Wednesday, September 08, 2004

Bring the rich to heel

New Statesman
Monday 6th September 2004

Remember Thatcher and Reagan! That is what the rich should be saying to themselves as they watch the Conrad Black drama unfold, with its breathtaking tales of a man who charged his wife's birthday parties, handbags and jogging attire, to say nothing of his own private jets and Rolls-Royce repairs, to company accounts. There is, after all, nothing unusual in what Lord Black did, except perhaps in its sheer lavishness. Owners of private companies charge all sorts of "expenses" to their business accounts. Many pay their wives or mistresses "wages" for doing nothing, as Lord Black did. But he, while retaining control, sold most of the equity to outside shareholders - "little people", as he saw them, who should have been grateful to be allowed a share of his glittering success. "This is my company," he hissed whenever a fellow director questioned him. A good thing, too, some commentators would argue, since the traditional, private firm (often a family firm) tends to take a more long-term view than the company owned by institutional shareholders who go in and out for a quick profit. Some would also argue that the high rewards of an entrepreneur such as Conrad Black are more defensible than those of a hired company executive.

None of this will wash, because the behaviour of rich people increasingly outrages the public's sense of decency and proportion. The rich - whether we talk about Lord Black or the creative accountants of Enron and WorldCom or the directors of publicly quoted UK-based companies such as BSkyB, Vodafone and Carlton, with their multimillion-pound remuneration packages - look greedy and hubristic. They pocket excessive rewards just because they can. In the same way, unions in the 1970s, at least in the public eye, went beyond the acceptable. Though most used their power with moderation and care (and employers held the upper hand even then), the behaviour of a minority opened the way to right-wing governments, determined to weaken unions and to curb their power. Throughout the western world, unions are now more or less a spent force.

Sooner or later, a Margaret Thatcher or Ronald Reagan of the left will come forward to harness public outrage against the rich as surely as it was once harnessed against organised workers. After all, it is now the bosses who look like a tightly knit conspiracy, heedless of everybody else's interests. Lord Black got away with it because other well-off people, running the auditors KPMG and the law firm Torys, as well as members of his company's audit committee, chose to turn a blind eye. Likewise, the excessive remuneration of company directors is routinely decided by other directors sitting on each other's boards. Nobody can now argue that such behaviour is victimless or economically trivial. Through pension funds and life assurance schemes, millions have their savings invested in companies such as Lord Black's. The damage caused by corporate extravagance and malfeasance is far greater than any temporary inconvenience caused by a transport or rubbish strike. And if the allegations against Lord Black are true, he has hurt ordinary people as grievously as a burglar who breaks into a house at night and makes off with the family valuables. Indeed, given the decline in the burglary rate, the average homeowner today probably loses more to corporate sharks than he or she does to burglars.

At one time, it was argued that if the rich were expropriated, it would make little difference in the greater scheme of things. That is no longer so. If the richest 400 people in the United States were to give up 1 per cent of their wealth, it would be enough to provide clean drinking water for the entire world. It would cost about £1bn to immunise every child on the planet against the main life-threatening diseases; the £110m in annual remuneration that goes to the UK's 20 highest-earning executives (the ones we know about in publicly quoted companies, that is) would make a sizeable dent in that.

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