Tipping the scales

Bringing down astronomically high bonuses and countering short-termism, greed and lack of morality among bankers must be part of the reform, restructuring and re-regulation of the banking and financial sector that our economies so urgently need. This also forms part of the political hot potato that U.S. President Barack Obama has recently taken on in his fight with entrenched moneyed interests on Wall Street. Likewise, trade union leaders and the millions of workers we represent cannot stand idle while banking management and CEOs once again rack up massive profits and bonuses at a time when job losses in the real economy are causing immense suffering and unemployment is pushing the world to the brink of a far deeper recession.

Our message to the World Economic Forum's Annual Meeting in Davos Jan. 27-31 was to urge greater focus on breaking the vicious cycle of recklessness and greed and a return to shared, social values.

Obama's announcement of bank reforms shows much needed leadership and must form part of an overall package of financial sector reforms. Similar laws need to be enacted in other jurisdictions in order to avoid the regulatory arbitrage that has been a key factor in the genesis of the current crisis.

It is imperative to overcome bankers' resistance to challenging and changing a system of indefensible bonus remuneration; the continued payment of corporate bonuses is testimony to the failure of corporate governance. In addition, recent events show that the leveraged buyout - where companies are bought on the back of massive borrowing, CEOs and directors get windfall payments and workers often lose their jobs - remains an ugly feature of the global economy, adding risk and deepening inequality. This needs to change. Sustainable company management also requires labor rights and benefits for workers, not only creditors and shareholders.

This is not a question of envy of large compensation packages and massive bonuses; it is simply that there has to be a link between remuneration and merit. To the trade union movement, this is an issue of good economic sense as well as fairness and solidarity. Citizens and taxpayers have been told they have to meet the costs of the crisis twice - first, through the initial financing of the bailouts and stimulus packages and, then, by refunding public debts through reduced government expenditure and higher taxes - while the elites just get the benefits of the bank bailouts.

I firmly believe a moral approach to financial capitalism has to be brought back into the equation. Polluters must pay, and it is time for the banks that polluted the world economy to pay a much larger share in reducing public debt.

Governments must push forward with progressive fiscal reform in order to spread the costs of the crisis fairly and to provide a sustainable solution to growing public finance deficits. Why not place the burden on the companies and the executives who created the crisis in the first place rather than on the workers, who would be the first to suffer under austerity plans in a context where unemployment rates may rise to 20 percent in some Organization for Economic Cooperation and Development (OECD) countries?

We have to ensure recovery is not jobless. We need decisive leadership and renewed economic support in order to avoid a prolonged and deeper recession. We need to kick-start the real economy to save and create more decent jobs.

We, as trade unions, do not accept that spending on social and public health systems, education, infrastructure and social safety nets should be reduced in order to pay off public debt that came about as a result of individualistic profit-seeking while the banks avoid paying the costs of their actions.

The reality of it all is that Davos powerbrokers and CEOs are overpaid and out of touch. And, in many cases, those who receive the biggest salaries and bonuses have an inside track on the discussions of governments and regulators on how to move out of the crisis. Instead, we should concentrate on realizing the following three proposals, all technically feasible, that should serve as the basis of a new set of ethical rules in the financial sector.

First, there needs to be a strictly regulated upper limit on corporate bonuses and CEO pay. Changing the current form of bonus structures driven by short-termism, reckless behavior and speculation requires a cap on bonuses and earnings. Trade unions support a ceiling of no more than 20 times average earnings for the salaries of CEOs and a limit of bonuses to 100 percent of salary as an absolute maximum.

Second, a comprehensive Financial Transactions Tax (FTT) needs urgently to be implemented. Introducing international taxation for short-term financial transactions would curb excessive risk-taking and speculation by traders across all jurisdictions, thus ensuring a level playing field. It would provide vital new funds for financing the public debt incurred as a result of the crisis, tackling climate change and increasing official development assistance.

Third, some form of levy should be imposed on all big banks' bonuses, in the style of the proposals by Obama and French President Nicolas Sarkozy. Such taxation will fill some of the holes in public finances, and it should further handicap big banks from getting bigger as the tax would be based on the size of their assets.

Unless action is taken, the worst could be still to come. Yet some countries are already talking of public expenditure cuts and reversing stimulus measures, which, given the weakness of private sector demand, would risk catalyzing a further collapse in demand, deepening the job crisis and worsening its social impacts. With stimulus packages in a number of countries due to end in the coming months, it is of vital importance that these be renewed and reinforced, and that they include a strong focus on employment. A premature exit strategy would only repeat the mistakes of past crises.

The underlying causes of the crisis lie in fundamental economic imbalances and inadequate governance that are the direct result of three decades of neo-liberal economic policies, during which the fruits of growth have not been distributed to working families. The financial crisis provides clear evidence of the failure of the light regulatory approach of the past and the over-reliance on "self-regulation." It is also testimony to the unsustainability of a narrow focus on short-term gains. Now is the time to learn the lessons of this crisis and build a more sustainable and just future.

The new decade provides us with a new opportunity to create an economic development model that puts people, the environment and the public interest first.

Trade unions want a model for a balanced economy in which the financial sector once more serves the needs of the real world, a new model based on balanced wage-led growth rather than financialization and excessive, unsustainable profits. Such responsible and sustainable solutions must and should be a priority for all.

- The author is general secretary of the Brussels-based International Trade Union Confederation, which also has offices in Amman, Geneva, Moscow, New York, Sarajevo, Vilnius and Washington, D.C. They represent 175 million workers in 155 countries and territories and have 311 national affiliates.

Guy Ryder can be reached at
features@praguepost.com