The rich are always with us
High end salaries have been back in the news recently. Yesterday there was the overwhelming endorsement by the Swiss – of all people – of a tough package to crack down on unmerited rewards at the top . This contrasts with two votes for the super-rich given by our own Government. First, Downing Street made it clear that it is very relaxed with RBS handing over £600 million in bonuses despite the bank being publicly owned and massively loss making. Second, ministers and the London Mayor have been venting their fury at EU proposals to limit any single banker’s bonus to the value of their – presumably generous – full year salary.
These debates should be placed in context. It seems that the respite after the credit crunch both in the rate of increase in rewards to the highest paid and the consequent growth in the gap between them and the rest of us was very short lived. Once again, highest salaries are rising fastest. Meanwhile, average wages are falling faster and for longer than at any time in living memory. As no one seems able to justify this state of affairs in terms of just rewards, the argument made against the EU’s proposals was a kind of resigned utilitarianism: ‘if these people insist on being paid these salaries we better do it too or the best of them will emigrate to Singapore’.
A few weeks ago, together with Patricia Kaszynska FRSA, I posted a series of pieces critiquing the idea of social mobility as it is unthinkingly advocated by many politicians and most media commentators. Lifting a few talented people out of disadvantaged communities (even if we knew how to do it) makes the communities left behind even less able to turn themselves round. Furthermore, this form of meritocracy does nothing to address underlying levels of inequality and it provides cover for the existing elite who are able to conflate the society they advocate (in which the best get to the top) with the one we have (where most at the top, and their offspring, are there as much because of privilege as merit).
If we truly want meritocracy the best route is greater equality as this reduces the gaps between the rungs of the ladder going up and makes it less terrifying for some people to come down (necessary to achieve greater relative social mobility).
The debate over top people’s pay is a kind of mirror image of that on social mobility. Just as we can be dismayed that it is so hard for poor children to get ahead, so we are encouraged to be angry when it is shown that a rich person doesn’t deserve their reward. What much less often gets discussed is whether anyone at all should be paid a salary beyond the wildest dreams or ordinary folk.
I am well paid; probably in the top 1 or 2% of earners in what is still, in international terms, a rich country (although rapidly becoming less so). I am not in a position to be pious. Not do I see myself as a class warrior. But I find it hard to understand why anyone thinks they are worth more than, say, £500,000 a year. Even this figure means the person’s remuneration is equivalent to five inner city GPs, twenty class room teachers or thirty care assistants.
Some would argue that such rewards are deserved by entrepreneurs who have built their own business. I am tempted to ask how committed an owner is to business growth if they are willing to take more than half a million a year out of the company to pay for a second yacht. Some people pocket £500,000 a year due to ‘unearned income’ but it is the first word of that phrase that should be focussed upon.
We are in the midst of economic stagnation and public sector cuts, real wages are falling for most workers and the financial services sector continues, in many important regards, not to provide a service. That in these circumstances it still falls to those critical of inflated top wages to prove they are not deserved rather than falling to the rich to show they are worth it (as will now be more often the case in Switzerland) shows how very little assumptions in our country have changed in the last five years.
Comments
5 Comments on The rich are always with us
-
Michael Taylor on
Mon, 4th Mar 2013 4:48 pm
-
Matthew Taylor on
Mon, 4th Mar 2013 5:09 pm
-
Josef Lentsch on
Tue, 5th Mar 2013 10:25 am
-
Don D on
Tue, 5th Mar 2013 3:57 pm
-
Owen Jarvis on
Wed, 6th Mar 2013 11:23 am
I don’t agree in government dictating how much people can be paid.
Why should they get to decide what I would be paid as opposed to my employer?
Who would make these decisions and how would they be vetted? How would we have recourse to complain? Who would adjudicate? Who would set the sliding scale of pay for each profession?
The answer is clearly that this would constitute a gross infringement of liberty and rights, and be the death knell if innovation and efficiency. It is also entirely impractical.
Best left to the market. There are better ways to for government to intervene than in setting pay.
Thanks Michael. I guess there are a few responses. First, I am not necessarily saying Government should intervene, I am commenting on why attitudes to the super rich seem to have changed so little despite the carnage of the credit crunch, and its aftermath. Second, isn’t it legitimately the business of Government to take an interest when it owns the company or when it is implicitly underwriting that company (as we are doing with the big banks). Third, while Government doesn’t set pay for listed companies is it not legitimate for it to require those companies to follow certain procedures before top salaries and bonuses are approved (as was agreed in Switzerland).
Fourth, if I may add, as long as banks can rely on Governments to bail them out, with all the moral hazard as a consequence of this, isn’t it legitimate for Governments to intervene on behalf of taxpayers who foot the bill? As long as banks are not ready to take care of their own (and risk going bust), the ‘free-market’ argument is a non-starter. And yes, Governments have a responsibility to regulate accordingly – the US Government seems to finally start taking steps in this direction, have a look at this recent video with Elizabeth Warren: http://www.youtube.com/watch?v=dxhyUAWPmGw
On your figure of £500k, this report from the High Pay Centre out yesterday states that that would result in a monthly pay package of about £21,000 a month AFTER TAX.
That’s more than the average person takes home in a year. And think of the kind of lifestyle it affords – a suite of properties, top of the range cars, designer clothes, multiple foreign holidays, private education for the kids
If this piece is asking why anyone NEEDS more than this, I think it’s a valid question.
The debate on top pay is overly concerned with whether current rewards are proportionate to effort or ability; is government intervention on pay unacceptable as a point of principle; will we lose ‘talent’ overseas?
We should n’t overlook the moral aspect of high pay. It is shameful for bankers and executives to demand/accept such enormous pay packages when many could live in absolute opulence on one tenth of their current incomes, in a country where kids depend on charity food banks, and in a world where millions still die each year because they lack access to drinking water and basic sanitation
Great to see the piece – we desperately need more discussion around social mobility and the whole idea of a meritocracy (and whether it really exists at all). The Swiss example reminds us that we do have choices and options and that the “market” is a socially agreed and negotiated space in which we have decided to intervene in the past. I would like to see the debate around bonuses in failing, publicly owned banks extend to a wider debate around many of our key institutions which arguably signal and contribute against genuine meritocracy and social mobility – such as the role of the house of lords, honours system, monarchy, private schools. Personally, I can’t see how we can genuinely consider ourselves a meritocracy or even aspiring to be one whilst we have these types of institutions. However, I find the debate usually gets stuck when people feel there’s a tension between benefits I may have received versus achievements down to my own efforts. Social mobility debates become personal pretty quickly. Following the piece my question – in trying to crack what looks like a “class ceiling” – do some people really have to move down for others to move up? What does moving down look like?
Tell me what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!
RSA Animate
RSA Mobile
RSA Comment- RSA Projects Blogs
RSA Bookshop
The RSA Bookshop, in partnership with Blackwell's the UK's leading academic bookseller, offers Fellows and friends an opportunity to purchase books and to explore our speakers’ ideas in greater detail. Visit the RSA Bookshop.