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The golden boys and the bonuses PDF Print E-mail
The Labour Movement-Economy

An attempt at a comprehensive institutional approach

In the United States – though not only there – there is a major problem caused by the lack of an appropriate law to deal with the bonuses which are given in the middle of an economic crisis to the senior executive officers of bankrupt enterprises. However, in a just society there is no lacuna in the law. There are general penal, civil, and administrative provisions, as well as the constitution and, in addition, certain principles of law which can assist in an investigation of the legality or otherwise of certain actions. In democracies there are always such principles, and it is an issue of political will that they should be implemented.


Recently, of course, some solution has been found by means of taxation at the rate of 90% of the bonuses, after death threats to these executives and strong protests and anger on the part of citizens. But the problem of the inadequacy of the law remains.

The news is that high-ranking executives of major American banks and finance organisations (such as AIG) – which are, in reality, bankrupt – are receiving today for the grim year 2008 (the year in which the crisis broke out) vast sums, of a total of 165 – 180 million dollars as bonuses for their 'services', from that money which taxpayers have paid so that the whole system should not collapse (see 1 – 7). The legal advisers of the US government cannot see a legal way of abolishing the bonuses or of averting their payment (see 9). The American Secretary of the Treasury has proposed that this sum should be subtracted from the sum for support to be given to AIG (see 7). But this seems illogical as a solution, because the sum to be deducted will not be taken from the golden boys, but will be taken from the company itself, at a time when it is attempting to keep its head above water. Consequently, at a later date, when the issue has been forgotten, the sum will be given again indirectly as aid for the need which will exist at that time. That is to say, the executives' bonuses remove a part of the company's capability for recovery, and since the purpose of the aid is that recovery, it is logical for it to be given regardless of what caused the problem in the first place. In this way, the issue is simply transposed into the future.

By the very high taxation rate of 90% on bonuses proposed by many politicians (see 2), finally decided upon yesterday, the problem has been solved only temporarily, because in years to come it might be decided otherwise, but, importantly, because this solution is based on the will of the government and not on principles of justice. It is the principles of justice, and not the will of the leader of the day, however positive that might be, which give society its stability.

It should also be noted that these top executives are now attempting to raise their basic salaries, clearly so that their remuneration is not included in the category of bonuses which is so controversial. This, basically, is interpreted as a burning desire to be civil servants, but on terms of greed.

A. This problem is an issue of the greatest importance, not so much for the fact that such people, whose actions led to this world crisis, will receive so much money (even if taxed at 90%) in the midst of the penury of the many, but because of the fact that:

1. A country which is regarded as democratic and attempts to export its 'model' does not possess the legal means to correct such an absurdity. This absurdity, moreover, becomes all the greater if one bears in mind that at the same time all these people consider it natural that all the citizens should accept pay cuts and a reduction in working hours, dismissal, unemployment, poverty, and all the hardships of such an economic depression – and, in addition, should pay for the losses.

But a society which has accepted this harsh 'economic' model of life has naturally its own share of the responsibility as well, because prosperity has blinded the reason and understanding, both with regard to the concepts and values of this model and to the origin of prosperity and the state of other peoples. And it seems that none of the earth's peoples is exempt from this lack of conscience.

2. In this way a selfish motive and model is created for such behaviours, which cost the culprits nothing. Because even according to the logic of the neo-liberals, who without cost to themselves, maintained that financial organisations and enterprises should not be supported, the problem is not connected with the existence in itself of the enterprises, but with those who take the business decisions.

Thus, the problem of principles remains, because the state has not been able to deal with the existence of the bonuses as such, when they are being paid not from private money but the state – that is, the citizens – but is trying to get it back in an indirect way: by taxation. Therefore, the bonuses remain as an absurdity which offends against democracy, but are  taxed at so high a rate that only a small part of them will remain for the executives.

B. So what is it that is missing and democracy is not able to protect itself?

1. What is certain is that the will for democracy to have force and to be served is lacking, because the economic approach which dominates everything, that of 'unrestricted profit', is not a concept which is compatible with democracy, or, naturally, with freedom. It is based on strength and power (which themselves only can be 'free' in the field of the economy and of strength), and for that reason is contrary to these two principles, unless we say that these principles apply only to a few. But this is another issue, which needs deeper thinking that is independent of the bulimia of the penchant towards profit and strength, otherwise the thinking will remain on the surface of things, where strength as an atavistic accumulation crushes whatever is less strong.

It is precisely for this reason that the problem of unrestricted profit cannot be regulated and cannot be cured, in the case of the individualism of the executives and enterprises, by the market and by competition.

2. It seems, from what has been said, that the appropriate laws are also lacking, to deter such undisguised thieving raids, with the state incapable of intervening.

We do not possess an exact knowledge of the laws of the United States, but we suppose that as a democratic country, even if in appearance only, it should have laws which protect rudimentary rights and principles such as, for example, equality, as well as principles of civil law according to which a person who causes damage is under an obligation to make it good, or a person who commits a penal offence is punished, or others such as those which deal with unjustified enrichment. We can formulate certain thoughts on this:

a. These people have brought the economy to its present crisis by their options and practices. They maintain that they did not foresee this, however no offender accepts his own guilt. But even if they had not foreseen it, again grave negligence, constituting a criminal and civil violation, should have at least been imputed to them, which  should lead to punishment and the payment of compensation to the victims. Is there no such provision in the American laws? Not that in other countries are such simple laws implemented, even though they exist, but here entire legal teams are supposed to seek sincerely, but are not able to find, a solution. But in reality, there may be political, rather than legal, obstacles.

