The Road to Recovery: How and Why Economic Policy Must Change

14

Tackling the Bonus Culture

Adam Smith taught us that qualities such as greed that are unpleasant at a personal level can be helpful for the economy as a whole. But this need not be the case in different economic environments. Clearly, it does not apply today in North Korea, where unpleasant qualities seem prevalent without any apparent help to the economy. However, we should not assume that individual greed, even if widespread, would be sufficient automatically to generate recovery in capitalist economies either. Businesses naturally seek to maximise their profits, and in order to have an edge over the competition they can create monopoly profits through new products or inventions that lower costs. To encourage this we allow their inventions to be protected by patents and copyrights, and there are concerns that this protection has become increasingly exploited by large companies to the point where it is inhibiting competition rather than encouraging progress. It is essential for the success of economies that we succeed in preventing the use of monopoly power to obtain “rents”, which can be extracted by shareholders or employees. Electric power production, water and railways are often natural monopolies which need regulation to ensure that they are operated for the public good rather than for the benefit of their owners or, as we know from experience, particularly in the case of nationalised industries, for those who work in them. Rent extraction can be readily created by laws ...