FRIDAY’S WORDS OF WISDOM: THE NEW FEW BY FERDINAND MOUNT

The blurb in the back of The New Few (or a Very British Oligarchy) by Ferdinand Mount (Simon & Schuster, 2012) rather modestly describes the author as a former columnist for The Spectator, Daily Telegraph and Sunday Times, editor of the TLS and former head of the Downing Street Policy Unit. What it omits is that his full title is Sir William Robert Ferdinand Mount, 3rd Baronet, that he was very largely responsible for the radical 1983 Tory manifesto that defined what we now call Thatcherism and that despite being too “wet” to ever be what Thatcher called “one of us” he is – having attended Eton and Cambridge and, amongst other things, served on the board of a merchant bank – most certainly “one of them”.

All that serves to make the first section of this book, an analysis of the way in which the bankers and executives have, over the last thirty years, steadily accreted to themselves obscene amounts of wealth and power a critique that is significantly more devastating than it might be have been had it come from another source. The second section, which looks at the state of our politics, is more problematic – Mount encounters a number moments of cognitive dissonances as the logic of the argument in the first half of his book conflicts with his patrician conservative outlook, but it still contains a number of interesting insights. The third section suffers slightly in that Mount’s enthusiasm and optimism regarding the Coalition government appears to have been overtaken by events in significant areas – this is a problem for any journalism published in book form. Nevertheless the programme of reforms Mount sets out in an attempt to reduce inequality and to rein in the power of the elite few who have taken onto themselves the power of oligarchs remains and interesting and potentially radical.

What is most interesting about Mount’s book, however, is not the analysis of the problem – there have been plenty of left wing writers in the last few years making the same case and the Occupy movement (perhaps briefly) and the banking crisis (more effectively) have brought that discussion into the wider public consciousness. Nor is it, particularly, Mount’s suggested solutions – though given his starting position on the centre right, they will certainly raise more than eyebrows amongst the more ideologically fixated members of his fellow Conservative Party members – that set this book apart. No, what is interesting about Mount’s book is not so much what it says but who is saying it.  If a grandee of the Tory Party – albeit one who now seems something of an outlier in a Conservative Party that appears ever more reactionary – can call for radical reform of corporations and the widespread adoption of both a living wage and a maximum wage then the political consensus really has shifted quite dramatically. And that may mean that there is rather more room for progressive and radicals to take action that some, still wedded to the orthodoxy of the late 1990s, might believe.

Introduction: The Few Make a Comeback

Mount makes the point that, even relatively recently, the idea of oligarchy seemed to belong to the past – to ancient Greece and Renaissance Italy. Even the rise of those vastly wealthy exploiters of the break-up of the Soviet Union didn’t seem to matter to Westerners – we took for granted that we were equal societies on a more-or-less steady path to ever greater equality, indeed the idea had become such a cliché that it no longer seemed necessary to consider seriously.

We took it for granted that, as the years went by, the management of affairs and the enjoyment of rewards would be more widely spread. We expected to become more equal both in power and pleasure. More and more individuals and groups who had previously exercised little control over their own lives would now have a bigger say. And the worst off too would share in the rising prosperity. Of course the more agile politicians would surf this incoming tide and grab as much of the credit as they could, but the tide would be coming in whatever they did or didn’t do. (2)

And over the immediate post-war period that seemed true, but more recently, and rather stealthily the tide has started to recede and the “few” have started to gather power and wealth more tightly into the hands of “a small number of dominant characters.” The wages of the top few percent have accelerated away while the rest are left behind, with the poorest bearing the greatest weight.

Mount dismisses the idea that this concentration of wealth is caused primarily by changes in taxation – these may have made a minor contribution but it is the pre-tax level of income accruing to the rich that has caused them accelerated away from the rest of society. Nor does he believe that globalization has much to do with growing inequality – noting that while it is a common explanation, it is unconvincing containing, as it does, “a bizarre inconsistency”. Why, Mount asks, does globalization only drive down the pay of lower-grade workers – other things being equal, why haven’t the millions of educated and capable people in the emerging nations also driven down the wages of managers.

The suspicion grows that perhaps other things are not equal. Are the markets for top talent genuinely free? Or are they constrained and distorted in various ways – by monopoly power, by professional cartels to keep wages high, by government regulations to stitch-ups in the boardroom, by undetected market abuse, not to mention by the ancient arts of carve-up, scam and outright looting? (6)

He is sceptical that inequality has emerged as a natural economic development in so many countries – it seems, he says, “more like a deep lying alteration in our custom and culture” (6). The idea that “the rising tide” would lift all boats, that success of the unrestrained few would see wealth trickle-down to the many has been debunked and the poorest are becoming “a demoralized and detached underclass, just as the top earners are congealing into a super-class who hardly belong to the society they flit through.” (6). No one believes that “we are all in this together”.

