by Xenofon Kontargyris, University of Thessaloniki

Let’s be honest- for nearly a quarter of a century, we have been crying out for freer and freer market economies. We’ve been demanding a carte blanche on behalf of the state for all financial and commerce rows that we managed to devise. We’ve been insisting that it is us, the entrepreneurs, consumers and members of the global economy, who should control the fates of the world economy, not the state or any administrative structure from the public sphere. All of this held true until almost one year ago.

Since the economic downturn, that same “we,” who so stubbornly objected to any help or regulation administered by the public sector for our sacred free market, has been desperately crying for urgent action. This has included emergency measures, support schemes, protective mechanisms and cash injections for firms facing the phantom possibility of bankruptcy. Yet we’ve been begging for all of these measures without consideration for what we would have to lose if we were all to receive these generous offers. Among those with the strongest objection to the possibility of any exchange for government assistance were the top executives who, for the first time ever, were asked to account for their torrential income and--even more controversial--set limits to it. Oddly, but perhaps not surprisingly, quite a few of them found this to be an unacceptable trade for the government to ask.

Given the myriad of experiences we’ve had during the past year, I will try to paint a picture of the debate over post-crisis compensation practices in the financial industry by describing the two extremes- from absolute to zero government control, as well as the more balanced scenario of standing somewhere in between.

Let us first imagine a financial industry healthy and robust (hopefully) at some point in the near future, praising itself for having survived the crisis and looking ahead to new challenges. Employment rates will be on the rise again, new products and services will be improved thanks to the lessons taught by the economic downturn, leaders in the business world will enjoy the fruit of this new era of prosperity. But how economically democratic would it be if executives have to file an annual report with the origins and grounds of every single cent of their annual income? Or, if they cannot account for a portion of their income, lose their jobs or face fines? Such a practice would contradict the basic spirit of free market functions, which nobody ever wished to see utterly abolished. It would also rip away the very essence of a career in the private sector as opposed to working for the state. It would seem reasonable that a top-exec on Wall Street would become frustrated having to explain why he deserves to be rewarded for his creativity and the hours he spent at the office to a fiscal inspector working a “9-5” job!

Now, let’s imagine the opposite scenario (which more or less resembles our situation before this last storm broke out). The financial industry is again a moneymaker’s paradise, promising and delivering 6-figure monthly salaries to its executives. It is the ultimate career path for anybody willing to spend endless hours in the office, knowing that when it is all over, a yacht will wait to ferry them to some idyllic Caribbean beach. And once again, no one asks how executives can afford these amenities or if it’s reasonable to accumulate in one year the same amount of money that the low-ranking employees have earned combined. As difficult as it is to admit it, if we retreat back to this familiar system, we can expect another (potentially more severe) derailment. Worse yet, there’s no guarantee at all that the market systems and our society will always have what it takes to survive such powerful shocks as the one we are still undergoing. It is not simply an economic issue, but a social one as well. Although protest was largely contained this time, we still witnessed the fury and rage of plain workers, especially in the early steps of the crisis. These lower-level workers persistently demanded to know how they ended up losing their jobs when their bosses were profiting from enormous bonuses and rewards as a “bravo.” If it erupts again, this fury will be difficult--if not impossible—to confront.

We now find ourselves in a position that requires us to strike a balance between these two extremes in an effort to minimize the chances of a repeated failure for the financial sector. Would it actually be fair to impose limits on the amount of money executives receive as bonus? Would it be more impartial and effective if these limits were governed by legislation so executives can expect what is to come? Would it be too much to ask executives report their earnings, not necessarily to the government, but to a third party agency?? It is certain that if such a reporting mechanism existed and loopholes were timely discovered, we would have the opportunity to simultaneously rebuild the financial sector. And, in the event that executives’ bonuses were actually drawn out of accounts set aside as safety nets for hard times, a reporting system could mitigate the effects in the event of another meltdown .

It is important to note that that the compensation policies for business executives were not the main reason for the financial stalemate that the world finds itself in at the moment. There were, of course, far more serious discrepancies in market practices larking, threatening and ignored for more than a decade that provoked this chaos. The fact remains, however, that if financial conglomerates had taken better care of their own household (i.e. their internal budgetary indexes, which are undoubtedly affected by whether they spend 10 or 100 million in executives’ perks) we might have undergone much less agony and turbulence. If nothing else, let us learn from this past mistake and incorporate it into legislation to build a more secure future.