LONDON – The Occupy Wall Street movement in New York and the tented encampment by St. Paul’s Cathedral in the City of London are symptoms of the frustration and anger felt by many disadvantaged people against those whom they see as living a life of luxury while many are out of work and finding it difficult to keep their families fed and housed.
The protesters have not really thought through their grievances. Even fewer have found a coherent strategy or a set of policies designed to cure the problems that they see in the economy. They are anti-capitalist but probably and hopefully recognize that communism, as it was applied in the Soviet Union and its satellites, is not the answer.
So far, the protests have not led to widespread violence and the tipping point has not been reached. But it would be unwise to dismiss these protesters as a bunch of misguided leftwing intellectuals whose grievances can be safely ignored.
The investment bankers who still draw mega-salaries from banks that have been saved by the taxpayers in Europe and America mostly do not deserve their obscene bonuses. They have often been rewarded for their good luck in gambling with the deposits of the bank’s customers. Their actions contributed to the financial crisis of 2008, which is still having serious implications for Western economies, even if the financial instruments that they created were not the only cause of that crisis.
Governments have tried to rein in the bonus culture by imposing increased taxes and by calling on directors to set limits on increases in remuneration. These measures have had only a limited effect and the investment banker remains a hate figure.
Investment bakers are not the only targets of the protesters. The inflation in the pay of chief executives and senior directors and managers of other large companies is seen by many as unjustified. Some companies have rewarded their top executives with increases in total remuneration far exceeding the percentage granted to people in lower echelons of their companies let alone of the workers on the shop floor. Many of these increases have been granted despite indifferent performance of the company and despite falls in the value of its shares.
The executives try to justify their remuneration by comparison with that of executives in other companies. They point out that they do not set their own pay, which is calculated by remuneration committees who are advised by remuneration consultants. But remuneration consultants do not make objective calculations of the value added by those whose pay they are determining. Remuneration specialists operate in a climate of “you scratch my back and I scratch yours.”
Such inequalities may not matter so much when economies are growing and when the pay of most workers is rising at least as fast as the cost of living. But this is not the case today. Inflation combined with austerity and higher taxes is eroding the standards of living of ordinary salary and wage earners.
Another major grievance of protesters is the way in which the tax system in many countries including the United Kingdom allows some people to escape taxes through the use of offshore tax havens. Some loop-holes are being shut through, for instance, agreements with the Swiss authorities providing for some tax to be paid by individuals stashing away money in anonymous Swiss bank accounts. But many still escape U.K. taxes by maintaining that they live in tax haven such as Monaco. One billionaire British retailer has put all his shares in his wife’s name and keeps her in a luxury apartment in Monaco while he runs his businesses in Britain and pays the dividends to his wife in Monaco without U.K. tax being deducted.
Another dodge that is apparently legal is to set up a shell company in a territory with low taxes and use it to buy and sell property. Such transactions, as they fall outside the direct jurisdiction of the British tax authorities, enable the beneficiary owners of the companies to avoid paying capital gains tax and even stamp duty when properties are sold on.
London has become the safe haven of choice for Russian oligarchs, Greek ship owners, and increasingly, Indian and Chinese entrepreneurs. Houses in select central London areas are now only affordable to investment bankers, chief executives and mega-rich foreigners who can find legal ways of minimizing their taxes. They only live for brief periods in their London bolt-holes and use their huge resources in money laundering operations designed to increase still further the value of their properties by building trophy assets such as underground pools and gyms at vast expense. These huge excavations cause disproportionate disruption to neighbors and damage the environment and the stability of other properties.
The increase in unemployment especially among young people makes the gap between the wealthy and the rest of society even starker. When government expenditures must be cut to keep down borrowing costs, governments cannot easily take steps to stimulate growth which could help to get more people into employment, although more could be done at least at the margin to promote the employment of younger workers.
More needs to be done by the British and other Western governments to curb the bonus culture and limit excessive and unjustified pay rises for executives. One way of doing this would be to enable shareholders to exercise greater control of pay by making levels of remuneration subject to a binding vote by shareholders instead of the present system under which votes on remuneration are only advisory and, more often than not, are ignored by managements.
More also needs to be done to ensure that British and foreign nationals developing properties in Britain pay taxes in the same way as residents.
Unless effective measures such as these are taken the protests will grow and could become a threat to the stability of society.
Hugh Cortazzi served as Britain’s ambassador to Japan from 1980-1984.