The New York banker J P Morgan (1837-1913), a man commonly seen as the embodiment of high finance, declared that no one at the top of a company should earn more than 20 times those at the bottom. Ferdinand Mount, who reports this surprising assertion, tells us that according to recent research the average pay ratio of chief executive to employee has risen from 47:1 to 128:1 over the past ten years.
Striking HSBC employees in 2005 (Photo: Getty Images)
In an entertaining and at the same time disturbing vignette, Mount describes how the 2003 annual general meeting of HSBC considered a deal in which the chief executive of a US mortgage company that was about to be absorbed into the bank had been awarded a three-year pay deal that worked out at £35m, along with lifelong dental care for him and his wife. At the same meeting, a cleaner spoke to complain that the contractors who had hired him to clean HSBC offices were paying him £5 an hour with no pension and a “lousy” sick-pay scheme. The contrast looked stark enough to trouble even the most complacent shareholder. “For a brief moment,” Mount writes, “the fate of western capitalism appeared to depend on
[the CEO’s] teeth.”
However, the merger went through, along with the remuneration package including lifelong dentistry for the chief executive and his wife, with only a few dissenters. While the pay of cleaners was later slightly improved, the gap between them and bank executives was far in excess of anything that Morgan could have approved. In 2008, the highest-paid boss of a multinational corporation in Britain received the equivalent of the pay received by 1,374 average workers at the company’s headquarters. Many other chief executives received hundreds of times the wages of their average employee. Yet there has been no public outcry. Though there has been nothing like them for generations, extreme inequalities of these kinds have come to be accepted as normal.
How this situation has come about – and what might be done about it – is the theme of The New Few. Mount’s thoughts on inequality are just one strand in an arresting exploration of the strange state of British politics that is all the more remarkable for coming from a true insider. A Tory of patrician background – his full title is Sir William Robert Ferdinand Mount, 3rd Baronet – he has a family link with David Cameron and was head of Thatcher’s Downing Street policy unit in the early 1980s. A fascinating study of the unintended consequences of radical conservatism, The New Few can be read as a kind of mea culpa for Mount’s part in policies whose full implications he – along with everybody else – failed to foresee.
Mount shows how many different factors and influences – which he calls “oligators” – have worked together to enable the new oligarchy to secure its position. Trends such as the diminishing role of shareholders and the collectivisation of savings by pension funds and insurance companies worked to concentrate economic power while removing constraints on how that power could be used.
This “corrosion of capitalism” was accompanied by “the erosion of democracy”. Politicians, who might have resisted rising inequality, instead promoted it. “The dismal truth,” Mount writes “is that pretty much every government in the past 30 years has, wittingly or unwittingly, helped the oligarch’s cause in one way or another.”
The hollowing-out of political parties and the rise of special advisers, the diminished powers of local authorities and the centralisation of public services, the decline of the cabinet and the rise of sofa government, together with the increasing scope of European legislation – these and other developments made democratic resistance to the emerging oligarchy all the more difficult. On top of these powerful trends, the ruling delusions of the age played an important part. Mount identifies three that stymied any effective control of the oligarchy: the theory that the market is always right, which economists dignified as the “efficient market hypothesis”; the idea that big is beautiful; and the notion that complexity equals progress. Taken together, these delusions supported the belief that the new oligarchy was an unavoidable part of a highly developed modern economy.
The central thrust of The New Few is that there is nothing inevitable about this situation. Mount cites George Orwell’s review of James Burnham’s The Managerial Revolution (1941), in which the former Trotskyite and later pillar of the US right forecast the demise of liberal capitalism and the victory of statism (fascist, communist and corporatist). Writing in 1946, Orwell knew that many of Burnham’s predictions had been overturned by events. His concern was not so much with Burnham’s specific forecasts as with the deterministic mindset they revealed.
Fusing a Trotskyite faith in the inevitable crisis of capitalism with a belief in the iron laws of oligarchy posited by Vilfredo Pareto, Burnham prophesied the worldwide triumph of oligarchical collectivism. Viewing these iron laws as not much more than theoretical rationales for power-worship, Orwell dismissed Burnham’s prognostications and correctly predicted that regimes such as the USSR could not endure. The power of the new few is equally transient, Mount believes. “What is true of communism is true of oligarchy, too. We make our own destiny and we can unmake it if we really want to.” Today’s oligarchy is nothing like as powerful as the totalitarian regimes of Burnham’s time. With political will, Mount believes, the new few can also be consigned to the history books.
It is an inspiring message that politicians of all parties would do well to study and digest. Mount spells out what might be done to reverse Britain’s drift to ever greater inequality. In an earlier book, Mind the Gap: Class in Britain Now (2004), he showed how the centralisation of power in government and corporate institutions had been a potent factor in increasing inequality. In The New Few, he advocates reversing the process of centralisation, bringing in a narrow version of banking that separates saving and borrowing from speculation, and enforcing a living wage. For all the talk of there being no alternative, Britain could change course.
But do politicians and the public really want to alter Britain’s course? One can’t help feeling that at this point Mount’s analogy with communism breaks down. Contrary to progressive opinion in the west, the USSR had very little popular legitimacy. Even so, without Mikhail Gorbachev’s heroic delusion that the Soviet system could be reformed, it might still exist in some form today. Once Gorbachev made the system less repressive, it quickly crumbled away.
Britain is less radically flawed, but for that very reason there is little popular demand for radical change. Nor is there any sign of a Gorbachev-like figure emerging in British politics. Unless the global economy suffers a dramatic collapse, British governments will blunder on trying to apply the ideas of the 1980s. That doesn’t mean the status quo can continue indefinitely. The current oligarchy may seem normal to the present generation of political leaders, but in any longer perspective it is thoroughly dysfunctional. Though we cannot know when or how its end will come, this, too, will pass.
John Gray is the New Statesman's lead book reviewer