b. Shouldn't such an offender be dismissed for breach of trust or for incompetence, and, moreover, without compensation, when because of him citizens lose their jobs, have their salaries arbitrarily reduced, and are driven to desperation? But if the USA has some ad hoc regulation which specially exempts the golden boys from the legal order, then the USA has a very serious problem with democracy and should expect in the future an inevitable internal crisis (see 5), in which the absence of those principles which it has for so many decades proclaimed  will be apparent. It should be noted that recently, at exactly the opposite extreme, a German company dismissed a long-serving employee because he embezzled a sum of approximately 1.5 euro from coupons intended for customers! But, of course, the employee was the weak insect which is caught by the law acting like a spider's web, in the words of the Scythian sage Anacharsis.

c. These bonuses, which, we suppose, are much higher than their salary, should correspond to some special performance or service or improvement of the corporate revenues. It would be rational for us to expect there to be some logical link between the financial result which someone brings about and the bonus which he will receive. If there is no result, or if the result is the opposite of that intended, as is the case here, then the bonus should not be lawful, nor should it therefore be paid, since its aim will not have been fulfilled. That is to say, there should be some teleological explanation (interpretation of the objective) of the establishment of bonuses (that is, what aim they serve), and, in the light of this, it should be judged whether they should be given or not.

If, nevertheless, the law expressly excepts or precludes such an interpretation, then perhaps:

(i) the constitutionality of the law should be investigated (i.e., to what extent it is in accord with the constitution, which is the supreme national law), and above all as regards the principle of equality, because, naturally, as it seems, the same things do not apply to the rest of the citizens as apply to the golden boys. If, however, the constitution is also inadequate, then it would be advisable to begin to think about those forgotten supra-constitutional principles, which an area of legal sciences has put forward as a safety valve for the benefit of the basic principles of democracy. That is to say, when a provision (of common law or of the constitution) violates those principles, this provision should not have force, since these principles apply everywhere and at all times, regardless of what the law says and because all the laws (common laws and constitutions) must be subject to these. Otherwise we have no moral or rational grounds for opposing countries with murderous laws against minorities or groups within society, for example, women, since in the last analysis, in the light of such a formal criterion (that is, only of what the law says and regardless of its essence and aim and of universally recognised international principles), the laws in each country, whatever laws it has, have force and it is not permitted for us to intervene, nor can we have any say in the matter!

(ii) If these contracts which made provision for bonuses and which, it is held, cannot be overturned were agreed between private individuals without state intervention, it could be said that here the constitution plays no role, because it regulates only the relations between the state and citizens and not between citizens. However, there is another legal viewpoint (concerning the action of the constitution in inter-personal relations), which was the painfully reached conclusion after the Second World War: that the constitution can also regulate relations between citizens if one private agency is very strong and its actions adversely affect superior rights of another private citizen. This is extremely sensible, since there are citizens or private persons stronger than the state, or so strong that they are assimilated to the state in comparison with the citizen. The onerous nature of these contracts for the citizens as a whole is so obvious and unreasonable that, clearly, no further analysis is required.

(iii) Those legal persons-organs of the state, or, in any event, those persons who are charged by the state with the supervision of these legal persons and have permitted such contracts which protect bonuses in an absolute way by their acts or omissions should be investigated for dereliction of duty, with all the related administrative and civil consequences for them. And those within the 'bankrupt' companies who had a duty of audit should be investigated for breach of trust in the event that they did not fulfil these obligations upon them. Even those who engaged the managers in question and were involved in the concluding of contracts on such terms and to the detriment of the company should also be subject to investigation in a similar way.

We cannot maintain that there is a lacuna in the law as to crimes in the financial field (i.e., that there is no law which can include them) at a time when their results are world-wide and catastrophic. This is not a matter of theory and dogmatism; the issue lies in the fact that there are injurious results which have been produced by certain causes (i.e., by human actions), and these prejudicial actions must be subject to sanctions on the basis of the principles of justice. However, the reason for the inertia may be that prosecution for any such crimes will mean the total discrediting of the concept of the market as we know it, and will lead to a change in the framework of economic activity – which is something which the world of finance in particular wishes to avoid. But for nobody to do anything benefits no one, because in the end everything is devalued in an atmosphere of hate and generalised suspicion which may have unforeseen consequences.

3. The fact that this state is completely dependent economically on private economic agencies, which are, moreover, the same agencies which issue American money (the dollar) ought to make us think clearly about what effect this has on the legal order, and in the widest sense of peace and of social harmony. Because it is a well-known fact that economic strength has always led to political power. So what kind of state is it which constantly borrows from private individuals and in which even money, this very symbol of the contemporary economy, is issued by the same private individuals? Does this state have or does it not have some power (imperium) which it can also use for the benefit of the many?

Moreover, it is glaringly simple-minded for a society which is theoretically based on competition, and consequently believes that the nature of man is aggressive and acquisitive, and, therefore, competitive, to maintain at the same time that a great accumulation of power over even the state will not end in abuse. For that reason it must be regarded as fairly certain that this state does not adequately possess such a capability.

Over and above, from such flawed reasoning, which at one time regards one thing and at other times its exact opposite as a given, what is absent is 'Logos' – that exceptional quality with which man is endowed, not so that he should feel arrogant towards animals and stones like a fool, but in order to be able to combine the whole with the individual in a difficult but successful option, in which his being will not be determined by equally unreasoning strength and acquisitiveness, but which will be a fulfilment which does not exclude others.

Ioanna Moutsopoulou, Lawyer
Member of the Secretariat of Solon NGO

Photo from Wikimedia

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