Monday 2 August 2010

Why do we subsidise this waste of talent?

HSBC chief executive Mike Geoghegan has made raised the predictable complaint about Vince Cable that his call for ‘restraint’ – rather mild when there are over a thousand City bankers earning more than £1m a year – might drive bankers abroad.

“We pay for talent and we have to pay the market rates,” he said.

But what is talent here? This is the question the political world needs to ask. Is this a good use of talent, to set it loose in the corrosive, speculative world, and deprive the real world of its imagination and knowhow?

There might be an argument that it is, because otherwise it will go elsewhere – if somehow the financial world was, slowly and rather badly, of benefit to the nation. What the coalition needs to decide is whether this is true.

Because, I’m not sure it is. In practice, the more we funnel our national talent towards the financial sector, the more we corrode our economy.

We create property bubbles (78 per cent of local lending in the UK went to property over the past four years). We corrode the abilities of small enterprise to compete. We finance the takeover of effective British companies by ineffective American ones. We funnel effort and finance into the pointless froth of the merger market. We corrode people’s pensions (£7 bn creamed off by the industry in hidden charges last year). We undermine the independence of local economies. We replace small employers with big multinationals which offshore their employment. We hollow out the UK economy and make it less able to compete in the future.

Is that a good use of talent?


Paul Walter said...

Good point, but I am not sure what the word "subsidise" in your headline refers to? Care to enlighten me? Obviously we subsidise Lloyds TSB, RBS, Northern Rock etc. But not HSBC and only 1.5% of their profit comes from the consumer market in this country.

David Boyle said...

Maybe you're right. What I meant was that, if it costs us - economically and socially - to maintain and encourage the financial services industry in this country, then we are subsidising it.

Gordon said...

It depends on your perspective. Obviously HSBC is approaching this from the point of view of an enterprise than must compete with other similar enterprises so, of course, talent is an important consideration.

But I agree with you that that's not the position the government should take. It should ask as you have, "What benefit is the banking sector to us as a nation?" and there the answer, "it's largely negative - a cost."

All that money, some of which gets paid out in bonuses, comes from somewhere and it's largely from a private sector tax they manage to extract from the resst of us. Some is from clipping savings, some from misdirection of talent, some from levering up and some from gambling. As Keynes said, "If the capital allocation of a nation is the by-product of a casino, it's likely to be ill done" (or something like that).

Bankers like to talk of their innovation but in their sector it has turned out this is largely in inventing new ways to deceive their customers.