High pay: what Machiavelli would have recommended a politician do

Published on openDemocracy /Economy, by Tony Curzon Price, 9 January 2012.

It’s true that high pay for bosses serves no purpose except keeping them (and their headquarters) in the country. The only real solution is economic policy coordination. In its absence, Machiavelli would have been proud of the proposals and statements on display this new year in the UK … //   

… Because the embarrassing truth is that national governments really are pretty powerless here. Companies and bosses will move – look at WPP’s Martin Sorrell, who seems to move himself and his company from this tax jurisdiction to that at the drop of a penny, as it were. Top bosses who extract mega-deals are precisely the people who need lots of money; the modern corporation is a machine finely evolved to entrap these people. They will move. And national Treasuries will find that their tax farms become less productive: for them, there is a real social choice, in a world of fleet-footed elites and national states, between being fair and being flush.

In other words, expect bluster and not much action on top pay. Not only are national states powerless, but they certainly don’t want to loose their milch cows. Macchiavelli would have been in no doubt: announce a reform that will plausibly take a few years to take effect (as this one will, since it will not impact old agreements); when it is clear after a few years’ wait that the reform has been designed to be toothless, hope that the economy is booming again and people don’t care or, in extremis, scapegoat the foreigners and start to tinker again.

The solution to the problem is obvious enough. Economists have a wholecupboard-full of recommendations of what to do with monopolies of every shade. One simple and obvious policy would be to impose a high tax rate on very high salaries. It may not be the best, and we should welcome all the economic thinking into even better solutions. But what all the solutions presume is executive agency. If someone can easily side-step your policy, there’s no point even formulating it.

Paul Ormerod suggests that the British government should act in the symbolic realm – refuse honours, nice invitations and all forms of social approbrium to the arm-twisting monopolists. That seems sensible, if rather week – how much is a knighthood really worth to most long-toothed corpocrats? Their status comes precisely from their job and pay.

International policy coordination would do it. A G20 agreement to enforce the robber-baron JP Morgan’s rule that no company chief ought to get more than 20 times the salary of the lowest paid would solve the problem. So if we want a real solution here, we first need to transform our democracies so that they will deliver this sort of international coordination and agreement. (full text).

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