Economics: Don't Blame The Bankers Alone

I must start this blog by saying that I am conservative in my economic views. So I support liberalization, globalization, an open economy and capitalism. Capitalism may not be perfect, but it is infinitely preferable to socialism. I should know. Like most Indians more than forty years old, I vividly remember the 1970s and 1980s, when there were no jobs and everybody was struggling to make ends meet all the time (except of course for corrupt government bureaucrats, crony capitalists and those with ancestral wealth). Thanks to regressive socialist economic policies, India remained poor and backward for decades after independence (and thanks to the liberalization process being only half complete, large sections of India's population still remain poor and backward).

But India's half complete transition to a modern economy is the subject of another blog. This particular blog is about why it is unfair to blame the bankers alone for the Great Recession, which sees to have reared its head just when you thought it was safe to go out shopping again. I now live in Britain, where it is fashionable to view all bankers (especially investment bankers) as the spawn of Satan. I know several investment bankers quite well, and in fact, worked as one many years ago. Nobody can accuse these former masters of the universe of being softies whose primary concern is the welfare of those less well-off than themselves. However, to blame banks and bankers alone for the current mess is wrong. Allow me to elaborate.

The last time I checked, London contributes a disproportionately large amount to the British economy (30% of Britain's GDP is generated in London). A majority of this wealth is generated by banking, since London (along with New York) is the financial capital of the world. Even in these dismal economic times, it is the banks and bankers (and the tax revenues they generate) that keeps Britain's economy afloat. It is the dramatic expansion of banking and investment banking in particular in the Noughties (circa the years 2000 to 2008) that funded the huge growth of jobs in Britain's public sector in the last decade. The public sector workers in the UK who blame the banks for everything and keep threatening to go on strike would do well to remember this. Had it not been for the buoyant tax revenues generated by London and its investment bankers in the Noughties, these public sector workers would not have found jobs in the first place. Yes, some of these bankers were reckless and did take unacceptable risks with shareholder money, but to blame them alone is wrong.

It is also important to note that some of these public sector workers (such as council heads and BBC television/media heads) make large sums of money (which I define as more than £ 150,000 a year). One of the principal tenets of finance (and life) is - higher the reward, higher is the risk associated with that reward. Therefore, if one wants to take a job that comes with large sums of money, one must also accept the fact that such a job will come with associated risks - such as the risk of getting laid off or being forced to take a pay cut. One cannot expect a guaranteed, very highly paid job for life - in either the public or private sectors. Many of these highly paid public sector worthies are being asked to take a pay cut and some of them have been saying that they could find better salaries in the private sector. Really?? When was the last time they worked in the competitive private sector, and if such jobs are available, why don't they take these jobs up?

I may be an economic conservative, but I am not anti-public sector. The public sector has an important role to play in an economy. I disagree with the Tory plans to cut back on essential services such as police, fire brigade ansd community youth programs. I disagree with any pay cuts that the defence forces may be forced to take. But council heads, fat cat administrative bureaucrats in broadcasting services and the Health Service do deserve to take pay cuts. Everybody in the private sector is taking lower salaries and bonuses home this year and next year as well. So what makes these highly paid public sector workers so special? Why do they deserve to be singled out for differential treatment?

The fact is that the economy (and the health of both the public and private sectors of the economy) will not improve until the banking sector starts making money again. So I urge these disgruntled highly paid public sector employees to start praying for a banking recovery - their own future economic salvation is dependent on the robust economic health of those they hate the most.