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
Well to torpedo your argument not all public sector pensions are trough the DWP, secondly, some public sector pensions have assetts, such as stocks, shares, property etc.
So again, please be more accurate in your comments.
blarg1987
That is a seperate point to how much money the city has benefited / cost taxpayers although related to the financial crisis.
blarg1987
P.S. how have I ripped them off in hundreds of thousands of pounds? Since as you said you left the country in 97, did you not rip them off, as by your own admision you claim this has been going on for decades yet you did not stop them?
OldLb
So you need to specify which have assets.
Then you need to specify the liabilities.
Then the real position can be assessed. What’s the net position?
I can help. For the civil service, and the state pensions (1 and 2 whatever the current name is), the net position is that they are down 6,500 bn.
Ho hum, Blame the bankers,. Er, but they aren’t involved.
Blame the bankers. Er, but they have paid 250 bn in taxes since the crash.
Blame the bankers. They have been given billions. Er, they were lent. They have repaid.
Blame the bankers. QE money hasn’t gone into the economy. Er, the QE money was all lent to the state. That was the idea. They state wanted to borrow, and no one was lending. So they made money and had the banks launder it.
So cough up.
Tell us what the net debts are. That’s the critical part.
Then tell us how much its been going up year on year.
Or are you going to avoid answering any question with a number. Yes, that will be it. We can’t have the masses knowing we’ve spent all their contributiuons.
OldLb
1. The regulations have been changed. It is no longer cost effective to provide final salary schemes.
So they have gone.
2. Back to the critical point. Why are the poor poor? Its because they do not have any surplus to invest to get richer.
Why don’t they have a surplus?
They are taxed so they don’t have any left over.
Even their NI is spent, leaving them with a very risky 20% of what they should have had.
All roads lead to the state making people poor.