Banning Bankers' Bonuses

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Now I'm not someone who thinks that the current incentives and pay packages on offer to bankers are in fact perfect: I think shareholders might well be better served by something which aligned the two sets of long term interests more closely. But that doesn't stop me from shuddering when I see this:

A group of key EU finance ministers will today launch an assault on the rewards earned by bankers and top managers in a move that poses a potential threat to the City of London.

A confidential document prepared for the gathering in Brussels finds the "short-term" pay structure of modern capitalism has become deformed, causing firms to take on "excessive risk" without regard to the interests of stakeholders or society.

The correct retort to this is of course that society and stakeholders have bugger all to do with the pay packages a private comany offers to its employees. Nada, zip, zilch.

The silliness of the proposals, quite apart from the gross intrusion into the private sphere, is here:

The loose plans are part of a slew of proposals floated in Europe over recent months aimed at disciplining the market. Ideas have included a pan-European regulator, curbs on private equity and restraints on sovereign wealth funds.

Eh? We're to curb the short term enthusiasms of bankers: and also to curb private equity, the longer term investors? Do these people actually know what they're talking about?

The text for the meeting - leaked to Spanish newspaper El Pais - indicts the Anglo-Saxon market model as a danger...

Yes, unfortunately they do. This is part of the desire to scrub away the more freemarket " Anglo-Saxon" style capitalism and replace it with the more consensual, (for which read, easier for politicians and bureaucrats to wield power over) Rhineland model.

Now I don't actually object to how others organise their business affairs as long as it's within certain boundaries. Putting hitmen on your competitors as has been done further to the east isn't a style I'd like to see become more common for example. But within those bounds I've no problem with people setting themselves up as union only shops, no union shops, workers' communes, friendly societies, traditional capitalist owner managers, partnerships or the current managerial capitalism. I'm absolutely certain that all of these work in some parts of the economy some of the time (John Lewis does pretty well as a co-op, Microsoft is more of an owner manager company, BA, say, managerial capitalism and so on) just as Î'm equally sure that they all fail some of the time.

But there are two further points: we cannot determine ahead of time which model will work best in any specific situation: and we also do not know what will change in the future to change their relative success rates. Which is why we shouldn't crystallise into law one specific set of business sturcture that all must use.

Rather, just as we have markets in everything else, we should have a market in such structures and stand back and let the signals we receive tell us what to do. For that is what markets really are, as well as methods of exchange, they're an information processing structure, the best one we have in fact.

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