At the same time as wealth has agglomerated to the few, so political power in the UK has become increasingly centralised. This is not an inevitable global trend – France has undergone a process of decentralisation, Germany maintains its federal structure – but “power in Britain has drained away from private individuals to central boards, and bureaucracies, and government agencies, and ministries.” (7)

It seems to be the case that unconstrained and self-perpetuating oligarchies have managed to manipulate the public and private institutions that they control and scooped a hugely disproportionate share of the rewards for themselves… These abuses are not accidental but built into the system. Indeed the political and economic tendencies towards oligarchy appear to gain much of their strength by their intertwining with one and other. (7-8)

Mount is not arguing that our system of liberal democracy has irretrievably collapsed or that a full-blow oligarchy is permanently installed, but that our institutions have been allowed to corrode and that this has given certain groups, oligarchs, greater freedom to act as they please.

It would be a comfort to be able to pin all the blame on one political party or party leader. Then we could hope that another party or a new leader could set a new direction and instantly begin to undo the damage. But the damage seems to go deeper and to reach further back. The dismal truth is that pretty much every government in the past thirty years has, wittingly or unwittingly, helped the oligarchs’ cause in one way or another. (9)

The Thatcher and Reagan governments certainly contributed, and Mount confesses his own part. As advisor to Keith Joseph he recommended the centralisation of health and welfare services and, in the 1980s, he designed the rate capping policy that fundamentally weakened British local government. Later, as a journalist, he believes he should have been more outspoken as he watched the major parties dismantle their democratic policy-making structures in favour of greater central control.

Mount is “all in favour of the market” but he believes that it must operate within a robust framework of law if it is to be of benefit. Adam Smith’s The Wealth of Nations is:

…as much a warning about the potential abuses of market power as it is a celebration of the free market. And that warning is as fresh and relevant today as when it was written 200 years ago… The trouble with the so-called ‘neoliberals’ is that they have not been neoliberal enough. They have not read too much Adam Smith but too little. There is a moral case for reform, but there is an economic case too. (11)

He is not attacking the “vulgarity” of the nouveaux riches and their personal avarice, his purpose is to identify the tendencies that have allowed oligarchy to gather momentum. We have to understand how we got into this situation before we can find a way out.

Oligarchic control is not a natural extension of capitalism or liberal democracy. It is a preventable corrosion. It is not the case that all advanced societies are equally oligarchic, or that oligarchy is always advancing. By exercising sustained determination and ingenuity, we can begin to reverse the pernicious trends. The excessive power of the oligarchs has been broken before. It can be broken again. It is a feeble form of fatalism to suppose that capitalism cannot be reformed and regenerated so that it benefits the many rather more and the few a good deal less. (12)

We need to be realistic about what has gone wrong but we should also be optimistic that we can change things for the better. Oligarchy is no more untouchable than Soviet Communism proved to be.

We make our own destiny, and we can unmake it if we really want to. (13)

 

Part One: The Corrosion of Capitalism

Mount opens this section with the story of HSBC’s AGM at the time of the ill-fated $13 billion purchase of sub-prime mortgage lender Household International in 2003. He dwells particularly on the contract that paid Household’s Chief Executive (William F Aldinger) £35 million over three years and ensured that, amongst many other clauses, he and his entire family received a lifetime of free dental care. It serves, Mount argues, as an example of how even rather conservatively run financial institutions have wandered into the realms of madness over recent years. Meanwhile Abdul, paid £5 an hour by the contractor who cleaned HSBC’s offices – “with no pension and lousy sick-pay scheme” – was told that HSBC could not help increase his salary because contractors paid the going-rate. The going rate for Abdul was £5 an hour. The going rate for William F Aldinger was £35 million plus everything he asked for. The anger of shareholders present was ignored, the process of the AGM was a sham with the backing of the big institutions the purchase was overwhelmingly approved. In March 2009, HSBC got out of the sub-prime business and was forced to set aside $53 billion to write down the bad loans it had paid for with its purchase of Household. No one was really surprised:

Shareholders and commentators alike could see at the outset that the whole idea was irrationally conceived and likely to benefit anybody, not the shareholders, not HSBC’s existing customers nor its existing workforce – with one crucial exception. Senior management could expect to draw even larger salaries and claim even more extensive perks, now that the empire they controlled was significantly larger. Prince amongst this small group who would benefit from the deal was of course their new colleague, William F Aldinger III, not to mention his wife and his dentist. (22)

The deal demonstrates, Mount argues, the fundamental flaw in modern capitalism: managers have become disconnected from the consequences of their actions, from their shareholders and from their staff. They pursue their own enrichment through short-term profit-taking with no concern for the long term implications of the wider community or for those they are supposed to serve.

