On Friday, the Daily Telegraph published an article by Fraser Nelson arguing, essentially, that we should not make a fuss about the rise of the super-rich.
On Friday, the Daily Telegraph published an article by Fraser Nelson arguing, essentially, that we should not make a fuss about the rise of the super-rich.
Nelson says that there’s not much that can be done to constrain the runaway growth in the incomes of top-earners, and it isn’t a big problem anyway – bankers’ bonuses and executive pay packages are a broadly accurate reflection of their economic value.
Though it’s a thought-provoking piece and makes some valid observations, much of the evidence that Nelson presents to explain how he arrived at his conclusion is misleading.
The article begins by relating the pay of figures like David Beckham or JK Rowling to those of “architects, lawyers, computer programmers – and, yes, financiers”.
Many highly-paid executives are fond of this comparison – who wouldn’t be? – but it isn’t valid. Beckham and Rowling are paid lots (arguably too much) because their talent or contribution is tangible and unique. No-one else would have authored the Harry Potter books if Rowling had not done so. For many years, Beckham’s ability to kick a football about while maintaining a nice haircut was unparalleled in all of England.
Executive ‘talent’ is more difficult to quantify. Nearly all FTSE 100 CEOs are managers, not entrepreneurs. Rather than having started their own company from nothing, they have taken over successful businesses with long histories and established revenue streams.
While some executives have advanced their organisations, rapid pay escalation in the UK has not been limited to these cases – the below chart shows that though the value of the FTSE 100 index fluctuated throughout the noughties, executive pay increased inexorably.
Though Nelson points out that in a globalised economy “the difference a good (or bad) chief executive can make is far greater nowadays because the companies are so much bigger”, this means it is increasingly implausible to argue that the fate of a company with hundreds of thousands of employees and operations on multiple continents is dictated by one or two individuals in the head office.
A supposedly successful CEO might rely on advice from colleagues closer to specific areas of the business; innovations lower down the company hierarchy; and the commitment and efficiency of all employees when implementing strategy
That’s not to mention the extent to which companies are dependent on external factors – the economic development and stability of their key markets; the availability of skilled and educated workers; wider technological advances (in the UK the government provides around a third of R&D funding).
Even if a company’s success could be attributed to brilliant leadership, this would not necessarily justify the current extraordinary levels of pay (around £4.3 million per year for a FTSE 100 CEO, 175 times the national average).
Research from the University of Delaware found that on average CEOs promoted from within an organisation are significantly more successful than those recruited from another company. The findings suggest that it is not innate leadership qualities that make for a successful CEO, but a good understanding of the company, its culture and its strength and weaknesses.
This results from nurture and experience, rather than inherent talent – thoughtful succession planning and investment in employee development is a better way of guaranteeing a high quality CEO appointment than an excessively lavish pay package.
This explains why the notion of super-rich ‘wealth creators’ bestowing prosperity on the hapless masses is not only a bit demeaning, but also wildly inaccurate. It still doesn’t explain why it is important, and Fraser Nelson says that it isn’t.
“While there is not much David Cameron can do about the rich, there is still plenty he can do about the poor,” Nelson adds.
However, this is not a choice between two mutually exclusive options. The poor are poorer because the rich are taking an ever greater share of the national income – 14 per cent for the top 1 per cent, up from less than 6 per cent in the late 1970s, according to the World top incomes database.
The economy’s capacity for growth is finite – if the rich take a bigger slice of the cake, that means less for everyone else. Indeed the economist Gavyn Davies explicitly links the two. Davies argues that the global stock market boom that has greatly enriched executives and financiers – and inflated pay for other high-earning professions such as lawyers, consultants and public sector managers – has been achieved largely by holding down the wages of ordinary workers.
Seen in this light, the growth in top pay is not the benign irrelevance caricatured by Nelson, but the defining economic narrative of recent decades, and the product of an immensely damaging transfer of wealth from the poorest to the richest.
32 Responses to “Fraser Nelson is wrong about the deserving rich”
blarg1987
Bear in mind that the banks benefited from ove rhte last decade subsidised interest rates allowing them to borrow money at a discount (works out costing taxpayers 10 bn a year over the last decade) and add to that the costs of bailing them all out and write downs (estimated at a minimum of 200bn) the city is either cost neutral or a loss to the country.
blarg1987
And how does that have a direct effect on CEO’s downgrading staff terms and conditions? As yu said blame someone else and raise a different point rather then the point that is directly being raised and pointed out.
OldLb
So come back the the point.
There are state pensions, and there are private pensions.
For private pensions, we can tell what state the are in.You complain about what companies are doing to their pensions, but at least we have a solid financial picture as to where they are. Some are charging high fees, such as 1% pa. Now that can be stopped easily with a bit of legislation.
So lets do the same to public sector pensions. How are they doing in comparison?
Er, 5% pa charges on payouts. That’s the DWP cut of the action.
What about assets? Er, there aren’t any.
How do the payouts compare to the private sector (after private sector charges, and a 10% cut for the insurance element of NI)?
er. 20% of what you would have got from the private sector.
Governments dirty secret. No wonder as a statist you don’t want to let people know you’ve ripped them of for hundreds of thousands of pounds.
OldLb
Where’s QE money gone?
It’s all gone to the state.
Why are rates so low?
The state has set the rates low.
It’s the state
OldLb
The bottom line is that we taxpayers had to rescue the banks in 2008 because they had been run incompetently by Fred the Shred and the rest of them.
==========
So much so that they have paid billions in taxes since then.
However, lets take your argument and see how it pans out when we change the actors.
Lets see. We’ve had muslims grooming kids for sex.
So following your logic, because some Muslims (Fred the shred) are criminals (bankers) grooming kids, then all Muslims are paedophile criminals.
Yep, all those clerks selling mortgages were criminals. All the HR department are bankers. The banks that weren’t involved are criminals.
So following your logic, any muslim is a child molesting criminal. All blacks must be criminals too, …
Yep, Cole, that’s your logic summed up in a nutshell.