More on bonuses - 5 comments

I had planned to comment on Peter Hain's plea (actually, it was a veiled demand) a fortnight ago that City firms donate "two-thirds of their bonus pots to charity rather than giving employees six-figure bonuses", but I didn't take it seriously. However, city bonuses seem to have become a cause célèbre for politicians who seem to have lost the will to talk about genuinely egalitarian politics.

Chris Dillow cites Ian Gibson MP's recent comments [via]:

I don't think people should have bonuses at all. They are unacceptable. I think it’s got worse. If the Labour Party recognised this problem then they would have more support today.

Well, why might bonuses be offered? Sure, there are fiddles, but the most plausible reason is to make it worth workers while to work harder (without compulsion), to improve the running of their organisation, take responsibility for its success, and to come up with ideas for making it more efficient. Without making it too obvious which one is which, I will have worked in:

1. An organisation so large that my personal contribution couldn't possibly affect my bonus.
2. A tiny organisation, unable to offer any incentive at all for a greater contribution.
3. A small organisation that was able to offer large bonuses in successful years.

Clearly the incentives are non-existent in (1) and (2), but where they do apply - in (3) - do they promote greed? Well, not necessarily. I don't see why any of the above would not apply just as strongly in a future socialist economy/society, characterised by cooperatives, a one-off equalisation of wealth, and controls on inheritance. People need reasons to do anything, and to make it impossible for them to benefit from their actions is a nail in the coffin of the legitimate economy, whatever economic system is in place. In the case of City bonuses, The Treasury/charities might be lucky enough to earn a windfall in Year 1, but the fund will swiftly dry up, reappearing elsewhere in a different form.

The real danger comes about when these "bonuses" are entrenched, allowing the recipient to gain economic or political power in this generation, or giving their offspring an undeserved head-start in the next - but these abuses can be tackled in other ways (inheritance tax, for one), as they very well should be.

Tom S lists a number of practical objections to bonuses in a comment left at Chris' blog above, and to deal with one of those here: of course we hope that human beings would work hard and innovate for the sheer love of the State it - their colleagues, their profession, the public they serve, their community, and so on. Perhaps this is an impulse it's harder to imagine existing if you believe that work is "alienating" (in the Marxist sense). Surely, though, our society should benefit as a result of human benevolence, rather than being dependent upon it.

So the challenge as I see it is to find some way of encouraging (or perhaps, rediscovering) benevolent and charitable behaviour - a feeling in people that they ought to contribute to society because it makes for a more contended place for all, rather than leaving this decision entirely to governments, and concealing your wealth whenever you have enough of it. I don't accept this is just a "City" problem: the lack of benevolent behaviour ("greed", if you like) is not the preserve of the super-rich - it increases with income, from a low base, and particularly affects the non-religious - even though the sums involved here are huge. Moreover, for too many on our side, "the City" is a place of fear, mystery, and conspiracy, and it's too tempting to single it out rather than tackle a society-wide problem.

John McDonnell and Arbitrary Taxation - 7 comments

An honest, democratic tax system - to me - is one where the tax rules are set out in advance, and Governments do all they can to raise money based upon the strict application of those rules. If revenues are substantially different from what the Government expected, that suggests either a failure of collection - for which Governments must be held accountable - or that the taxation has prompted a change in economic behaviour (this is, itself, interesting, but a topic for another day). The results should be factored into the plans for the next Budget. Trying to meet a shortfall by taxing something after the event - that is to say, taxing something that an individual didn't expect to be taxed, or at a rate they couldn't have foreseen - represents an abuse of Government power, if you want my view, and not something you expect in a democracy, whether the taxes come from people who can't afford it, or who probably can. "The rule of law", I believe, is the term.

This is just what John McDonnell is proposing here, with an arbitrary tax on Christmas bonuses. Yes, clearly in some sectors of the economy they're huge, but that's no justification for what borders on theft by the State. There's no good reason that I can see why Christmas bonuses, per se, ought to be taxed, and at least in the banking sector, they're also unpredictable, making them not a source one can depend upon for funding public spending, or reducing taxes elsewhere. Now, I certainly don't think such a windfall would do much harm; the money even be put to good use, but that doesn't justify the policy, and the proceeds from any windfall should not be wasted, or simply raise expectations that would have to be met out of general taxation when the apparent bounty doesn't materialise (insert - 19/12) in subsequent years.

John invites us to contrast news of these huge bonuses with reports of new efforts to coax the long-term unemployed back into the jobs market. By contrast, he means, of course, to imply a relationship without needing to - or being able to - state what that relationship is. The implication is, presumably, that those bonuses - shared out - would solve the problem of long-term unemployment, saving us all that silly debate about skills, apathy, migration, competition, benefit traps, and marginal tax rates; also that one reason for long-term unemployment is just that the right 5-6 figure salary just didn't come along for those people. Perhaps the issue is one of education (though this doesn't seem to hold many traders back), or application, or interest, or not living near London, or not wanting to work 60-hour weeks, or preferring a stress-reduced life to the salary benefits. There are plenty of reasons why that career might not work out for people, but it's hardly the point: we need to be trying to equip people for some kind of plausible career, because I certainly don't think the kindest or most liberal approach is to allow someone to degenerate, wasting the skills they have. Everyone should care about that, it just so happens that Governments care more, it being other people's taxes.

John's quite right to talk about the need to tackle inequality, but in terms of ideas, he evidently has nothing new to offer, just a pat, simplistic approach that is designed to invigorate his supporters, woo potential supporters, and avoid making any difficult choices. Now, I did hear once that he supported the Citizen's Income, though I haven't find any evidence yet. Is this true? And if it is, why doesn't he talk about that, and help get it on the agenda, rather than all this "fantasy politics" stuff?