The Guardian\’s City Editor

Last year, the staff were probably very happy indeed. Every spring, they receive a bonus, dependent on how well the business has fared,

Isn\’t it excellent the way that The City shares the profits with the workers? Not all of the surplus extracted from the workers goes to the capitalist bastards who own the firm.

In 2007, the company announced profits of £319m and £155m was set aside for staff bonuses.

Ooops, sorry, my bad. This is John Lewis we\’re talking about.

Clearly, terribly different from The City.

1 thought on “The Guardian\’s City Editor”

  1. Yes – but what would happen in the (unlikely) event that John Lewis posted a substantial loss in its annual accounts?

    One of the glitches with the personal reward systems in many financial institutions is that personal earnings are often asymmetrically dependant on the outcome of investment or lending decisions.

    The magnitude of bonuses in personal earnings paid for making successful investment decisions tend to be disproportionately greater than the magnitudes of any personal penalties inflicted for making flawed decisions. The result is that the downside risks of decisions tend to get overlooked or played down.

    If the results of that in-built bias were entirely internalised by the particular institution in which flawed decisions were made then that could be regarded as socially acceptable but the consequences may not be wholly or even mostly internalised. At an extreme, the eventual outcome may lead to systemic failures leading to potentially catastrophic consequences with the failure of financial systems, such as with (domino) bank runs or stock market crashes.

    It was that insight which led Walter Bagehot, in his book Lombard Street (1873) [1], to propose that the Bank of England should act as lender ot last resort to solvent institutions in the money market, albeit at a penal rate, in order to avert systemic crises – for a recent assessment of the Bank’s lender of last resort function, try:
    http://www.bankofengland.co.uk/publications/fsr/1999/fsr07art6.pdf

    Periodically, it is suggested that governments should exercise a similar function in respect of a wider class of enterprises than just financial institutions, such as large manufacturing enterprises, because of the potential knock-on effects of corporate failures, which is why proactive, national industrial policies became fashionable for a while in some places. But I think that few would suggest any government ought to bail out the likes of the John Lewis Partnership, or any other retail chain, should it fail. However, recall that a Conservative government nationalised Rolls Royce in 1971 to avert the collapse of the company.

    [1] http://www.econlib.org/library/Bagehot/bagLom.html

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