By Owen Jones
May 1, 2016
Capitalism is having a laugh at our expense. Surely that is the only reasonable explanation for the current shamelessness of Britain’s corporate elite. Having survived the financial crisis without the public, armed with pitchforks, hammering on their doors, perhaps they now believe they can get away with just about anything.
Take BP’s Bob Dudley. In February his company recorded its biggest ever loss and sacked thousands of workers. You might expect Dudley to offer a show of solidarity and cut his already substantial pay packet. But this is British capitalism, and so Dudley seeks a 20% pay rise, bringing his package up to £14m. This brazen behaviour provoked a mutiny: nearly six out of 10 shareholders voted against the deal. Even unapologetic defenders of modern capitalism are getting queasy: “Only a fool would believe that in order to find someone intelligent and creative enough to run BP you need to pay £14m,” writes the thoughtful Tory Danny Finkelstein in the Times: and indeed he worries about the “political consequences” of this behaviour. “Capitalism is supposed to cascade wealth down, so why does it seem to be cascading up?” asks former Tory MP Matthew Parris. “Twenty-first-century western man finds grotesque disparities of income within one society odious. People won’t stand for it.”
The Tory MP Nadhim Zahawi worries that people are turning away from capitalism: that increasingly they “don’t like people getting rich, and they don’t like capitalism”.
In truth, popular anger has not been proportionate to the crimes. Mervyn King, the former governor of the Bank of England, freely admits he’s surprised “people weren’t angry sooner”.
A financial elite plunged the country into calamity and effectively got away with it unscathed, while workers suffered the longest period of reduced pay since the Victorian era. Meanwhile public services, social security and secure jobs were slashed. It has become increasingly clear – as the Panama Papers underscored – that a significant chunk of our economic elite simply do not like paying tax in this country.
The problem is that this injustice is met with resignation, rather than anger. While rage at the smaller misdemeanours of the poor – such as benefit fraud – seems easy to stir, destructive behaviour on this far greater scale is discussed like the weather. The rich pay themselves ludicrous sums of money, major corporations avoid tax, sometimes it rains. It’s this resignation – stemming from a lack of faith in any viable alternative – that feeds the triumphalism of the powerful, enabling them to engage in behaviour that is ultimately destructive to the health of their beloved capitalism itself.
Consider the figures. In the early years of New Labour, corporate chief executives were paid an average of 47 times more than their employees; now it’s rocketed to 183 times. Across the Atlantic, the figures are even more perverse: American CEOs were paid nearly 296 times more than their workers in 2013. In certain circles, criticising McDonald’s is now treated as snobbery; but consider that in the United States, as McDonald’s workers campaign for a living wage, their chief executive reportedly received a 368% rise. And Britain’s High Pay Centre found that the salary of the head of Barclays was a staggering 4,899% higher in 2011than it was in 1979.
Unless you pay chief executives ever more exorbitant salaries, it is often said, talent will flee elsewhere; but the New Economics Foundation has hammered that argument. How can the claim be right? Out of 10 advanced economies, only the US pays its CEOs more than Britain. Top pay boomed even as share prices slumped, making a mockery of the idea that obscene salaries reflect performance and achievement.
Stefan Stern, director of the High Pay Centre, will tell you that it is as much about status as anything. “It’s about where they stand in a pecking order,” he says. Being paid more than another CEO doesn’t reflect higher performance but it does reflect higher status. You can almost smell the testosterone.
And what is the result? One obvious repercussion is that distance is placed between those CEOs and their companies. They are disincentivised from investing in workers and research and development; short-termism is rewarded. The economy is also damaged in all sorts of ways. When lower-paid workers receive a pay hike, they spend the money, boosting the economy. As for the rich, they are more likely to stash it away, often in tax havens.
Low pay leads to higher personal debt and more spending by all of us on social security. Higher wages for the low-paid, says the New Economics Foundation, produce employees who are “more likely to be creative, more loyal, more productive and provide better customer satisfaction”. Then there is the communal effect – equal societies tend to be happier and have better social outcomes. There’s persuasive evidence too that high inequality is bad for growth.
The High Pay Centre is right to argue for workers’ representation on remuneration boards. Stronger trade unions would also mean countervailing pressure against the concentration of wealth and power in such few hands. And protests by the likes of UK Uncut highlight the injustice of tax avoidance. All this could be helpful.
But the problem with executives such as Bob Dudley isn’t just them – it’s also us. For until we shake off this weary resignation, the well–heeled will continue to enjoy their decadent party – in the knowledge that we’re the ones paying for it.