SIR Fred Goodwin's renunciation of £212,500 a year from his pension is the kind of gesture that leaves commentators tongue-tied – not because there is little on which to comment but, on the contrary, because the multifarious issues it provokes represent an embarras de richesses. In fact, an embarrassment of riches is a fairly accurate definition of Goodwin's situation.
To put it in perspective, the entire pension pot and settlement negotiated by Goodwin, believed to amount to a notional fund of £16 million plus a £2.7m tax-free lump sum, would be despised as small change by any big-league disgraced Wall Street bank
er. In second division Britain, however, Goodwin stands out as an icon of rewarded failure. Whatever prompted his return of part of his pension, the bottom line is that he will now receive a mere £342,500 per year. With deprivation on this scale spreading throughout the banking classes, there is a case for the Catholic Church to respond to this social crisis by founding a new order of nuns – the Little Sisters of the Rich.
It could cope with such traumas as the threat that Sir Fred may be reduced to plain Mr Fred: his knighthood has been referred to the Forfeiture Committee. It is normally guided, however, by judgments passed in the courts or by professional regulatory bodies. By those guidelines, Goodwin is safe. Suggestions that he had broken the law were always nonsense: he has done nothing legally wrong. That is the most alarming feature not only of his case, but of the whole banking fiasco.
There has been much talk of the abolition of the regulatory oversight that might have prevented the collapse of Royal Bank of Scotland; but the most damaging such relaxation was Gordon Brown's removal from the Bank of England of its disciplinary powers over banking, in exchange for the establishment of the Monetary Policy Committee, known in the weasel terms of Labour spin as "independence for the Bank of England".
Within the free enterprise system the natural and legitimate regulators are the shareholders. Did RBS shareholders feel no qualms about the folie de grandeur that was the RBS headquarters at Gogarburn, costing £350m? Or about the Dassault Falcon 900 jet for corporate travel? Or the £200m spent on celebrity endorsements? Grannies who knit on contentedly by the fireside while such extravagances are committed deserve to lose their blouses.
Why did the board allow the ill-fated ABN Amro takeover, as late as October 2007 when Northern Rock was already in trouble and after Goodwin had promised shareholders, in the wake of the Bank of China deal, he would not engage in any more large acquisitions? Why, after all that, did the RBS board effectively double Goodwin's pension and then ask him to retire early instead of sacking him, which created his invulnerability to financial sanctions?
On Goodwin's watch, RBS recorded a loss of £24.1bn for 2008, the largest annual loss in UK corporate history. Today, the bank is 70 per cent state-owned. Goodwin has achieved more for socialism than Tommy Sheridan ever dreamed of. This is not capitalism: capitalism rewards success, not failure. Rewarding incompetence, until recently, was a characteristic of socialism. The basis of free enterprise is the offering of a service at competitive rates that meets customers' requirements. Banking stopped doing that years ago.
Shedding staff is acceptable when they are surplus to requirements. When their departure leaves queues in understaffed high street branches, it is a reneging on the service provider's obligations. Across the banking sector, the replacement of personal service with over-stretched call centres and piratical bank charges are more redolent of Eastern Europe pre-1990 than any capitalist operation.
Formerly, a capitalist was a genuine risk-taker. If the enterprise failed, the main man went down with his employees – this was the best incentive to exercise responsible judgment. Bankers, however, created a situation in which they gambled recklessly with other people's money and rigged the system so they were rewarded regardless of whether they succeeded or failed. That is not capitalism, but the most audacious dependency culture yet invented.
Those who, in a knee-jerk reaction to the provocation offered by bankers, proclaimed the end of capitalism were hopelessly wrong. "Come back, Vladimir Ilyich, all is forgiven" is not the solution to any problem. Only capitalism can grow our economy out of the hole it is in; but that means authentic free enterprise, not a parody of it run as a virtual reality computer game by bankers totally insulated from personal financial loss.
