Sal Paradise wrote:This post is typical of the left - where meritocracy has no place - we must drag the top down and not the bottom up. If you want the best talent to run your big companies you have to pay them what the market pays - this is a global employment market. Yes you will get some that don't work out but on the whole it works. People don't seem to have a problem paying to watch footballers where the multiple of their earnings to the fans paying to watch them will be stratospheric for what 90 minutes of entertainment - so why is the CEO who actually generates value so despised?
I agree about the trains but that has gone on since Blair - the idea that it takes 1 hour to do the 30 miles from Leeds to Manchester is bonkers. Tax collecting is a delicate balance push it too far and your take is less - I know the top earners 1% of earners paying c30% of the tax is not enough for you but if you push it much more they will find ways around it and who is going to pick up the slack?
Remember, Reasonable Politics is the vowed foe of Politics of Envy.
Sal Paradise wrote:If you want the best talent to run your big companies you have to pay them what the market pays - this is a global employment market. Yes you will get some that don't work out but on the whole it works. People don't seem to have a problem paying to watch footballers where the multiple of their earnings to the fans paying to watch them will be stratospheric for what 90 minutes of entertainment - so why is the CEO who actually generates value so despised?
The key thing there is about generating value.
Football fans don't mind players who are good getting high salaries but they soon complain (as do RL fans) when they see a player on a stellar wage who seems to be going through the motions.
The problem with the current system is that in some markets there are rent-seekers at the top who are able to earn large profits without delivering a lot, and their senior management is rewarded handsomely for mediocre/poor performance.
A number of rail services have been notoriously crap in recent years and the CEOs of the train operator companies are earning huge salaries. Same in the water industry - Michael Gove is hardly a bastion of marxism, but when he was at Defra he called out the water bosses in a speech when they were all in the room.
Whatever you think of Gove I recommend reading some of that speech. He lists their salaries (in the millions of pounds per year) as well as mentioning that they've been structuring their companies tax affairs so as not to contribute any corporation tax whilst failing to tackle leaks in pipes and pollution (net result, water consumers have had drought orders imposed on them...in the rainy UK).
Property development is another industry where bosses have earned huge salaries and bonuses through taking advantage of land scarcity.
Some of the problem is that in some sectors there are warped incentives that mean bosses are rewarded handsomely for taking decisions that end up harming consumers. Banking being a classic example, see the financial crisis. One of the critiques of socialism and big government is that it's easy to be wasteful when you are spending 'other peoples money'. The banking system became based on taking risks with other peoples money, disguising the risk and packaging it on to someone else, and when it all went bust, the taxpayer stepped in to bail out the banks and senior bosses whose decisions had ruined everything ended up getting nice golden handshakes to leave while ordinary people lost their houses and pensions.
So the argument that 'the market works' because it creates a meritocracy is a bit of a straw man here. It's not an argument about is capitalism a better system than socialism. It's that in 21st century capitalism, in many markets (by no means all) the market does not work and the reward structure is warped.
That is why people who don't mind the idea of people doing well for themselves getting rewarded, are angry about executive pay.
Sal Paradise wrote:If you want the best talent to run your big companies you have to pay them what the market pays - this is a global employment market. Yes you will get some that don't work out but on the whole it works. People don't seem to have a problem paying to watch footballers where the multiple of their earnings to the fans paying to watch them will be stratospheric for what 90 minutes of entertainment - so why is the CEO who actually generates value so despised?
The key thing there is about generating value.
Football fans don't mind players who are good getting high salaries but they soon complain (as do RL fans) when they see a player on a stellar wage who seems to be going through the motions.
The problem with the current system is that in some markets there are rent-seekers at the top who are able to earn large profits without delivering a lot, and their senior management is rewarded handsomely for mediocre/poor performance.
A number of rail services have been notoriously crap in recent years and the CEOs of the train operator companies are earning huge salaries. Same in the water industry - Michael Gove is hardly a bastion of marxism, but when he was at Defra he called out the water bosses in a speech when they were all in the room.
Whatever you think of Gove I recommend reading some of that speech. He lists their salaries (in the millions of pounds per year) as well as mentioning that they've been structuring their companies tax affairs so as not to contribute any corporation tax whilst failing to tackle leaks in pipes and pollution (net result, water consumers have had drought orders imposed on them...in the rainy UK).
Property development is another industry where bosses have earned huge salaries and bonuses through taking advantage of land scarcity.
Some of the problem is that in some sectors there are warped incentives that mean bosses are rewarded handsomely for taking decisions that end up harming consumers. Banking being a classic example, see the financial crisis. One of the critiques of socialism and big government is that it's easy to be wasteful when you are spending 'other peoples money'. The banking system became based on taking risks with other peoples money, disguising the risk and packaging it on to someone else, and when it all went bust, the taxpayer stepped in to bail out the banks and senior bosses whose decisions had ruined everything ended up getting nice golden handshakes to leave while ordinary people lost their houses and pensions.
So the argument that 'the market works' because it creates a meritocracy is a bit of a straw man here. It's not an argument about is capitalism a better system than socialism. It's that in 21st century capitalism, in many markets (by no means all) the market does not work and the reward structure is warped.
That is why people who don't mind the idea of people doing well for themselves getting rewarded, are angry about executive pay.
Challenge Cup winners 2009 2010 2012 2019 League Leaders 2011 2016
Joined: Feb 27 2002 Posts: 18060 Location: On the road
sally cinnamon wrote:The key thing there is about generating value.
