The Financial Times carries a report – if we can dignify this rather biased piece of journalism as a report – stating that European business leaders are becoming embarrassed at the size of paychecks that are being paid out to the heads of some companies. Oh dear. The story’s underlying assumption that equality of outcome, as opposed to equality before the law, is a good thing, is unquestioned. Of course, if the economic pie is of fixed size, then the fact that Fat Capitalist Bastard X has a larger slice of it than Poor Oppressed Worker does become an issue of justice. But therin lies the rub.
European economies, certainly in the more mature economies of Germany, France, Italy and the Low Countries, have grown at barely more than 2 per cent per annum in recent years, with Germany among the better ones, at 2.6 per cent last year. Take a look at this grid of growth rates, with European ones often at the bottom. After an extremely painful period of restructuring inside the straitjacket of the single currency, Germany has become more prosperous, or at least its blue chip companies like BMW and Siemens have. France is still floundering: President Sarkozy has not proven much of a reformer. So it is unsurprising that Europe’s economic “pie” has not expanded much. In such an environment, where you have some global companies based in Europe which are doing well, their CEOs get paid a fortune, but among the mass of the public who work for small and medium-sized firms dependent on domestic markets, the picture is far less rosy. Throw in the impact of rising commodity prices like oil and wheat, and no wonder the income gap is expanding relatively.
Of course, the FT, a faithfully centrist publcation in its political complexion, does not point out that this inequality does rather undermine the idea that the social-democrat, or “Rhine” model of “managed capitalism” is so much better than the anarchic, Anglo-Saxon sort. And remember than in France, for example, the country has a relatively steep, progressive tax code, plus a wealth tax on the super-rich. It has an absurd 35-hour work-week rule and some of the most protected labour markets in the world. And yet inequality is, according to the FT, increasing.
One of the few positive things in the article, however, is the point that some large institutional investors, like pension funds, are using their market clout as shareholders to vote against massive payouts to CEOs in firms that do not perform well. This is the sort of pressure I support. As an investor, if I hold a stake in a company run by a chump who demands a 10 per cent pay rise, for example, it is only right that I should say no. Of course, the other option is to sell that firm’s shares. Sooner or later, companies run by over-paid idiots tend to lose money for their investors. As for CEOs that run strong firms and are paid big bucks, well, if their shareholders are relatively better off in terms of the returns on their investment, than the headline-grabbing paychecks of a CEO are easy to defend. After all, if being a CEO was easy, there would be more of them around, and hence, they would be less well paid on average. The question that the FT does not ask is why the supply of CEOs and other senior managers is not greater than it is.
Therein lies the rub, indeed.
Just observe how the egalitarian crybabies love to define wealth entirely in terms of percentages (i.e. “The top one percent of the population receives ninety-nine point nine percent of the wealth, blah blah…”). This is how they deny the fact of economic growth. Percentages only show relative proportion; they don’t show economic growth in absolute terms. No matter how large the economic “pie” grows, it remains merely “100%.” This is how they obscure the fact of economic growth where it does in fact exist, and cheat the business leaders out of their due credit for their productive achievements. Percentages hide production!
When wealth is defined in absolute terms, the egalitarian myth explodes.
large institutional investors, like pension funds, are using their market clout as shareholders to vote against massive payouts to CEOs
To a limited extent. But pension funds are run by “business leaders” cut from the same cloth.
The basic problem is that tax and regulation favours big business. For example, UK tax law heavily discriminates against managing your own pension. Consequently much of the smart money goes into pension funds which, although subject to government rape, are nevertheless raped somewhat less roughly than funds managed by individuals. While our good host Jonathan Pearce celebrates tidbits of concern for the individual investor from them who run our pensions, for most the time we all have to drop our heads in sorry dismay at the disparity between what we earn in a year and what they earn as a bonus in June.
In summary, individual investors exercise almost no effective pressure on big business, which spends a fortune on investor relations courting a few thousand city boys pissing it up with all our dough.
So what about fleet footed small businesses coming in and shaking things up? When big business is almost entirely an obese corrupt waste of employee time, couldn’t new innovative companies burst on to the market and shake things up? Fear not, dear reader. Them who govern us have already got that particular potential problem covered. The way it works – and I can wholeheartedly recommend the EU as a remedy here – is that you create endless reams of regulation, which drive up the costs of being in business. Small businesses are obliged to buy entire software packages dedicated to giving their ickle darling employees every right under the sun. A shop with three staff is obliged by law to pay one of them to do fuck all a year because the bitch got up the duff.
The most excellent result is that big businesses are naturally better able to absorb the cost than small ones. And to complete the circle, guess which sort of business has the resources to pay for a man in Brussels and to run a serious political lobbying department. Yes, you got it. The big businesses are able to do that. And when they are consulted on bloody minded regulations they do so from the perspective of their own ability to deal with it. They’re simply not paid to worry about the consequences for small businesses for whom the costs are often disastrous.
It’s a funny old world.