Sir John Bond, the then Chief Executive of HSBC, was rather modestly paid by the standards of senior banking executives (an annual salary of around £2 million) but even his wages were 400 times those of Abdul, the cleaner. In the eight years following that AGM shares in HSBC declined from 721p to 627p in July 2011. And, of course, the banking disaster had almost brought the world economy to the brink of collapse. Yet in 2011 the new Chief Executive of HSBC, Stuart Gulliver, was paid £6.2 million.

The gap between remuneration in the board room and wages on the shop floor had become, in the words of one small shareholder present, ‘obscene’. Nothing could stop the gravy train, not even the biggest disaster in the history of banking. (23)

Nor was the experience of HSBC a one-off – Lloyds was almost destroyed when it bought HBOS and Fred Goodwin did manage to bankrupt the Royal Bank of Scotland.

Mount identifies the decline of shareholder influence on corporations as a key issue of concern. Once shareholders – who, after all, actually own companies were intimately involved in directing the business of the enterprises in which they invested and managers ran it in their interest and under their supervision. As companies grew bigger this relationship became more difficult maintain – the number of shareholders in a business grew and so, often, did the physical distances between shareholder and the company’s activities. At the same time, shareholders began to diversify, spreading their risks over a large number of investments.

Thousands of shareholders scattered all over the world can have little control over the business of which they are the nominal owners… the only people who can be held responsible are the Board of Directors and their agents. In terms of practical law, they are the company. (34)

Apart from rare instances of dominant individuals (such as Murdoch or Branson) the shareholder has exchanged control and the role of owner for the benefits of liquidity and the role of rentier – renting out his capital and living off the dividend. This tension is not new, Mount notes that it was there at the beginning of capitalism, with conflicts between managers and shareholders within just a few years of the creation of the Dutch East India Company in 1622 – perhaps the first “modern” company.

We pretend that the shareholders still possess powers that they effectively lost long ago, and we imagine that the behaviour of the corporations is disciplined by an array of checks and balances that are often no more than decorative today. Thus when the search for personal profit injects perverse incentives into the minds of the managers, there is nothing and nobody to stop them from pursuing a course of conduct that is against the interests of the company and all those who work for it and have money locked up in it. (43)

Whether the state or shareholders owned the organisation, managers ran the show and for managers rewarding themselves, the sky was the limit. Mount quotes JK Galbraith: “The salary of the chief executive of the large corporation is not a market reward for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.” (47) Managers have become ever more powerful and the key determinant in corporate decision-making has become whether and by how much the managers would profit.

The other beneficiaries of the “depersonalizing of savings” have been the fund-managers who aggregate individual’s investment and skim off fees and whether the investor wins or loses. Unit trusts allow the smaller investor to spread their risk and, in theory at least, give the investor the advantage of having an expert pick their stocks (though, as Mount points out, the actual record of fund managers suggests that this advantage is illusory) but one perverse result of the present system – in which traders receive payment every time they buy and sell shares – has been to encourage a massive increase in the turnover of stock. In 1965 share trades were worth the equivalent of 10 per cent of GDP, in 2007 turnover had risen to 300 per cent. As mount notes the croupier “can and does increase his take still further, simply by spinning the wheel more often.” (59) Bankers, brokers and asset managers paid themselves £7.3 billion in fees from investing other people’s savings in 2010 – or to put it another way “an investor putting £50,000 into a fund providing typical returns over twenty-five years would lose a total of £108,000 over the period because of unnecessary and extortionate charges” (59). It is these fund managers who now, through the exercise of the rights of shareholders, possess the only external checks on the actions of corporate management.

In brute terms we have one set of oligarchs – the fund managers – whose task it is to approve the size of salaries, bonuses and pensions pots for another set of oligarchs – the CEOs, board members and senior managers of companies they invest in. Alas the interests of the two sets are all too neatly aligned. In many cases they may be the same people… (60)

The result has been the acceleration of inequality – between 2000 and 2008 the FTSE fell 30 per cent – losses born by shareholders (many through pension funds) and low level employees who have lost their jobs as a result – but cash payments to executives increased by 80 per cent. Bart Becht, CEO of Reckitt Benckiser was paid £37m in 2008 – 1374 times the wage of his average worker in the companies Slough HQ. The average pay ratio between staff and CEO has risen from 1:48 to 1:128 in the last decade – and this figure excludes perks, which sometimes come to more than the salary (61).

Nor is Mount convinced of the arguments that back up such huge salaries, in particular the myth of the need to pay high wages to retain highly skilled managers. The High Pay Commission found only one case of a CEO being poached by another UK company over a five year period up to 2011 and no cases at all of a CEO being lured away by an overseas competitor (63). He argues that the levels of pay and their “repellent nonchalance” suggests they are a class living in a different moral universe.

