The problem with banks and the financial sector is that we need them. Who knows what might have happened if the government hadn’t stepped in to bail out the banks. And that’s one of the key arguments for continuing to pay bankers’ bonuses. If they left their jobs and the banks ceased to exist, we’d be looking at a very bleak future.
The truth is: ‘we need them’ and, what’s worse, they know it. As Frank Skinner said in a Times article: ‘during the crisis bankers will be thinking, “Don’t panic. The public have got short memories. Show them the slightest hint of recovery and most of them will forget their moral indignation and we can start where we left off – making the biggest splashes we can and not worrying about the ripples” ‘.
Despite the argument for continuing to pay out bonuses, a large proportion of the public are understandably angry that bankers are still receiving enormous bonuses. Not only are banks and the financial sector largely responsible for the current recession, but it is taxpayers who have bailed them out and who now pay their bonuses. However, things could be about to change.
The FSA is set to get powers, allowing it to ‘tear up’ bankers’ bonus contracts, especially for those taking reckless risks that threaten the stability of the financial sector. The new regulations will be found in the Financial Services Bill, which, if approved by Parliament, will apply to all British banks, as well as the British subsidiaries of overseas banks operating in the UK. Multi-million pound payments will be able to be blocked and fines will be imposed on banks who offer unjustified ‘mega-bucks pay-outs’.
Despite this impending regulation, not everyone thinks it will be successful. Sir George Mathewson, the former Chairman of RBS, has said that interfering with bankers’ contracts is a ‘dangerous route to go down’. Read the following articles that consider this contentious issue.
Bankers bonuses’ ‘will soar to £6bn’ after government bailouts and rising profits Times Online, Katherine Griffiths (21/10/09)
Bonus crackdown plans dangerous BBC News (16/11/09)
Financial regulation ‘has broken down’ BBC Today Programme (16/11/09)
Roger Bootle: Bank reform hasn’t gone far enough (video) BBC News (25/12/09)
FSA to get powers to tear up’ bankers’ bonus contracts Citywire, Nicholas Paler (16/11/09)
It’ll be tough for bankers on a £200k bonus Times Online, Frank Skinner (13/11/09)
Prince Andrew defends bankers’ bonuses even as economy stays mired in recession Mail Online, Kate Loveys (24/10/09)
Curb on bankers’ bonuses to be unveiled in Queens’ speech Mail Online (13/11/09)
Bankers warn laws on pay and bonuses will scare off talent Telegraph Angela Monaghan (13/11/09)
Labour to overturn bonus deals at risk-taking banks Guardian Patrick Wintour (13/11/09)
Banking on the State Guardian (17/11/09)
Queen outlines new banking laws BBC News (18/11/09)
Queen’s Speech: what the Financial Bill really means for bankers’ bonuses Telegraph, Tracy Corrigan (18/11/09)
Brown Puts Deficit Curbs, Bonus Limits on U.K. Agenda Bloomberg, Gonzalo Vina and Thomas Penny (18/11/09)
Queen’s speech 2009: financial services bill Guardian, Jill Treanor (18/11/09)
Questions
- What is meant by ‘regulation’ and what forms does it take?
- Why are banks and the financial services largely blamed for the current recession? Will financial regulation of bonuses prevent a repeat of the current crisis?
- What are the arguments for and against further regulation? Why does the former Chairman of RBS argue that cracking down on bonuses could be ‘dangerous’? Do you agree?
- Why are bankers paid so much? How is the equilibrium wage rate determined in this sector?
- Should bankers receive bonuses? Think about the incentive effect; the effect on productivity. What are the possible consequences for those working in banking of bonuses being reduced and possibly removed if they are deemed to threaten financial stability?
You may ask how on earth bins are related to the post. The simple answer is that these are two things that may not be collected. They say that one wedding brings on another, but it looks like that this also applies to strikes. The Winter of Discontent in 1978-9 saw widespread industrial action, where the country almost came to a stop. Is this really where we are now?
The postal strike has been widely publicised, but it’s not just your post that may not arrive. Bus drivers have been striking against First Bus in Greater Manchester and various other places following pay freezes. British Airways is to face the possibility of strike action over new contracts, working practices and pay freezes after talks broke down. The Spanish company Iberia had to cancel over 400 flights over two days due to protests, and in Leeds, rubbish hadn’t been collected for eight weeks.
So, what’s causing all of this discontent? Are we going to see more and more workers protesting over contracts, hours of work and notably pay?
One key thing about strikes is that they affect everyone, whether it’s walking past piles of bin bags; not receiving birthday cards; getting to work late; cancelling holidays or receiving fines for late payment, and even for not submitting your tax returns. These are all problems that people have been facing, not to mention the loss of income some businesses have seen, especially resulting from the postal strike. With the government looking to reduce public-sector debt by increasing taxes or spending cuts, including public-sector pay freezes and controls on banking bonuses, we could be in for another winter of discontent with further disruptions to come.
Articles
Questions
- What is the purpose of a strike and how effective are they likely to be? What are the costs?
- One of the reasons for strike action is pay freezes. What happens in an individual labour market when pay is frozen? What happens to the demand and supply of labour? Illustrate your answer with a diagram.
