The E.U. and U.S differ markedly in the degree to which the interests of big business are etched in the respective societies and polities. That is to say, the difference goes beyond the question of the relative influences of the lobbyists. I contend that the relative proclivity societally in favor of business in the U.S. tilts the political playing-field excessively in the direction of the financial interests at the expense of the public good, which I take to be well represented generally by a full, equally-weighted spectrum of views. I further contend that influence is easier for financial-sector lobbyists in the United States than in the European Union because the societal values in the former lean more in their favor. By analogy, it is easier to run downhill than even on a flat surface.
These points can be discerned from the respective financial reforms in the E.U. and U.S. in the wake of the financial crisis of 2008. Because the financial sector was viewed as culpable in both societies, the ensuing respective financial reforms would be expected to be at the expense of the banks rather than conducive to their interests.
These points can be discerned from the respective financial reforms in the E.U. and U.S. in the wake of the financial crisis of 2008. Because the financial sector was viewed as culpable in both societies, the ensuing respective financial reforms would be expected to be at the expense of the banks rather than conducive to their interests.
On March 10, 2010, the E.U. Parliament adopted a Resolution (536 votes in favour to 80 against) calling for the financial sector to contribute fairly towards economic recovery since the costs of the crisis are being borne by taxpayers. On 25 March, Members of Parliament’s special “Financial, Economic and Social Crisis Committee” debated the rationale behind a possible financial transaction tax. Stephan Schulmeister of the Austrian Institute for Economic Research in Vienna said short-term financial transactions can make short-term prices of currencies and other financial products such as derivatives and shares vary wildly. Schulmeister claimed that a tax on financial transactions of just 0.05% would eliminate these short-term transactions, bring greater stability and bring €300 billion of additional revenues to the E.U. While the tax would undoubtedly bring in revenue, it is not clear to me that short-term transactions would be eliminated, as they can be worthwhile even with such a tax. Moreover, the financial crisis of 2008 shows us that the volitility can come from the market mechanism itself (in so far as it magnifies irrational exuberance). At any rate, even as there was division on the matter of such a tax in the parliament, that the proposal had been made distiguishes the legislative body of the E.U. from the Congress in the U.S., where such a proposal would undoubted have been blocked. Indeed, the E.U. Parliament went ever further.
On July 7, 2010, the EU Parliament approved some of the strictest rules in the world on bankers’ bonuses. In the legislation, caps were imposed on upfront cash bonuses and at least half of any bonus had to be paid in contingent capital and shares. The legislative chamber also toughened rules on the capital reserves that banks had to hold to guard against any risks from their trading activities and from their exposure to highly complex securities. “Two years on from the global financial crisis, these tough new rules on bonuses will transform the bonus culture and end incentives for excessive risk-taking. A high-risk and short-term bonus culture wrought havoc with the global economy and taxpayers paid the price. Since banks have failed to reform we are now doing the job for them,” said MEP Arlene McCarthy. Upfront cash bonuses were capped at 30% of the total bonus and to 20% for particularly large bonuses. Between 40% and 60% of any bonus had to be deferred for at least three years and could be recovered if investments did not perform as expected. Moreover at least 50% of the total bonus had to be paid as “contingent capital” (funds to be called upon first in case of bank difficulties) and shares. Bonuses also had to be capped as a proportion of salary. Each bank had to establish limits on bonuses related to salaries, on the basis of E.U.-wide guidelines, to help bring down the overall, disproportionate, role played by bonuses in the financial sector. Finally, bonus-like pensions were also covered. Exceptional pension payments had to be held back in instruments such as contingent capital that link their final value to the overall strength of the bank. This was to avoid situations similar to those experienced in the wake of the financial crisis of 2008 in which some bankers retired with substantial pensions unaffected by the crisis their bank was facing. The rules applied to foreign banks operating in the E.U.and to subsidiaries of E.U. banks operating abroad. The law gave state regulators binding powers to take action against banks that failed to comply with the new rules. In contrast, the U.S. went after Arizona for trying to enforce US immigration law.
Clearly, the U.S. financial reform did not go nearly as far; it did not put nearly as much crimp in the American banks. This is no accident. The feeling among big bankers in the US was that they dodged a bullet concerning what could have been in the American bill. No “too big to fail” limit was put on a bank’s capital or size , or on the bankers’ compensation. The American media and President Obama were strangely silent on why. In the case of the health reform, the President silently removed his objection to an insurance mandate and dropped his desire for a public option after the lobbyist for the American health insurance companies told him that her support was contingent on these changes.
My point is simply this: Were not American society leaning in a pro-business direction (e.g., economic liberty being salient in how liberty itself is viewed), the President might not have felt the need, or pressure without a sufficient countervailing wind, to bend in the banking lobbyists' direction. That is to say, the lobbyist would not have had so much leverage. Wall Street no doubt had massive influence in the crafting of the financial reform as it was making its way through Congress (even though the banks were culpable in the financial crisis—which is itself telling). I submit that the reasons go beyond the sheer power of money to unquestioned societal values.
My point is simply this: Were not American society leaning in a pro-business direction (e.g., economic liberty being salient in how liberty itself is viewed), the President might not have felt the need, or pressure without a sufficient countervailing wind, to bend in the banking lobbyists' direction. That is to say, the lobbyist would not have had so much leverage. Wall Street no doubt had massive influence in the crafting of the financial reform as it was making its way through Congress (even though the banks were culpable in the financial crisis—which is itself telling). I submit that the reasons go beyond the sheer power of money to unquestioned societal values.
Sources:
http://www.europarl.europa.eu/news/public/story_page/044-71441-088-03-14-907-20100329STO71433-2010-29-03-2010/default_en.htm
http://www.europarl.europa.eu/news/public/focus_page/008-76988-176-06-26-901-20100625FCS76850-25-06-2010-2010/default_p001c011_en.