Such conduct convinces us that company chief executives are beginning to imitate not only the conspicuous consumption of the aristocrats of the ancien regime but also their arrogance and contempt for ordinary people. (64)

In the 1920s executive pay rocketed away from the rest of society but between 1930 and 1960 the rewards of top managers fell and the relationship between the wages of even top professionals and the average worker was much more even. The current situation is not a necessary product of the exercise of the market economy.

Over the course of the twentieth century the pay of bankers and brokers has soared far above the rest of us, then come back down to our level, then soared back up out of sight again. There is no good economic reason why it should not come back down once more. And there are excellent moral reasons why it needs to… The real point is that, whatever CEOs may say, competition alone is not the implacable determinant of pay levels and hence of inequality. Social expectation may rein in the pace of top people’s pay increases, or they may gee it up to a frenzied gallop. Such expectations will vary hugely between one period and another and between one country and another. (67-8)

Mount isn’t just critical of private companies. He notes the acceleration of executive pay in privatised industries but also in public bodies and QUANGOs – in organisations such as NHS trusts, universities and the BBC. He points out that what is new about this era isn’t that capitalism is prone to corrosion: “Outright looting and the distortions of monopoly are nothing new” but the pervasiveness of capitalism – especially in the form of the limited liability, joint stock company (plc) which has become ubiquitous “remodelling the old partnerships of professional men, and invading public and/or charitable bodies such as schools and hospitals.” (71) Here the alchemist oligarch has succeeded in returning huge profits from what were once public service organisations. In sport it is particularly obvious, with bodies like FIFA (football), the IOC (Olympics) and FIA (Formula One) becoming vast sources of wealth and it is, Mount argues, reminiscent of the way Soviet oligarchs have secured their wealth by subverting public institutions. “This intertwining of economic muscle and political power is one of the unmistakable features of oligarchy and it is painfully visible in Britain now.” (74)

Mount compares this intertwining with the nomenklatura of Soviet Russia – a small group of executives who share common interests, who often sit on the remuneration boards of companies that set the pay levels for their fellows. “Once you are on the inside, you stay inside” (75) and the pressures to conform, once inside, are powerful and contribute to a ratcheting-up process of the rewards the group receive. In such circumstances the ability of the government, through taxation, to slow the rise in inequality is limited.

…at the bottom, pay levels in the service industries are sharply restrained by competition from immigrants and, in manufacturing, by the threat of relocation from overseas; while, at the top, pay levels are egged on by the genial conspirators of the remuneration committee. Never before in our postwar history have we had a system which was so strongly geared to deepen inequality. (76)

Mount identifies three broad reasons for our current state that work together and bleed into each other. He calls them the three illusions:

  1. The market is always right
    Build on Eugene Fama’s efficient market hypothesis the EMH supposes that the market always knows all the relevant information necessary to set a price – therefore the price set by markets is always the best judge of value. Mount calls this idea “a feather bed for featherheaded optimists” that fails to account for spectacular market failures like 1920s, 1987, the dotcom crash of 2000 and 2008.
  2. Big is beautiful
    The engorgement of the financial sector has created enormous repositories of wealth and power that have distorted our economy. Only after a huge crash is the purpose and utility of these bodies being questioned. “
  3. Complexity equals progress
    The huge growth in the financial sector has been accompanied by a wave of innovation. Mount identifies three threads: the transformation of the mortgage market; the increased ‘hedging’ of debt through the creation of derivatives; and the securitisation of debt by packaging it into ‘sliced and diced’ products. Securitisation is  particularly complex innovation carrying horrendous ‘moral hazards’ and favours the knowing insider against the ordinary investor: “the whole opaque and complex transaction was characteristic of a gilded age of oligarchs in which the ordinary punter was always liable to be stuffed.” (88)

The outcome of this era of turbocapitalism has been greater inequality accompanied by the increased fragility for large institutions and our economies. What people want from banks is stability and reliability, what we’ve got is a ‘bizarre mismatch between our staid expectations… and the glamorous daredevil self-image of bankers themselves.” (91)

It is these three illusions that have between them brought about such a perversion of the traditional theory and practice of finance. If the market is always right, if big is always beautiful and if every financial and commercial innovation is regarded as ipso facto a good thing, then neither the financial authorities nor the government will possess the self-confidence to intervene in the old ways: to regulate market dealings, to break up monopolies, forbid mergers that damage competition, ban risky practices, monitor the stability of financial institutions – all the things that Adam Smith believed the authorities were there to do. (91)

