The Right’s muddle over high pay and why Margaret Thatcher would not be happy
The Left is wrong on high pay, but the Right is hopelessly muddled and needs to gain the high ground, writes management author David Bolchover
Before the 2007-8 financial crisis, almost everyone on the political Right in Britain defended high pay in the corporate boardroom and in the finance sector. Justifying huge rewards was a badge of honour – those very few of us who didn’t agree were naïve buffoons who failed to understand the workings of the real-world market.
Now, confusion reigns. Many on the Right continue blindly with the same tired lines of argument, thus failing to address the very considerable groundswell of anger among the electorate about this widely discussed and touchstone issue, and appearing hopelessly outdated. David Cameron and a group of Conservative MPs are belatedly trying to offer a new approach, but their proposed solutions risk bearing the hallmark of the political Left which, scandalously, has been left to dictate the debate for too long.
The Right needs a coherent criticism of high pay, and remedies to the problem, that are consistent with its core beliefs. This is not just because a failure to do so will hurt it politically, but because challenging high pay in the corporate world should, by rights, have always been one of its priorities.
This may seem counterintuitive. After all, the Right is surely supposed to believe that excellence should be encouraged and rewarded. But as Cameron pointed out last week, it is one thing justifying the wealth of successful entrepreneurs, in itself an inevitable and rightful consequence of a properly functioning market economy; it is quite another defending the multi-million dollar pay deals of well-positioned executives who have never taken a personal risk in their entire working lives. Anyway, why should individual workers become wealthy just because the huge corporations which employ them happen to become successful?
Historians will look back on the last thirty years as an era in which, for the first time, employees held sway. Incentives within society as a whole have been allowed to become dangerously flawed, favouring those who administer vast established bureaucracies in highly uncompetitive oligopolies over those who aspire to genuine wealth creation. For example, the pay of the head of Barclays is now at least 50 times greater than that enjoyed by his predecessor in 1980, whereas the average salary in the UK has increased only fourfold.
Why rack your brains as a budding entrepreneur thinking up a business idea, pursue the thankless task of raising finance from unresponsive and faceless lenders, and then expose yourself to a brutal marketplace? All that struggling, all that potential for rejection and failure, seem especially unattractive when the alternative is so warm and cushy. Why not just get yourself an employment contract, and then spend the next few decades playing the astute political game that will help you climb the ladder and grab the riches at the top?
Without the right balance between risk and return, the entire system is threatened. The financial crisis of the last few years can best be understood as the result of an aggregate of thousands of individual calculations in the finance sector which went something like this: “If this works for a few years, I get rich. If it goes belly up after a few years, I’ll still be rich.” That’s not capitalism.
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