thirty years now, have been leaders of large companies. And all this, despite the fact that business, especially big business, invests huge resources in lobbying, public relations and reputation management. So: is business just incompetent at this part of its job?
The suspicion that it has deeper cultural problems is suggested by the classical political economy literature. Since at least Adam Smith’s The Theory of Moral Sentiments there have been concerns about the capacity of commercial cultures to generate moral support: how can economies and societies premised on an assumption of self-interested behaviour create stable moral foundations?
It’s a question lots of people start to begin to ask themselves when they read of the latest episode of tax avoidance or the most recent bonus scam from a large corporation. It is also a question central to the work of one of the great classical founders of modern political economy, Joseph Schumpeter.
In Capitalism, Socialism and Democracy Schumpeter analysed a key internal contradiction of the culture of advanced capitalism, as follows: ‘Capitalism creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own; the bourgeois finds to his amazement that the rationalist attitude does not stop at the credentials of kings and popes but goes on to attack private property and the whole scheme of bourgeois values.’ As a result, Schumpeter went on, ‘capitalism inevitably … educates and subsidizes a vested interest in social unrest’.
The analysis has a distinct echo of Marx, and this is fitting since Schumpeter wrote consciously in the shadow of Marx. He is in fact the most distinguished political economist of capitalism since Marx.
Schumpeter’s observations suggest that the decline of confidence in the big business elite in Britain is not only a product of the greed and incompetence of that elite – though these features have certainly contributed. The decline seems instead to derive from the inability of the business elite to summon up legitimacy, regardless of its wealth or commitment to good public relations. In other words, bankers’ bonuses, though undoubtedly important, are only a symptom of an underlying malaise at the heart of modern business culture.
Note. Mick has analysed ‘Schumpeter’s nightmare’ for the business elite at greater length in a recent report for the British Academy.