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Switzerland Sets Example for Income Equality

In this column, Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News, writes that in the context of economic crises, hunger and increasing inequality brought on by speculative finance, the growing wealth of the world’s billionaires is “obscene” and must be redistributed through peaceful and cooperative means.

ROME, Mar 11 2013 (IPS) - For those who think that Occupy Wall Street, the Indignados in Spain, the World Social Forum and the numerous manifestations of protest worldwide are expressions without concrete outcomes, the result of the Swiss referendum on Mar. 3 on capping the salaries and bonuses of banks executives should make them think twice.

Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News. Credit: Courtesy Roberto Savio

Roberto Savio, founder and president emeritus of the Inter Press Service (IPS) news agency and publisher of Other News. Credit: Courtesy Roberto Savio

Like it or not, two-thirds of the Swiss, who are not exactly a revolutionary people, have given the shareholders of financial institutions the right to decide salaries and bonuses of their executives.

Another referendum — on limiting the salaries and bonuses of company executives from all sectors to a figure that does not exceed 15 times that of the average salary of their employees — is due shortly.

At the same time the European Commission and the European Parliament have reached an agreement on capping bank executives’ bonuses at an amount equal to their annual salary. If the shareholders decide, it can be twice their annual salary, but no more.

The howling of the bankers, while expected, is very interesting in explaining the reasons for their rejection of the results. The first, basically from the United Kingdom, is that the gap between London and Europe is increasing. The financial sector accounts for ten percent of the British gross national product (GNP) and the Anglo-Saxon world has been riding the wave of bankers’ increasing bonuses and salaries much more than elsewhere. In a good year, a bonus can be ten times higher than a salary.

But it is a fact that the UK is moving, as the last local elections showed, toward an increasingly anti-European sentiment, and as long as London keeps applying the brakes, Europe will never become more integrated.

Second, the bankers say that the result will be higher fixed salaries, which would hurt shareholders even more, while high bonuses are more flexible. Thus good executives would move to Wall Street, or Hong Kong, Shanghai or Tokyo, and Europe would be left with second-class executives.

Now, it is widely known that high bonuses reward risk-taking, which is one of the causes of the dismal performance of the banking system. Furthermore, this argument ignores that there is a growing consensus on the need to go back to the pre-Bill Clinton era, when commercial and investment banks in the U.S. were separated, precisely to reduce the high-risk culture that has led to increased unemployment and poverty worldwide.

The third argument is the most interesting, and shows how much the world of banking has grown into its own delusion. Bonuses are mostly given in the form of a “clawback bonus”; they are deferred and often paid in the form of stocks, and they can be retracted. The big banks, like the Royal Bank of Scotland or Barclays, have used clawbacks, and bankers say that this threat has itself become a powerful deterrent to risky or unethical behaviour.

Now, no data are available on how much this clawback has been used anywhere. What is available, however, is information on the innumerable fines that have been applied to the big banks for fraud. Suffice to remember that the very lenient American regulators have slapped fines of more than three billions dollars on the big banks.

Let us just recall some specifics: 8.5 billion for fraudulent foreclosures on home loans to ten banks (including Bank of America, Citigroup, JP Morgan Chase), followed by a similar settlement of 557 million dollars to Goldman Sachs and Morgan Stanley. The case of the fraudulent fixing of the Libor rate (the rate of exchange among banks) has cost UBS alone 1.5 billion dollars up to now. The director of Barclays has been obliged to resign.

Where is the effect of the clawback bonus as a wall against risky and unethical behaviour?

The world crisis, which was entirely engineered by speculative finance in the U.S. and erupted in 2008, coupled two years later with the crisis of sovereign debt, an entirely European affair. This has led to the unprecedented blackmail of governments by the markets and to the uniform medicine of austerity, with Greece as the clearest example of its impact on the people.

Viewed in this context, news that the 100 richest people in the world added 240 billion dollars to their wealth in 2012 is even more obscene. Clearly, they had no need of that money, in human terms.

The top two percent of the world’s population (60 million people) now possesses as much wealth as 2.5 billion people. The top 0.01 percent (600,000 persons) has as much wealth as two billion people.

There are now 1,200 billionaires in the world. Simultaneously, we are facing a serious food problem. Every day, there are 192,300 new mouths to feed, 70 million every year. According to the Food and Agriculture Organisation (FAO) the reserves of food have gone down by 2.6 percent, while the cost keeps going up (cereals by 10 to 35 percent, depending on the product).

Yet, according to the World Bank, we throw away 40 percent of food in the rich countries. So, with the 240 billion piled up in a year by the 100 richest people, we could eliminate many of the world’s problems.

Two billion more people are expected in a few decades (by 2050). The system is not able even to accommodate the current seven billion. How will it accommodate two billion more, coming from the poorest parts of the planet?

The answer is obvious: we have the wealth, but it is not distributed justly. As the saying goes, the rich become richer while the poor get poorer.

Consequently, people are getting fed up, as the Swiss referendum has clearly shown. Everywhere discontent is seeping into the polls, with protest parties flourishing everywhere.

We are in transition to a different system. This can be done through peaceful and cooperative means, or by a continuation of this growing social injustice. History has many lessons on this issue, and it is useless to recall them. We all read them at school, even the 100 billionaires. So, as the Swiss referendum shows, it is not awareness that is lacking: it is political will.


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