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high pay commission. inequality. capitalism. income tax

High pay equals low growth.

 The High Pay Commission has told us what we already knew: that the very rich have turned the economy into a personal wealth-generating machine.  Earnings for CEOs have risen thousandfold over the least thirty years as average earnings have only tripled. 

  There is no conceivable economic justification for their extravagant wealth, which has arisen largely through regulatory indolence and public ignorance.  Remuneration committees composed of highly paid executives naturally acquire an exaggerated sense of their own worth.  The idea that those dull boardroom suits, with their bad breath and stale management speak, are ‘masters of the universe’ is laughable. 

  The capitulation of successive governments to  neoliberal fantasies about how the productive economy actually works has allowed a climate of kleptocracy to command Britain’s boardrooms. If even Labour politicians are “relaxed about people getting filthy rich so long as they pay their taxes” (Peter Mandelson, 01) then it is hardly surprising that the wealthy have filled their boots. 

  The trouble is that moral condemnation of this kind of elite behaviour doesn’t work.  They don’t have any morality beyond brute self-enrichment.  What is needed is a critique of the economic implications of allowing he top 1% to acquire 40% of the wealth.  In a British context it is about looking at the way this concentration of wealth undermines the productive economy.  

   The kleptocrats don’t spend their money in productive ways, they use it for speculation in property, commodities and other assets.  This leads to stock market instability,  spikes in the prices of property, oil and food,  and to the creation of sophisticated financial products designed to increase yield, like hedge funds, special purpose vehicles, private equity.   Poor people spend their money on food, clothes and other consumer goods all of which generate economic activity and employment.  

   Grotesque inequality of wealth is not just an abomination, it is an economic depressant in the truest sense.  It creates stagnant pools of wealth, sucking the vibrancy out of the economy and depressing growth.  Roosevelt had the right idea when he slapped initially a 70% tax and then, ultimately, a 90% tax on incomes above $200,000.  If you look at the history of taxation rates in the UK and US over the last eighty years, it is no accident that the most productive years of the capitalist economy were in the 1950s and 1960s when tax rates were double what they are today.  

   That’s the trouble with capitalism today.  They don’t know what side their bread is buttered. 

About @iainmacwhirter

I'm a columnist for the Herald. Author of "Road to Referendum" and "Disunited Kingdom". Was a BBC TV and radio presenter for 25 years - "Westminster Live" and "Holyrood Live" mainly. Spent time as columnist for The Observer, Guardian, New Statesman. Former Rector of Edinburgh University. Live in Edinburgh and spend a lot of time in the French Pyrenees. Will that do?


6 thoughts on “High pay equals low growth.

  1. One of the causes of this is the lack of proper competition, which has allowed oligopolies to develop instead of true markets. Much of the blame for this lies with government, in all its political hues.Government at all levels prefers the convenience of dealing with a small number of big players and so favours a few suppliers. In extremis, the tail ends up wagging the dog, as in some of the big IT projects.Tax policy has favoured ownership of publicly quoted businesses at second hand, through ISAs and pension funds, rather than directly, thus cocooning executives away from direct public gaze.It's hardly surprising that pay has mushroomed.

    Posted by Dave Dempsey | November 22, 2011, 10:37 am
  2. In support, Iain, can I emphasise that inequality is at the heart of the issues here – and not necessarily the scale of any particular individuals income. The superb research by Wilkinson et al in ‘The Spirit Level’ demonstrated beyond a reasonable doubt, on an international comparative basis, of the link between levels of inequality and levels of discontent and ill health in any given country. A telling finding was that countries like Denmark that are materially ‘poorer’ than the UK, have significantly better outcomes in terms of personal wellbeing and health. i.e in human life terms Denmark is actually the richer one.I do judge that the ground rules are now changing on the discourse on all of this. I hear Prof Standing speak at the Glasgow Centre for Population Health event in the Lighthouse last night on ‘The Precariat – the dangerous new class’. I did not find all that he said to be convincing (much too dismissive of the growing issue of the ‘sqeezed middle in the USA and UK for one thing). But he was very strong on the world-wide phenomenon of a destabilised and rootless workforce with ‘no human memory’, and with the status of denizens rather than citizens. He warned that any one of us now can fall into that void. A void deliberately brought about by Friedman, Kayek and all those other proponents of the new order.My own reading is that the huge growing populations in that void will not continue to stoically endure it forever whilst those at the top do so disproportionately well – what then? And now we have the very capitalists themselves and their intellectual cheer-leaders, saying ‘this has gone change is needed’. Just few days ago there was an article by Harvard professor guy Charles Eliot penned a piece in the Financial Times, ‘We have to do better on inequality’.I mean, inequality as an issue?… as a main feature in the FT?… by a former USA Treasury secretary who served among the culpable generation of apparatchiks 1999-2001??? The times, are they a changing?

    Posted by Edward Harkins | November 23, 2011, 11:51 am
  3. Could someone explain to me 'what is the role of money in a society ?'

    Posted by Ian Innes | November 25, 2011, 12:57 pm
  4. "sucking the vibrancy out of the economy and depressing growth."Economic growth has been memorably described as 'money cancer'. There's plenty of authoritative writing on the lethal danger of exponential growth – the economic orthodoxy is a scientific impossibility. Most people (in Scotland?) will substantially agree with the gist of what you've written here, but many like me will fret at your casual assumption that economic growth is desirable. Tomorrow, growth will be yesterday's folly. Get with the arithmetic, Ian.http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/@edward'The Spirit Level' was recommended to me recently – must get it.

    Posted by Vronsky | December 1, 2011, 7:38 pm

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