Mount makes the point that we treat financial institutions differently from other organisations – that have assumed that whatever they do is legitimate because it makes them money. This is not the case in other areas of the market – we do not assume that because a drug dealer and addict are content with their deal that it does not require regulation. So why is it assumed that money dealers are the best judges public good – or even their own good? “We need to look dispassionately at what is actually happening and, where risks have not been properly catered for, to see what might be done to minimize them.” (93) The fragility of banks and markets are not new and we have legislated for them in the past – and many of those remedies worked until they were deliberately undermined or the reasons for their application were forgotten. This suggests that “the tendencies which they were designed to control are recurring and endemic. These are chronic infections of capitalism, which is why the remedies are as familiar as the symptoms” (95). Mount suggests four lines of action that would be anti-oligarchic:

  • Closer regulation of monopolies and mergers
  • Insisting that banks maintain prudent capital reserves
  • A return to ‘inspection-based’ supervision rather than self-regulation
  • Re-imposition of a strict separation of activities separating the business of banking from financial speculation, recreating the ‘narrow’ banks than many of us assumed we were investing in when we put our money in High Street banks.

Mount then argues that we need to address the issue of the “great disconnect” between shareholders and the companies they invest in – this is a new problem without existing solutions. Fund managers are too often aligned with the short term interests of the company managers rather than with the shareholder and are rarely bothered about issues of executive pay, long-term stability, ethical or ecological issues or even the level of dividend. And small shareholders are regularly patronised and ignored.

One possibility would be to allow investors in funds to vote on how their combined holding in a company should be used at a company AGM. They should also be able to monitor how their fund manager has voted, to give feedback and to make decisions about where they invest based on such information – and this would also allow pressure groups to identify and scrutinise and target certain fund managers. Technology could allow scattered shareholders to band together to make their voices heard.

Nothing could do more for the sadly diminished popularity of business and businessmen than a growing sense of democratization in their affairs. I do not believe that any such democratization would be likely to impede the taking of bold and difficult decisions. People invest in companies primarily because they want them to succeed and make a profit. But they do not see why that overriding aim should stop the company from behaving decently and in accordance with the normal values of the society it operates in. There should not be one code for business hours and another for private life. (108-9)

 

The Oligators – an intermission

Mount examines the nature of oligarchies. He identifies a number of common characteristics, they tend to be stable, they tend to be corrupt and they tend to be arrogant. These characteristics were “clearly described by Aristotle’s Politics and have been equally visible in modern times” (112). Oligarchies can exist under many different circumstances and forms of government – monarchy, dictatorship, liberal democracy. In Britain Mount believes the oligarchy has been enabled by the centralisation of power and the development of a management class that has become “a self-conscious class in the old Marxist sense” (115). None of the institutions of liberal democracy have become wholly defunct, they may rouse themselves to resist elements of the oligarchy that over reach themselves, but they do not “often exercise the continuous scrutiny and control which they are allotted in theory. For effective purposes it is the oligarchs who are in control.” (116)

But Mount rejects Michels “iron law of oligarchy” – the notion that all organisation tend towards narrow control – and Pareto’s idea that democracy was an illusion. “They are crude caricatures, and it is as ridiculous to swallow the idea that oligarchy is irresistible as it is to blind ourselves to the recurring dangers that it presents” (117).  Oligarchy is not evenly spread across the world and inequality is lower and has risen less dramatically in some countries – such as Scandinavia and Japan – while centralisation of power has been resisted in nations such as Germany and rolled back in France. Nor is oligarchy a necessary product of globalization and, in any case, Mount is sceptical about the uniqueness of globalisation.

What has gone wrong is not the outcome of some unstoppable world-historical process. The drift to oligarchy arises from our own lazy assumptions, our willingness to be impressed by the claims of the powerful to have all the answers, our lack of confidence in our ability to design our social and economic and political arrangements to suit ourselves. In particular what we failed to take notice of were the influences that enable oligarchs to flourish.  (119)

Mount calls these influences “obligators” which may “look like something else, something quite harmless, just as an alligator may look like a log moving quietly along with the current, its sharp teeth and ferocious long jaw completely hidden” (119). The obligator might look like an opportunity to move towards democracy, as in Russia, only to see the more nimble interloper grab as much as he can before the majority can establish themselves. War too can be an oligator, allowing for the centralisation of power. And technological developments, such as in communications technology, can often be presented as tools of empowerment but can also aid the centralising of power – not least because the media’s tendency to promote “the personality cult” and oversimplify politics.

Oligarchy, like ivy, will cling to any support; and when you cut it back, it keeps growing again. (124)

 

Part two: the erosion of democracy

Mount looks at a range of issues – the decline of party membership, and the centralisation of power in political parties; the decline in wider political participation; the reduction in the power of local government and other local sources of decision-making; the reduced influence of Parliament and the side-lining of cabinet government; the concentration of power with the Prime Minister and advisors; the decline of the traditional civil service as a “steady hand” and its transformation into a more intrusive force for imposing regulation; and the growing power of the European Parliament.

