French President Nicolas Sarkozy's chances of re-election have been damaged by Standard and Poor's downgrading France. Photo credit: Downing Street
In the interests of full disclosure, I should open by pointing out that this article is pure opinion; I make no claims to research, accuracy, or basis in reality. The views expressed are purely my own reactions to recent news coverage.
In today’s topsy-turvy world, business and economy are leading the charge. Markets are volatile, irrational panic and exuberance are the order of the day, governments are bankrupt, and every self-professed expert with a pen (yes, me too) has a different opinion.
So here’s my two-part gripe: When did private enterprise become so patently part of the public discourse and when did governments become so adversely influenced by private companies? The initial news that triggered this thought was the widespread and still growing criticism of bankers’ bonuses. As we know, in 2008 the financial world collapsed. The knock-on effects were, and continue to be, spectacular in all the wrong senses of that word. Thereafter it didn’t take long for the claws to come out and the blame to be directed at wealthy bankers. How dare they be successful when the world is falling apart?!
But my view is that, regardless of various elements of the financial and political world’s involvement in the recession, what right has anyone outside a private organization to tell that organization how to run their business? Moreover, what right have people to be so judgmental?
If a business wants to compensate its employees in a certain manner, the government has no place interfering. Banks who operate inefficiently – be it by over-paying incompetent bankers or by some other means – will either be punished by the markets when the bank performs badly as a result or penalised by the law if their practices lead to monopoly, trade practice, or other legal violations.
As for the related purported injustice of a small minority making vast amounts more money than a large majority, this disparity has existed for as long as democracy has existed. It may feel unfair to be so much less well off than other members of society but if forced equality is what people want then perhaps they should consider a move to Communist Cuba. I can assure you that if I were getting a huge bonus I’d be pretty happy about it, so you won’t hear me complaining about not currently receiving one in case one day my record makes me sound like a hypocrite.
It may feel unfair to be so much less well off than other members of society but if forced equality is what people want then perhaps they should consider a move to Communist Cuba
This is not to say that banks bailed out by (and still owned by) the government should be exempt from tinkering and criticism. With respect to those banks, the government, like any shareholder, has a right to dictate the terms of the bankers just as they can for any other civil servants. Moreover, it is natural for the taxpayers whose money was used to save those banks to express their approval or otherwise.
In short, if private commercial activity is exercised within the law, leave it alone and stop whinging.
Unfortunately, this unnatural interaction between government and private enterprise has spread beyond political grandstanding about bank bonuses. Just as government is unduly interfering with private enterprise, so too private enterprise is having too great an influence on government – and therefore on the governed.
Credit rating agencies, led by Standard & Poor’s, are exercising a disproportionate and irresponsible influence on an already fragile European sovereign debt crisis. For governments to let themselves be influenced by a few private companies with a pretty shoddy track record is inexcusable and dangerous. After all, let’s not forget that we’re talking about companies that gave Lehman Brothers and Bear Sterns positive credit ratings right up until the moment those banks collapsed. Hardly confidence inspiring stuff.
Even if credit agencies had a greater predictive track record, there would be reason to discount their ratings. As far as I can tell, these are private companies using a disclosed methodology and publicly available information to form a view on the credit worthiness of other companies and governments. Forgive me if this sounds naive, but why should governments and markets let themselves be so influenced by an opinion that could just as easily be reached (or contradicted) by any sensible financial analysts willing to take the time?
Following the recent downgrading of Austria and France by Standard & Poor’s, the commentariat has once again been abuzz with the usual gloom and doom. Fortunately, as of this writing, the financial markets appear to have stumbled into a momentary spell of rationality and, having anticipated the downgrade, not succumbed to dramatic falls.
Nevertheless, the credit downgrade will have a negative and tangible impact. The countries whose debt has been downgraded will now have to pay higher rates to borrow money as lenders who give weight to the opinion of Standard & Poor’s decide how much to interest to charge. Further, the governance of France will likely be directly affected; with the Presidential elections due this Spring, the incumbent Mr. Sarkozy’s re-election chances have clearly been adversely impacted by the downgrade. Even if most voters do not understand the details of how credit rating agencies and financial markets work, they will see headlines blaring the news that France has been degraded, take it as a slight on their country, and blame their President.
As Francois Hollande, the French opposition leader and candidate for President, gleefully stated in an interview with Le Monde newspaper on January 15, “We are no longer in the first division.” Perhaps someone should tell M. Hollande that neither is the United States and they seem to be managing okay.
