Monday, June 11, 2007

 

Fat Cats are Just Getting too Fat

An article in The Guardian today poses a question which has long bemused left of centre, liberal public sector types like me: why do rich people want more and more money? I run a Current Affairs class comprising 30 or so adults from all walks of life each autumn, and this question comes up regularly. The rich business men in the group are contemptuous of those of us who argue such huge disparities between rich and poor is a moral outrage, a violation of any kind of social justice. This, they argue, is a purely economic question; we operate in a free market. Business pays for results and those who deliver are entitled to such fabulous rewards. If they don't get them, the argument concludes, they will depart our shores for those that do not refuse to hand over the loot.

It's not difficult to support higher pay for higher achievement but how high must incentives climb before the ceiling is reached? When the boss of mining company Xstrata earns 544 times the average pay of its mineworkers, one feels the limit must have been already reached; in the USA the difference is even greater. How much can one spend before one has everything? Bill Gates and Warren Buffet have decided to call it quits and have given away most of their fabulous fortunes. Why? embarrassment? Maybe a touch- what is the point of earning the GDP of a medium sized country when there is not enough time to spend it or desire to consume left?

Hargreaves touches on some of the possible motivations: status- bosses measure self worth in salary zeros; and the massive rewards of private equity have raised the comparison stakes yet again for the super rich. As the roller-coaster continues to swoop and soar I get the feeling that ordinary citizens are well on the way to feeling a sense of revulsion against this degenerate excess. Too much inequality is not healthy for society and Gordon Brown should strengthen opportunities for shareholders to question and control those company remuneration committees. The members of these 'legitimizing' committees approve such huge salaries purely because the similar groups of members will also be likely set their own salaries. David must be given a few sharp objects to put in his slingshot against the might of Goliath.

Comments:
Some wise soul once told me (in the days when a million quid was really a lot of dosh) the reason I'd never make a million was that I couldn't understand why anyone who had earned a million would go on working! These people just aren't the same as "we" are.

I think the John Lewis "workers' co-operative" used to have a rule that the highest paid partner mustn't have and hourly rate more than 40 times that of the lowest paid, that mightn't be a bad rule for all corporations. (Always slightly amuses me that John Lewis shops (especially the one at Sloane Square) are so beloved by the sorts of upper middle class people who'd scream 'socialism' if their pay were cut in order to redistribute their good fortune to the poor of the planet). Do they still have that rule I wonder?

And you'd still have the celebs and their agents picking up millions for being famous.

Question is: is Richard Branson or David Beckham more use to the nation? How could the state decide on relative worths any better than markets can?
 
Perhaps surprisingly for you Skipper, I don't disagree with this entirely. Your sentiment is amdirable. But surely if history has taught us anything in the last hundred years, it is that socialism doesn't work.

The point is that the super rich don't pay any taxes anyway. The people you would squeeze are the middle classes. Many of them are already over-taxed, paying for barmy mortgages and struggling to pay children through university. I earned 64k a year before I left three years ago. Not a huge salary - not enough for me not to aspire for more for my family and future - but I was taxed to the hilt(proportionately far more than Abramovich, Steven Gerrard or any other super-rich people...so I left. The UK lost the money they made from me, and that is the danger of squeezing the middle classes.

The left have lost this argument already. You came to see it as either or. Your last remark sums up why a lot of the left just don't get it. Improving the lot of David has nothing to do with worsening the lot of Goliath in the long run.

Aside from the poor education system and the efforts to destroy Grammar Schools, almost anyone in Britain has a chance to be rich...unlike most other countries. Many who become rich don't deserve to. But very few who deserve to don't become rich.
 
Michael
I don't pretend that this is easy. I've never been a leftwing socialist as the ideology clearly does not work when applied in that way. But the social democracies of Scandinavia- where I have lived for a while and know much about, do work and avoid such extremes of rich and poor. That is the ideal I pursue rather than any revolutionary/tax everything/ nationalize the economy variety. I do agree with you we should not overtax and I do agree, again, that there should be incentives, but not incentives like the ones I'm criticizing.
 
But who will pay? Will be the billionaires who salt away all their money and never pay any tax? As long as rich people can avoid tax, these schemes will just hit the middle classes. I know of a scheme in England for high earners, where for a cost of 160k, an accountant will promise that you won't pay ANY income tax! So when we hear about redistribution, it isn't from the Abramovichs or even Beckhams of this world. It is people like me(if I returned to the UK, not likely any time soon), on fairly modest salalries and other groups like teachers, nurses and so on. Often already struggling to pay for houses that cost a bloody fortune because the Government won't allow anybody to build new ones!

Ultimately, most people in Britain won't support higher taxes on (allegedly) higher incomes until they see evidence that the Government won't waste their money on useless social services.

The point you make about incentives is true. It stops really being an incentive at a certain point(I wouldn't change my job now purely for more money - there are other factors). But nowadays people can just move their homes and increase their incomes. Not so much an incentive as greed I would say. But the effect on the Government and the economy of losing these people and their money is much the same.
 
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