It is in this section that Mount has the greatest problems connecting his naturally conservative instincts with the analysis of oligarchy. So we have his wistful reminiscences about the good old days when Whitehall mandarins directed policy for the common good or the logical disconnection between his confidence that regulation is good for the financial industry but that there are areas where it is not just a burden but an extension of oligarchy. So he recalls, fondly, the times when:

What was taught in schools, the clinical practice in hospitals, the methods of policing were largely left to the discretion of the professionals. Doctors and headmasters and chief constables were implicitly trusted, to a degree which became apparent only when that trust was withdrawn. (160)

Some professsionals, it appears, are less oligarchic than others.

And then there’s the contrast between his prescription for less oligarchic model of politics in the UK (more democratisation, greater power to parliament) and his prescription for Europe (removing power from the parliament and giving greater power to national governments) which, in effect, would mean giving greater power to a small number of ministers representing the ruling political parties.

Mount makes a persuasive case for the need for reform of the political structures, but he does not always carry his case through to its logical conclusion.

 

Part three: Waking up

Mount is hopeful that there may be the first indications of a change in direction.

Political and business leaders are waking up to the possibility of doing things differently. Suddenly they see that it is not inevitable that the drift to inequality and oligarchy should carry on unchecked. (203)

He notes some CEOs considering the need for a closer link between their salaries and those of their employees, limiting bonuses and reforming corporate structures to give shareholders and employees a greater say in the running of their companies. Mount sees in this shift both a moral aspect: “these business leaders are at last prepared to talk about greed and to accept that living in a community demands a certain proportionate restraint” (209); and a practical aspect – these remedies have been tried before and they did not stop the creation of profitable, stable corporations. In politics, he sees an end to the paralysis and fear that gripped politicians when faced with the “unacceptable face of capitalism”. He notes the shift in the position of Labour under Ed Miliband: “My party must change. We were intensely relaxed about what happened at the top of society. I say – no more.” (211) And while he thinks the meat of the proposals “do not amount to much” Mount says “it is the stating of them that counts. From now on, it is open season for reform. Proposals of this sort may sound timid and vague, but if linked and developed they could produce quite formidable results.” (213)

In his hopes for the Coalition government, Mount finds himself running up against one of those problems that confronts journalists writing books. Mount is optimistic, enthusiastic even, about the content of the agreement signed by Cameron’s Conservatives and Clegg’s Lib Dems – as a liberal Conservative himself, Mount clearly hopes the “anti-oligarchic theme” that he sees running through the document will mark a new era in government.

Again and again, it promises the distribution of power to the many, the taming of the oligarchs, the opening up of opportunities to the worst off. If every one of its lines of action were carried through to a practical and effective conclusion, by the end British society would be both levelled up and levelled down; the gap between the richest and the poorest would no longer be widening. The peole at the top would no longer be running away with the spoils. And the people at the bottom would become agents rather than patients. Both democracy and capitalism would be reinvigorated. (219)

I think Mount’s optimism in the Coalition’s “surprisingly radical purpose” might be harder to sustain in the light of George Osborne’s regressive 2012 budget – which came between the writing of the book and its publication – and the rocky shore against which the constitutional reform measures appear to have crashed. It seems to me that his grounds for optimism have been somewhat overtaken by events and by a re-emergence of a more confrontational attitude amongst the right wing of the Conservative Party.

The Report of the Vickers Commission into banking – which Mount believes was, in any case, too modest in its proposals – will not be fully enacted by the Coalition.  Mount calls for more radical banking reform. A proper division between High Street banks and investment banking, a cleaning up of the derivative business, limiting bonuses to 20 per cent of salary, tougher regulatory standards and proper mechanisms for surveillance of bank activity and he bemoans the missed opportunity to turn Northern Rock back into a mutual society.

There is, I cannot help feeling, an instinctive lack of appetite for reform in the City which lies behind the proposals advanced by the Vickers Commission and the response of the government… We can hear the dogs barking at the oligarchs. But where is the bite? (229)

Mount notes that announcements of the kind made by Cameron that, in future, shareholder votes on executive pay would be mandatory are not a surrender to the left. Putting the shareholders back in charge of the economy is how capitalism should work. “Adam Smith would have loved it” (229).

In politics Mount condemns the way Cameron’s reform of the Conservative Party have “managed to bleed politics out of party activity” (232) and the distrust of members in both Labour and Tory hierarchies has led to the belief that only “self-loathing and a little healthy flagellation”  (233) are the route to success. The result has been a flow of power towards the centre, accelerated by the 24 hour news cycle and the determination to manage news causing the belief that “Debate, disagreement and mavericks are unaffordable luxuries” (237). Mount recognises that the old political structures in British parties had their flaws but at least they gave large numbers of people the sense that they could contribute to the business of politics.

