Independent review

	THE GUARDIAN

Is greed always good?

David Teather

November 3, 2006 06:42 PM

http://commentisfree.guardian.co.uk/david_teather/2006/11/post_576.html

If you haven't been to Canary Wharf for a while it is worth the trip. London's second financial centre is simply swaggering with confidence. The City itself is undergoing a huge speculative building boom that will transform the skyline and exudes self-belief; a physical manifestation of the money swilling around.
In the next few weeks, workers in London's investment banks will be taking their share in a year of record profits. Investment banks, hedge funds and private equity firms will be paying out around £8.8bn in bonuses. Around 4,200 people will get more than £1m each. One wonders what people who work in the City must think of the rest of us - as fools perhaps who fail to understand how easy it is to get very rich, very quickly.

Such huge awards lavished on a gilded few attracts surprisingly little criticism. Harriet Harman recently broke ranks - she described them as "excessive, ridiculous bonuses" and noted that she was in the Labour Party "because we don't like to see some people struggling while others are hugely rich". Apart from the unions, she is pretty much a lone voice.

The growth of the City over the past 20 years has been one of the foremost successes of Britain and politicians at large do not want to rock the boat. Quite the reverse, Gordon Brown is on a charm offensive in the City and his adviser Ed Balls was quick to paper over the cracks caused by Harman. "If the City is doing well, we are all doing well. When it prospers, we all prosper" he said. The big bonus has the endorsement of No 10.

Certainly the success of the financial services industry has played a transformative role in London and Britain at large. It is difficult to believe that Canary Wharf didn't exist two decades ago. From One Canada Square, you can see the swanky new homes along the river as it snakes toward the City. The financial services industry has attracted huge investment in London from overseas and attracted a talented elite from the world over. London today is more successful than New York in attracting foreign companies who want to raise money on the stock markets.

Critics often argue that investment banks actually create very little but they do a necessary job, enabling business to prosper and allocating capital. Even the more arcane activities of the likes of hedge funds can be argued to be making businesses and markets more efficient. Strong markets, in which our pensions are invested, are in all our interests.

But still, do the individuals quite deserve the enormous bonuses that come their way? There are certainly pernicious effects of the bonus culture, not least making it more difficult for the rest of us to invest in property as they drive prices higher. The real question to get to grips with though is the difficult one of whether the City is really creating a much bigger pie or simply taking a larger share for itself.

Stewart Lansley, author of Rich Britain, The Rise and Rise of the New Super-Wealthy concedes that the Square Mile plays an important role. But he gives the example of one of the biggest deals of recent years, Vodafone's acquisition of Mannesmann, which made a few dozen people extraordinarily wealthy. Shareholders didn't fare so well from what is now regarded as a disastrous deal. The effect was to redistribute cash from our pensions into the pockets of a few. And there is rarely ever any comeback on the banks.

Lansley suggests the problem is that the City operates as a loose cartel that allows the banks to charge such astronomic fees. Those are ultimately paid for by all of us. What might have been a dividend for a pension fund is used to pay the investment banks that act as an advisor. It is not as though people working in the City are even risking much - they are essentially gambling with other people's money. The City is important for the economy, but couldn't they take just a little less for themselves?