I came face to face with the real banking problem a month ago when speaking in Oxford to an audience of undergraduates. ‘Well, I suppose one good thing about the last three years is that you won’t now all be applying to work in banks,’ I joked. It seems I was wrong. At these words, about half the people in the audience stared sheepishly into their laps.
I can’t say I blame them. Of my own college contemporaries, leaving aside one or two barristers and a brilliant technology entrepreneur, I think it would be accurate to say that every single person who went to work in banking wound up earning more than every single person who did not.
This can’t be good. It is more than just a question of inequality (any competitive or innovative business sector will produce some insanely rich people): instead it suggests a large-scale distortion where the economy is rigged in favour of one area of activity.
A rigged economy is perceived differently to an unequal one — a distinction people on the right often fail to make. Many (though not all) less fortunate people are surprisingly tolerant of quite extreme inequalities of outcome, even when they are quite arbitrarily bestowed. Nobody much complains about Steve Jobs’s absurd wealth or David Beckham’s — or even that of lottery winners — where it is believed that the same chances are available to everyone. People even enter casinos and poker competitions precisely to increase overall inequality (in my visits to gambling dens I have yet to meet anyone campaigning for a more egalitarian distribution of the poker pot).
However, no one willingly plays in a casino that is rigged against them. If even a modest distortion were detected where, say, friends of the croup-ier on average received a 5 per cent bonus on their winnings, no one else would play there ever again.
Ultimately, to work, free-market capitalism depends not only on an invisible hand but also on an invisible handshake: the grudging acceptance that, for all its absurdities and imperfections, the system is not a complete racket. I’m not sure you can say that now, when it appears the only way to be sure of a decent house and pension is either to be born between 1940 and 1965 or to work in finance. It is why no sane person is entirely unsympathetic towards the St Paul’s demonstrators.
However, by treating this as a financial and economic problem, the demonstrators have perhaps missed the really serious and far less visible consequence of this distortion. In short, my Oxford audience were only a tiny part of the excessive direction of the West’s brainpower into one, slightly dubious area of human activity over the past 20 years. In 2007, almost 50 per cent of Princeton graduates went to work in finance. Does anyone really believe this is the best use of this talent?
Eric Schmidt of Google recently criticised Britain’s declining engineering record. But he may be part of the problem. Google has recently decided to buy Motorola Mobility for $12.5 billion, very largely for the patents the latter company owns. My question to Eric is this: of the proceeds from that purchase, how much money will go to the original engineers who created the ideas behind those patents, compared with the money pocketed by Google’s bankers and lawyers — and the board of the company being bought? Can you blame today’s bright young things for choosing the path they do?
I have a worrying vision of what would happen if you were to try to recreate the Manhattan Project in 21st-century America. ‘No, I’m terribly sorry, General Groves, but they both said no. J. Robert Oppenheimer is busy developing high-frequency trading algorithms for Goldman Sachs and Edward Teller has just launched a hedge fund.’
Rory Sutherland is vice-chairman of Ogilvy Group UK.