People are turned off politics in general, not because they don’t care but because they don’t believe that voting or joining a political party will make the slightest difference. This is an entirely rational judgment, and not the result of sloth or apathy. It is the sucking up of power to the centre that has devitalized British politics. And the remedy is as straightforward as it is distasteful to the elite: give power back to the people. (238)

In government Mount wants a return to cabinet government with departments and civil servants capable of directing policy and not under the thumb of Number Ten policy directives. He condemns Blair and Cameron’s reliance on small cliques and “sofa government” and recommends returning power to Parliament – specifically on issues such as strengthening Parliamentary committees, on votes regarding going to war and the transfer of further power to the EU and believes that one advantage of the present government is that “a coalition can afford to let MPs to perform the role that they are supposed to perform and not fly into a panic every time they refuse to act as a rubber stamp” (243) – perhaps another example of where events have overtaken Mount’s book given the disarray over reforming the Lords. Mount supports radical reform of the House of Lords and says:

I remain utterly unconvinced by the life peers’ overweening assessment of their own brilliance and wisdom. It is not simply that whenever I peer down at those scarlet benches they seem to be whiffling and whuffling as much as their hereditary predecessors whiffled and whuffled. It is also the case that other parliamentary systems seem to manage perfectly well, in fact rather better, with an elected upper chamber. (242)

Mount also supports a return of power to local communities. He is hopeful that the Coalition’s introduction of a “general power of competence” for councils and the other powers in the 2011 Localism Act will provide a starting point for a devolving of power from the centre but he notes the critical absence of reform of the financing of local government: “You can have all the ‘power of competence’ in the world, but none of it amounts to anything if you haven’t got the cash to exercise that power” (245).  He notes that there has been little practical sign of a retreat from “top-down government” by the Coalition and says that the extended freeze on council tax levels and the impositon of further controls on how councils can spend the money makes a mockery of some of the government’s rhetoric.

Mount is aware that governments fear the criticism that would accompany accusations of a “postcode lottery” in services but believes that if local democracy is to be meaningful, people need to have control over local decisions, that some services already vary dramatically between councils without comment and that the freedom to experiment will raise the standard of services for all. He attacks the “freakish attitude” of “Tory nationalizers” willing to junk local government, arguing that:

In most countries, such a programme would be regarded as insane… Almost everywhere else in the civilised world, it is precisely these intermediate institutions that are seen as blocking the overweening oligarchic power at the centre and as giving local people something good in itself. (249)

Over Europe, Mount was delighted with Cameron’s decision to use the British veto in December 2011 and believes that it marks a new era in which Britain enters into a “more uninhibited relationship with the EU in which the views of the British Parliament would in future come first, or at any rate not be lightly overridden” (250). He wants more repatriation of powers from the EU and for the UK to be less bound by the judgements of the European Court of Human Rights. This is not “Europhobia”, Mount argues, or the first step towards exiting the EU, but the winning of room to breathe for member nations.

Finally, Mount attempts to address the issue of inequality, especially in the light of the recent riots.

The brute reality is that none of the reforms we have been discussing, or even a fair selection of them taken together, will answer the present unease and discontent, so long as inequality continues to grow in Britain year by year, sometimes faster, sometimes slower, but always stretching the gap between richest and poorest. (253)

Inequality is not an easy problem to address but Mount believes it cannot only be an issue for the left – equality is “a core principle of Western civilisation” that reflects “that deep urge to recognize the equality of all human beings as citizens and as children of God” (254). Mount notes that sometimes social needs come into conflict with each other – that seeking greater equality for the poorest may limit the freedom of those seeking to make the most money – but he notes that “equality of opportunity may lead to inequality of result: if you let the greyhound off the leash at the same time as the dachshund, the result is unlikely to be a dead heat” and that the costs of the mantra of equality of opportunity have been “and insidious inequality of treatment which has corroded the lives of the better off and the aspirations of the worst off” (256). We can see it immediately in the differences between the homes and the services we create for rich and poor.

If you look at inequality of income alone, you will not grasp the full extent of social dislocation in Britain. You must also consider the inequality of treatment and the inequality of respect. (257)

He believes that the growing gap between rich and poor has been accompanied by “a pervading contempt for those who are at the bottom of the ladder” (257) and that we need to reconstruct a relationship between citizens at every level. He argues that neither of the two major parties have ever seriously tried to moderate rising income inequality and he dismisses George Osborne’s claim that “we’re all in this together” which is “increasingly met amongst the less well off with a resounding raspberry” (261) as it is clear that the better off are insulated from the worst of the cuts. Inequality, Mount insists, is not a natural, inescapable outcome of the action of markets but a trend caused by “neglect, thoughtlessness and indulgence” (261) that can be reversed without damaging the economy.

