Banking is bad for economic growth and fuels inequality. This is not the judgement of Solidarity but of the OECD, the pro-market voice of some of the biggest western economies, in their new report, How to restore a healthy financial sector that supports long-lasting, inclusive growth?
The report does not go as far as saying that bank credit is parasitic on the rest of the economy, but it states that for every 30 per cent growth in bank credit, one per cent is knocked off long term growth. The picture it builds is of a banking system that has boomed through neo-liberal deregulation and an ensuing anarchic and risk-taking struggle for profit, but at the same time has become “too big to fail” and thus relies on the state to be the guarantor of last resort.
State underwriting of risk allows bankers to receive disproportionately high rewards: those employed in the banking sector earn more than their equivalents in other sectors of the economy. The lowest paid bank workers earn an extra 15 per cent, the best paid are paid 40 per cent more than people at the top of other companies. Among all top earners, one-in five are in the financial sector.
In 2013 the the highest paying five UK banks between them paid 738 senior staff £1.3 billion, around £1.8 million each. The top payer was Goldman Sachs, paying its 121 top staff an average of £3 million.
The impact on income distribution is staggering. The OECD estimates that for every 10 per cent expansion of the banking sector, the gap between the richest and the poorest in society grows by nearly 1 per cent.
But not anyone can walk into one of these high paid jobs even those with good qualifications. There are barriers of class interest, as shown by the government’s Commission on Social Mobility and Child Poverty latest report, Non-Educational Barriers to the Elite Professions.
The Commission’s research on recruitment practices in elite UK financial and accountancy firms showed that between 40 and 70 per cent of job offers to graduates were made to those who went to private or selective schools compared. (Just 10 per cent of the population attend such schools.) Companies actually target their recruitment on the self-defined elite of universities (Oxbridge, and more generally the Russell Group), in which those who have been to private or selective state education are over-represented.
It has been well documented the students from comprehensive schools need higher grades than the privately educated to be admitted to these institutions. Those who might be considered working class (those with parents categorised in groups 4-7 on the NS-SEC scale, which includes the self-employed, through lower management roles down to most technical and non-professional jobs) constitute less than 20 per cent of Russell Group universities’ students, and this proportion is falling.
Elite firms also define the “talent” they seek in a way skewed toward those from wealthy backgrounds, particularly by selecting those who interviewers see as having self-confidence and “polish”. Such attributes have replaced crude perceptions of class, such as accent, and contain a pretence of reflecting a skill. In reality they are about the class culture and up-bringing which wealth can buy.
When these elite firms send their recruiting teams to elite universities, the social evenings, coaching and mock interviews that aspiring applicants go through are more likely to act as barriers based on class than to break barriers down.
The interview process itself, in part at least, consists of selection by class prejudice barely hidden under spurious concepts of “motivation”, “communication” and “drive”. As one recruiter put it:
“Intellectual capacity, analytical ability, teamwork, … commitment levels, communication, and lastly, are they a fit for the firm, frankly, so there will be a big personality test. One of the questions that's always asked is are they a [Firm X] person? It is an instinctive thing … the key characteristic for a [Firm X] trainee is to be nice ….And the other test is the roommate test. Are they someone you want to share a room with?”
The Social Mobility Commission demands nothing more than a fairer selection process based on the spurious notion of “merit”. The OECD would like to see banks reformed so they need fewer state guarantees and less incentive for business to rely on bank credit.
But both organisations’ have given us further evidence of a system that is not only rotten, but is rotting further and creating even greater inequality and injustice.