2014 11 – November Editorial

Five-To-One: a New Incomes Policy

Everyone complains about bloated executive pay.  The top boss typically gets 84 times the wages of the average worker in Britain.  In the USA it is 354 times as much.[A]  Almost all of us are against it – but what do we do about it?

The popular answer to this has been appeals to individual virtue, plus a notion that shareholders might cure it.  This has failed to work.  During the crisis that began from financial speculation in 2008, the wealth of the rich has been protected and their share has even increased.  Ordinary people have paid the price.

The obvious fix is more social control.  The TUC has proposed that ordinary workers should have a say on the matter, through their trade unions having members oncompany Remuneration Committees.  But hardly anyone else wants to know. The Labour Party have made a much more timid proposal.

This goes back to the mistakes of the 1970s.  In the 1970s, a large majority of socialists intentionally undermined and defeated what should have been the next stage of socialism.  Thatcher’s later victory was a win by default, after militants on the left had intentionally defeated Incomes Policy and Workers Control.  They pursued a policy based on a foolish expectation that if they prevented moderate reform, a socialist revolution would follow.

But there was also a much wider prejudice against regulation of all sorts: a feeling that went way beyond the left.  This was what Thatcher and Reagan tapped into, though what they actually did was re-write the rules in favour of the rich.  People who had problems with particular state-enforced rules – mostly regarding sex or drugs – took the attitude that the state as such was their enemy.

The West since the 1960s has concentrated on expanding individual freedom.  But it has done so under a liberal-left outlook that ignores that we humans are social creatures.  The core notion is of a magic entity known as ‘The Individual’, with an inherent set of rights that exist naturally.  If the artificial limits are removed, all would be well.  As Rousseau famously put it,

“Man is born free; and everywhere he is in chains. One thinks himself the master of others, and still remains a greater slave than they.  How did this change come about? I do not know.”[B]

He later tried to explain it as a ‘social contract’ that was made in ancient times, which individuals should be free to opt out of.  This might work for small farmers each producing for their own needs – but the Earth could not support even a hundredth of its current population on that basis, even if most people wanted it.  We are all in practice tied to an economic system that is increasingly a single global entity.

Libertarians, who’d claim to be in the tradition of Rousseau, assert that economic ties make us free.  They hold that whatever we get from the free market must be what we’re worth.  Logically this means that someone getting 300 times the wages of an average worker must be 300 times better.  Someone unemployed must be wholly worthless.  This may well be what they think privately, though naturally it’s not how right-wing politicians put it.  They like to evade the issue, which is why it would be good for the left to concentrate on it.

It turns out that most Europeans would like the difference between top wages and average wages to be much lower than it is.  Danes, Swedes and Norwegians would favour 2, 2.2 and 2.3 to 1 (though the reality is 48, 89 and 58 to 1).  In Britain, a majority would favour 5.3 to 1.  Even in the USA they’d rate 6.7 to 1 as fair.[C]  On this basis, the left could sensibly say that 5 to 1 would be a reasonable ratio, enough to reward skill and hard work.  And they could fairly say that anything beyond that is exploitation.

Lots of people will say this much.  But when you suggest that a mix of state power and trade union power are the way to fix it, they don’t want to know.  State power over the economy is seen as a threat to freedom.

This is unjustified.  Freedom is not the same thing as a lack of state regulation.  This might seem too obvious to need saying, except that since the 1960s the default reaction has been “STATE REGULATION – BAD!”

Remarkably, this hasn’t stopped the same people demanding state regulation when it suits them.  Smoking has been banned from public places.  The rights of women and the rights of gays are increasingly asserted, mostly through state power.  This is mostly presented not as state power advancing into new areas, but as a manifestation of ‘the law’.

If someone said ‘trust me, I’m a lawyer’, it would be seen as a joke.  But law is operated by lawyers, with judges being promoted from among these same lawyers and sharing their assumptions.  In other words, they claim to represent ‘The Law’, existing as something transcendent.  In deeds, they constantly try to bend the rules for what they see as good ends.  Judges not only allow this: they do it themselves.  It’s known as ‘judicial activism’, and often sees judges overturning the wishes of elected representatives with some phoney claim to Higher Authority.

This is not a complaint: this is a description of reality.  Since there is no obvious way to leap suddenly to some superior reality, it is the system within which we should think about improving the world.

We should not be afraid of State Regulation.  Once you erase the phoney difference between State Regulation and The Law, you see that you can’t have civilisation without some sort of system of regulation / law.  Realistically, state regulation is part of freedom, as is individual initiative.  The issue should be the particular mix that best applies.

Consider the basic matter of road traffic.  We assume that some rules are necessary and must be imposed.  All motor vehicles display government-issued number plates – this has been true from the beginning and so is not often questioned.  Likewise we accept road lanes, priority at junctions and rules for parking.  New rules like speed limits, seat belts and breathalysers were seen as horrible infringements of liberty, when first introduced, but were later accepted.