We should not worry about tax rates, Mount argues, but about the level of wages.

Mount supports the campaign for a “Living Wage” higher than the national minimum wage “one that was actually enough to live on” and believes corporations should take responsibility to ensure all those that work for them – including those who are employed through contractors, such as cleaners – are paid at decent levels. Mount does not believe that there is evidence to support the idea that this would cost jobs and it would lift huge numbers of working poor out of benefits, address the “benefits trap” in which some are better off on benefits than in work and generate income for the exchequer – money which could be used to further raise the tax threshold and lift more people out of poverty.

Mount believes the voluntary nature of the Living Wage Campaign is its major strength – it does not impose burdens on small businesses who cannot afford them and the minimum wage remains to stop “outrageous sweating” – and means it can address inequality in a way that government cannot:

…the polarization of income was not imposed, or even unwittingly assisted by government. It has arisen spontaneously out of the custom and practice of businesses and the group think of businessmen. I am sure that it can be reversed only by retracing the way it came. Narrowing the gap will be as much a matter of moral pressure and best practice as of laws and regulations. (266)

Business has a duty to embrace the ‘Big Society” and to engage with its local communities and the first step must be to raise the floor for the poorest paid.

At the top, Mount supports the idea of limiting the relationship between the highest and lowest paid staff to a 40 to 50 to 1 ratio. “This is not some crazy outburst of egalitarianism” (268) – in a company paying its lowest paid staff a living wage of £17,000 per year (around £6 an hour) the highest paid executives would still receive close to £1 million per year: but, Mount believes, a limit will have been set and the direction of travel, of ever growing inequality, will have been reversed.

And there is a loftier benefit too, a moral one. The top earners will have been taught that the boardroom is not an island and that even in Canary Wharf it is a happier fate to live in some sort of community with your fellow citizen rather than to tower over them in frosty and insecure isolation. (268)

Mount believes that this isolation – the abandonment of significant groups of people, especially the young – to a future without jobs, opportunities or hope was a significant contribution to the riots of 2011. He notes the poverty and poor job prospects of the areas where the rioting blossomed – in Haringey there were 10,578 people out of work and claiming benefits but only 367 jobs available. Nor were there opportunities for young people to acquire the skills that might give hope of a better future: “decent apprenticeships are as hard to win as places at Balliol College, Oxford – and less well supported by the State too” (275).

Mount also believes that immigration, particularly from Eastern Europe, has contributed to the discontent of young people – arguing that it keep wages depressed and fuels a sense of resentment and of unfair competition. The decline of community institutions and growing numbers of single parent families also creates a sense of isolation and that gangs have developed to provide some of that missing sense of group belonging. At the same time the oligarchs flaunt their wealth and their greed and show no sense of obligation to society. To Mount the apparently conflicting analyses of the causes of the riots that came from the right and the left are both correct.

We have two detached classes – one at the top and one at the bottom – unconnected from the rest of us and with the divisions between us growing rapidly larger.

Neither class is in the habit of voting at general or local elections; ethnic minorities are not registered, while oligarchs are on their yachts and may not even be British citizens anyway.  Neither class pays taxes to any great extent, the underclass because they have no income, the oligarchs because they are non-doms. They take no part in local affairs; the underclass because they see no point, the oligarchs because they are too busy travelling between their desirable residences – there is always a helicopter on standby in the paddock. (277)

The rest of us – the larger mass of the middle classes – don’t notice this disconnect often because we value our individual freedom too – we fought hard to escape the paternalism of old-fashioned societies. “Yet disconnectedness can go too far” (278) and Mount believes that rising inequality may be a symptom of our growing disconnection from the communities in which we live – that we have come to accept that the oligarchs and the underclass are beyond our reach, that there is nothing we can do.

The running argument of this book is that this impression is a false one. The oligarchs can and must be reconnected to the rest of society; so can and must the underclass. I have outlined some of the routes back to social cohesion: the vigorous reform of company law and practice in order to improve transparency, accountability and fairness, the revival of local democracy (not forgetting some sort of mansion tax or new council tax bands at the top end, to remind the oligarchs that they owe a duty to the place where they live); the reform of the welfare state; the revival of technical schools; the spread of the living wage. It is entirely possible to apply a modest layer of glue, to both surfaces. (278)

This “strategy for social coherence” requires “optimism of the will” but we should not exaggerate the scale of the task. Countries like Norway, Sweden or Japan “are not very equal. They have their billionaires and their people at the bottom who are scratching a living: they too have their bums and their misfits” (279) but they also have a sense of belonging together that makes the inequalities that exist more tolerable. When they say “we’re all in this together” it seems true, or at least it does not sound like the “impudent and rather shaky assertion” of George Osborne. We can, Mount insists, recreate a country where a sense of belonging is taken for granted.

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