Tuesday 10 April 2012

Should a banker be paid more than a nurse?

I'm listening to BBC Radio 4's Public Philosopher. Today's topic is "Should a banker be paid more than a nurse?"

I think the answer is "no". Banking services, though, are scalable, so individuals can get rich (and throughout, here, I mean filthy rich) providing those services. The next few paragraphs explain.

The BBC programme is an exploration of the moral arguments. The explanations of the high pay for bankers are given as:

  1. bankers have more talent, 
  2. bankers work harder,
  3. society values bankers more,
  4. the market values bankers more.
Let's deal with talent and hard work first. Nurses often work extraordinary long hours. Their training requirements are higher, so they have more talent (both professions owe more to training than personality), and their knowledge base is broader. A banker may, perhaps, have a talent for economics than a nurse, but collectively the bankers don't seem to be in control. The nursing profession, on the other hand, doesn't have sudden widespread crashes in performance. Anything that looks like that would probably be a failure of public health professionals, or more likely the press; witness the MMR hoax.

I think it's pretty clear that most people value nurses more than bankers. We'd all rather live in a society with no finance professionals than a society with no health professionals. We don't like it when our bank branch closes, but we protest when our local hospital closes. If society doesn't reflect that preference in individual pay, then that's because some structure in society isn't reflecting the aggregate opinion of its members. That structure would be the market.

But, what is it about the market that gets banker so well paid? Much better paid even than doctors, or NHS bosses. I think it's this:

We all make a living either by creating wealth or by tapping the income or wealth of other individuals - usually through an organisation. But, wealth creation only happens through creating exchangeable physical products, say through agriculture or manufacturing. Neither bankers nor nurses do this. They get paid for providing services, which are not exchangeable.

Service providers get their income from tapping the income or wealth of people who buy their services. There are two ways to get rich doing this: either tap the incomes of lots of other people, or tap the incomes of a smaller number of richer people. But, to get really rich, you need to provide a service that lots of people can use. That is, an impersonal service - one which you can provide many copies of. That service might be a music recording, a piece of writing, a televised performance or a bank account. Of course, you need an army of sales people to funnel the money your way, but those people don't need to be highly talented or well paid. In fact, it helps if they're not well paid.

A nurse, however, doesn't provide a replicable service. She (or he, but usually she) provides a personal service that can't be duplicated. It has no value if you know you're going to get exactly the same service as the person in the next bed. Even if you have the same condition as your neighbour, you may respond differently to treatment, for example. And, even if you did need exactly the same treatment, the nurse can't provide that treatment on a CD, or over the web, to many people simultaneously. Nursing isn't a spectator sport.

 So, this is where the market fails. Any individual will value their nurse more than their banker. But no nurse will be able to get paid for nursing services by more than a few people at a time. OK, a nurse might write a book about nursing, or run a nursing company, but neither of those things are nursing (the first is writing, the second is provision of management services).

In fact, the services that we value most are personal services. And, the people providing those services are never going to get rich, except by providing those services to people who are even richer. Oh, and if you're providing a personal service, and you want a higher income than your average client, then you need to be draining their wealth, or subsidised through taxation, or providing an occasional service that they really value.

There are, of course, elements of the health service, in which people can get rich. They can do it by cherry picking clients (private health provision), but they can't get wealthy in the same way as a banker, or footballer, or pop star. They can do it in management, but they have to be managing a really large organisation, and probably in the private sector. They can do it in manufacturing of drugs or medical equipment - because drugs and medical equipment are replicable and therefore their manufacture is not a personal service. In fact, it's wealth creating, and it's scalable.


Anonymous said...

"witness the MMR hoax"

I wouldn't call it a hoax. It was lousy science practised by people devoid of any sense of ethics and publicised by sensation-seeking newspapers.

I feel it is a pity the Leveson Inquiry isn't covering abysmal reporting by the popular press of medical research

Mr John D Clare said...

Please may I politely make three comments.
Firstly, 'bankers' are rich because they operate as capitalist entrepreneurs in the private market; thus they are able to charge people huge sums for essential services. Hitherto, this has not been allowed in the NHS because it was a state-run and therefore publicly-restraimed service. One of my fears is that your government, by allowing private companies to supply NHS services, has created a market where NHS-providers also will be able to become 'filthy rich' as you describe it.
Secondly, nurses are more poorly paid because they are employees - they are 'labour' in an economic sense. Employees rarely get rich, especially when there are large numbers of them. You fail to adequately acknowledge, of course, that not all 'bankers' are filthy rich, and that there are many bank employees who are as poorly paid as nurses - i.e. salary correlates with one's status in the job market, not with one's profession.
Thirdly, how are you writing like this and still a LibDem? The logical end-result of reasoning like this is equality, market-reform, moderate-socialism and the Labour Party. This coalition government must be breaking your heart.

Ian Eiloart said...

Interesting comments. It's true that employees don't tend to get rich. That's because they're usually not providing scalable services. They're providing the individual elements to the scaled services. They're checking IDs at bank counters, or video rental shops, making personal music recommendations. But notice that increasing automation of those service elements means that the providers of the scalable services -the bank investments, the film or music production- are going to get more and more efficient at getting filthy rich. That's a problem.

One way to partially address it may be to liberalise copyright and patent law. The government granted monopolies for copyright, and for software patents, and perhaps now for some forms of hardware, offer terms that are far too generous, in my view.

And, this is nothing to do with being an employee. A self employed nurse might get better pay, but is never going to be filthy rich except by serving exclusively the filthy rich. And, because by definition there are not many filthy rich, that's not an option to most nurses.

The same applies, but more obviously, to pop stars, sports stars, writers, and software developers. It's the scalability which makes the difference between rich and filthy rich.

And, it's true that I didn't explicitly define "banker" as excluding bank clerks. But I think that you probably understood that. I was using the same frame as the discussion on the radio 4 program, which failed really to see the point about scalability.

I'm a liberal writing like this because poverty is not a form of liberty. The Labour party has done absolutely nothing to reduce income divergence in the recent past, though it has did previously help to alleviate the worst consequences of poverty by creating the NHS, for example. But, of course, Labour have also introduced private provision to the NHS. For example, they put into private hands the hospital that my father died in a few years ago. We could argue til the cows come home about whether the NHS bill will speed up or slow down that process.

Torgold said...

One can argue to & fro as to the justification of CEO bankers pay but in these times of economic difficulties such obscene pay rises should not be allowed by the board of directors. This is especially so when the share price of the bank had gone down & not up in many cases!!
There is grown concern about this issue: http://www.bloomberg.com/news/2012-04-24/bankers-on-a-different-planet-face-bonuses-backlash-from-eu.html

Phil Chan said...

Good point. Using the "more-valued-but-less-compensated" argument actually makes a lot more sense now. Just goes to show that the medical sector isn't really short on compensation when compared to bankers; they're just too focused on their clients that they don't get to meet more, in comparison to bankers.