From the FT today, 14th Dec 2009
(Full report here: http://www.neweconomics.org/publications/bit-rich
"Bankers should count themselves lucky they are being hit by a mere 50 per cent additional tax on bonuses, a new report argues today, because their benefit to society is negative.
The New Economics Foundation, a left-leaning think-tank, says that by contrast hospital cleaners and many other low-paid workers contribute far more to society and this should be reflected in their pay.
Although the NEF is far from an orthodox economic think-tank, its A Bit Rich report stems from standard public economics theory that the government should step in if people's value to society is remarkably different from their private value to an employer. The government already steps in, taxing everyone to ensure many jobs with high social value happen where those services would not be provided otherwise.
Mark Thompson, director-general of the BBC, relies for his job on the government's assessment that public service broadcasting benefits society and the market would not provide his services without a compulsory levy on owners of televisions. The armed forces and police are in a similar position.
Likewise, governments have used the full force of the law for more than 100 years to prevent employment deemed bad for society. The employment of children under 10 was outlawed in 1878 for example. Now the NEF has built on the summer comment from Adair Turner, chairman of the Financial Services Authority, that some activity in the City is "socially useless" to come up with an estimate of the social value of elite bankers.
The authors assume the financial crisis and recession would not have happened without City bankers engaging in risky, opaque and complex transactions. Applying a guess about the cost of the recession on the rest of society, they estimate top City bankers des-troy £7 of value for every £1 they are paid privately.
If the figures are accurate, a rational government should shut the City. Naturally, the City disagrees and so does the Treasury, which sees benefits in properly regulated activity in the Square Mile.
The report says good hospital cleaners prevent the spread of infection, saving lives and protecting the wider health of the public. The authors calculate they provide £10 of benefits for which they are directly paid only £1.
Eilis Lawlor, head of the valuing-what-matters team at the New Economics Foundation, said: "Pay levels often don't reflect the true value that is being created. As a society, we need a pay structure which rewards those jobs that create most societal benefit, rather than those that generate profits at the expense of society and the environment".
Many economists would find the calculations and some of the arguments in the report rather heroic.
The report argues that nursery workers provide much greater social value than their pay because they enable other people to stay in paid employment.
Standard economics would disagree, suggesting that this benefit accrues entirely to the mother or father who is paying for a necessary service."