- Some news articles have referred to ‘picket lines’ forming. What are they?
- What is the difference between collective bargaining and individual bargaining? Which is more effective?
- Illustrate on a diagram the effect of a trade union entering an industry. How does it affect equilibrium wages and equilibrium employment? Is there any difference if the trade union faces a monopsonist employer of labour?
- Do you think the strike action is right? Why or why not? What are the things you have considered?
- Discuss whether we are heading towarads another ‘winter of discontent?’ Can it be stopped?
Everybody relies on post, whether it is bills, cards or packages, and everyone is annoyed when something goes missing, which has becoming an increasingly common occurrence. Over the past few weeks, a country already suffering from the economic downturn has also been suffering from a lack of post, as workers throughout the Royal Mail have been striking over pay and job cuts. Postal workers are now to vote on a national strike, although the Communication Workers Union (CWU) has said they will call it off if the Royal Mail agrees to stop all redundancies.
And it’s not just individuals who are suffering. Businesses have also been affected, as packages go missing and costs begin to rise. However, there is good news for one firm, the DX Group. DX Mail is the only independent mail operator in the UK which doesn’t rely on the Royal Mail for any part of its service. If the disputes continue, it could see a significant boost to its sales.
Consider the following articles and think about the effect this strike may have on businesses and the economy and then have a go at the questions.
Postal workers to vote on strike BBC News (17/9/09)
The DX: Keeping Business Mail moving during strike Hellmail (30/8/09)
Mail Privatisation to ‘go ahead’ BBC News (11/6/09)
Threat of strikes underlines TUC warning over spending cuts Times Online (14/9/09)
Postal strikes drive customers to Royal Mail’s rivals Guardian (18/9/09)
Postal workers strike in Swindon BBC News (16/9/09)
Royal Mail denies mail backlog BBC News (11/9/09)
Postal strike over job cutbacks The Herald (Plymouth) (5/9/09)
Managers and unions fail to sort out Royal Mail modernisation Guardian (17/9/09)
Questions
- In what ways is a postal strike likely to cost businesses?
- What other options are there for postal workers apart from strikes? Consider the advantages and disadvantages of each.
- How does a trade union affect wages and employment when an industry becomes unionised? What happens if a trade union is facing a monopsonist employer of labour?
- What is this dispute about and what do you think is the best way to resolve it for all concerned?
- Why in pay negotiations is a trade union more effective than each individual asking for higher pay?
One of the biggest consequences of the recession has been a rise in unemployment. As the economy fell deeper into recession, unemployment began to soar and some believe that it could reach 3.5 million and remain high for the next decade.
But while many employees have lost their jobs or had they pay frozen, some of the biggest earners have received substantial pay rises! The bosses of the FTSE 100 companies have seen their average pay increase by 10% and have shared pay rises of more than £1 billion in the past year.
So as the economy plunged into recession and companies lost much of their value, we still saw an increase in the pay gap in the UK. The following articles look at the pay situation of some of the top bosses.
10% pay rise for the top bosses This is Money, Ryan Kisiel (14/9/09)
Guardian Executive Pay Survey 2009: Should pay be capped? Guardian (14/9/09)
What they make: The highest paid Chief Executives in Digital Media Guardian (20/3/09)
Executive pay jumps despite recession: Report Associated Press (14/9/09)
Unemployment could reach 3.5m and remain high for a decade, CIPD warns Telegraph, Martin Beckford (14/9/09
Questions
- How are wages determined in the labour market?
- Why do different people receive different wages? What should happen if two people receive different wages for doing the same job?
- What are the different (a) types (b) causes of inequality?
- Would a maximum price work if it was applied to wages?
- Discuss the advantages and disadvantages of different wages. If everyone was paid the same, would everyone be better off?
Tea prices have soared in recent months. Explanations can be found on both the demand and supply side. But while this might be bad news for tea drinkers, the news is more mixed for tea growers. So just what are the causes and consequences of the price rises? The following linked articles look at the issues.
Tea prices hit record high as supplies tighten Financial Times (19/8/09)
No break for Britons as tea price set to soar Scotsman (19/5/09)
Tea prices hit record high (video) BBC News (21/8/09)
Price of cup of tea goes up (video) BBC news (17/8/09)
Africa Tea Prices Climb to a Record on Dry Weather Bloomberg (20/8/09)
Kenya Tea Prices Hit Record High Before Ramadan FlexNews (19/8/09)
African tea prices ‘to extend gains’ China People’s Daily Online (18/8/09)
Sri Lanka to revive all closed tea factories ColomboPage (24/8/09)
Land usage should be flexible: Tea panel The Economic Times of India (24/8/09)
For tea price data see:
Tea Monthly Price Index Mundi
Questions
- Identify the factors on the demand and supply sides that have led to the rise in tea prices. Draw a diagram to illustrate your answer.
- Under what circumstances will farmers benefit from a rise in tea prices? What is the relevance of the market price elasticity of demand to your explanation?
- If the price of tea in the shops rises, will this necessarily mean a rise in the price to tea growers and in the wages of workers on tea plantations? Explain using concepts of competition and market power.
- What will be the effect of using more land for growing tea on (a) the price of tea and (b) the incomes of tea growers?