For the road, safety rules are fairly obvious.  Each individual wants convenient parking places, but does not want roads blocked by other people parking.  Priority is inconvenient when it is against you but convenient when you are favoured – and interestingly, when someone needs to be let into a queue of traffic, they will mostly not wait long before some complete stranger altruistically allows this.  As for rules of speed and safety, being run over or killed by someone else’s is obviously a serious interference with one’s personal liberty.

The notion of ‘let things drift’ works OK for some areas.  People walking on ordinary streets mostly sort themselves out.  Putting people into streams can help with moving big crowds.  The Vatican hierarchy maybe invented this for the West when they imposed two separate streams for pilgrims crossing a particularly narrow bridge in Rome.  Dante put a version of this into his vision of hell, presumably as a protest against what he saw as a gross interference with liberty.  But in the longer run, people saw the logic of this.

So why did we let things slip on controlling the economy?  More specifically, on controlling the rich, people whose individual economic decisions affect us all so much?  Partly it was due to the increasing loss of power and coherence by the Soviet Union.  They made a mess of their attempts to reform and upgrade their economy, the same process that China later managed very nicely.  (And China is still vastly more state-controlled than Western Europe ever was.)  Signs that the Soviet and communist threat was fading re-emboldened the rich, who from the 1940s to 1960s had been convinced they had to make a lot of concessions just to survive.

People began to re-write history, including claiming that the New Deal in the USA had actually interrupted a ‘natural’ recovery that would have happened without it.  Fog and darkness were spread upon economics by a vast tribe of well-paid economists encouraged by rich right-wingers.  A Swedish bank even managed to persuade the Swedish Nobel Committee to create a “Nobel Memorial Prize in Economic Sciences”, which borrows the prestige of the three well-respected science prizes.

There were also an increasing number of people doing what had been defined as middle-class jobs.  Many of these decided they were doing fine without a union.  As indeed they were – for as long as there was a solid body of unionised labour keeping up standards.  Things changed when trade union power declined.

From the 1950s to the 1970s, people in the West enjoyed the basic freedoms of a decent job for anyone willing to work, and somewhere decent to live.  In Britain, there was also free education for anyone who passed the right exams, and basic health care for whoever needed it.  A less well off society than we have now found it fairly easy to fund these things.

People have been talked into thinking that these things are impossibly difficult, when in fact they are fairly easy. In the name of freedom, the economy was adjusted to favour a small super-rich minority.  From the 1950s to 1970s, the benefits of economic growth flowed fairly evenly to everyone.  Since the 1980s, the rich have had an increasingly large and unfair share.

The initial Thatcherite promise was for trickle-down: that business freed from constraints would generate extra wealth and make everyone better off.  This was soon shown to be untrue, but they were allowed to drop it without the left doing anything to keep it in public memory.  Britain did no better in the 1980s than in the ‘disastrous’ 1970s, and things since they have got worse.

Had Thatcherism been defeated, which might have happened had Britain lost the Falklands War or had there been no Falklands War, things could have carried on much as before.  In such an alternative history, Britain would probably be better off than it is now.  (Particularly since Britain pioneered the financial deregulation that led to the crisis that began in 2008 and is still depressing our economy.)  It is also definite that the working mainstream of the society would have a bigger chunk of that wealth, while the elite would have had to stay more modest.  And there would be jobs for everyone, and affordable housing.

The half-forgotten crisis of 1987 and the unresolved crisis that began in 2008 showed that New Right rhetoric about Free Markets was just rhetoric.  Whenever the interests of the rich were threatened, the state stepped in with massive public spending to avoid a slump.  But in the 2008 crisis, the public had become so demoralised that they have largely accepted public spending to secure the financial gambles of the rich, while austerity is applied to the things that ordinary people need.

It’s time to call a halt.  Trade Union power and state intervention to secure social justice worked well enough for as long as they were applied, from the 1940s to 1970s.  Adjustments were surely needed in the 1970s, but could have been done differently.  There was no need for a drive to return to 19th century values, which is what the Thatcher / Reagan policies amounted to.

Incomes Policy would have been part of any left-wing stabilisation, and Incomes Policy was the main thing the left could not stomach.  If we accept now that this was a major error, things can begin to move forward again. So what can we do to recover the situation? Worker’s control, which was on the agenda in the 1970s, but rejected by the left is now (modestly) on the agenda again, thanks to the TUC. A start could be made by putting elected workers on remuneration committees, but as a prelude to a significant representation of workers on Boards of Directors. They would be able to keep a check on the behaviour of senior employees of companies who see fit to pillage those companies for their own benefit. The road to greater income equality will not be smooth, but more worker representation on boards is the first step.

[A]              [http://blogs.hbr.org/2014/09/ceos-get-paid-too-much-according-to-pretty-much-everyone-in-the-world/]

[B]              [https://en.wikiquote.org/wiki/The_Social_Contract]

[C]              [http://blogs.hbr.org/2014/09/ceos-get-paid-too-much-according-to-pretty-much-everyone-in-the-world/]

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