Football fans don't mind players who are good getting high salaries but they soon complain (as do RL fans) when they see a player on a stellar wage who seems to be going through the motions.
The problem with the current system is that in some markets there are rent-seekers at the top who are able to earn large profits without delivering a lot, and their senior management is rewarded handsomely for mediocre/poor performance.
A number of rail services have been notoriously crap in recent years and the CEOs of the train operator companies are earning huge salaries. Same in the water industry - Michael Gove is hardly a bastion of marxism, but when he was at Defra he called out the water bosses in a speech when they were all in the room.
Whatever you think of Gove I recommend reading some of that speech. He lists their salaries (in the millions of pounds per year) as well as mentioning that they've been structuring their companies tax affairs so as not to contribute any corporation tax whilst failing to tackle leaks in pipes and pollution (net result, water consumers have had drought orders imposed on them...in the rainy UK).
Property development is another industry where bosses have earned huge salaries and bonuses through taking advantage of land scarcity.
Some of the problem is that in some sectors there are warped incentives that mean bosses are rewarded handsomely for taking decisions that end up harming consumers. Banking being a classic example, see the financial crisis. One of the critiques of socialism and big government is that it's easy to be wasteful when you are spending 'other peoples money'. The banking system became based on taking risks with other peoples money, disguising the risk and packaging it on to someone else, and when it all went bust, the taxpayer stepped in to bail out the banks and senior bosses whose decisions had ruined everything ended up getting nice golden handshakes to leave while ordinary people lost their houses and pensions.
So the argument that 'the market works' because it creates a meritocracy is a bit of a straw man here. It's not an argument about is capitalism a better system than socialism. It's that in 21st century capitalism, in many markets (by no means all) the market does not work and the reward structure is warped.
That is why people who don't mind the idea of people doing well for themselves getting rewarded, are angry about executive pay.
The banking system was a classic Boston Matrix Dog - it had exhausted its traditional market and the margin simply wasn't sufficient to support growth even with consolidation and merger returns had stagnated and other profit opportunities had to found, first they start selling mortgages then they buy merchant banks/stockbrokers etc and the risks get greater as they move out of their comfort zone. I agree about that sector but it is unique given it is almost impossible to allow a mainstream bank to go under.
That is the problem of public ownership for me - if you take over Royal Mail for example - it does a pretty good job given the restrictions it operates under - how is the government going to run anymore efficiently especially when it has improved the power of the unions? What happens then when the inevitable happens - you can't close it down you just keep ploughing increasing amounts of public money in. You can't easily reduce headcount when its in public ownership!!
The majority of markets work pretty well - the best prosper - the rest fall by the way side. Look at the FTSE 100 from 20 years ago and see how many firms are still in it. There are plenty of opportunity for innovation - how big was Amazon 20 years ago or Google or Facebook.
So the question is how do you decide what a CEO get paid - if we suggest the average person gets £30k for an average job whet do you pay a CEO who manages a business that turns over billions, employs ten of thousands what should the multiple be?
Seriously how many people have the skill set to run a company that's revenue runs into the billions? Whilst they may be rent-seekers at the top - every business contains plenty of rent-seekers at much lower levels who are stealing a living.
Rail is an interesting industry - how much of poor performance is down to those who run the infrastructure? Rail is an incredibly complex inter-dependant industry with timetable adherence subject to other operators behaving correctly, infrastructure maintenance, unions etc.
sally cinnamon wrote:The key thing there is about generating value.
Football fans don't mind players who are good getting high salaries but they soon complain (as do RL fans) when they see a player on a stellar wage who seems to be going through the motions.
The problem with the current system is that in some markets there are rent-seekers at the top who are able to earn large profits without delivering a lot, and their senior management is rewarded handsomely for mediocre/poor performance.
A number of rail services have been notoriously crap in recent years and the CEOs of the train operator companies are earning huge salaries. Same in the water industry - Michael Gove is hardly a bastion of marxism, but when he was at Defra he called out the water bosses in a speech when they were all in the room.
Whatever you think of Gove I recommend reading some of that speech. He lists their salaries (in the millions of pounds per year) as well as mentioning that they've been structuring their companies tax affairs so as not to contribute any corporation tax whilst failing to tackle leaks in pipes and pollution (net result, water consumers have had drought orders imposed on them...in the rainy UK).
Property development is another industry where bosses have earned huge salaries and bonuses through taking advantage of land scarcity.
Some of the problem is that in some sectors there are warped incentives that mean bosses are rewarded handsomely for taking decisions that end up harming consumers. Banking being a classic example, see the financial crisis. One of the critiques of socialism and big government is that it's easy to be wasteful when you are spending 'other peoples money'. The banking system became based on taking risks with other peoples money, disguising the risk and packaging it on to someone else, and when it all went bust, the taxpayer stepped in to bail out the banks and senior bosses whose decisions had ruined everything ended up getting nice golden handshakes to leave while ordinary people lost their houses and pensions.
So the argument that 'the market works' because it creates a meritocracy is a bit of a straw man here. It's not an argument about is capitalism a better system than socialism. It's that in 21st century capitalism, in many markets (by no means all) the market does not work and the reward structure is warped.
That is why people who don't mind the idea of people doing well for themselves getting rewarded, are angry about executive pay.
The banking system was a classic Boston Matrix Dog - it had exhausted its traditional market and the margin simply wasn't sufficient to support growth even with consolidation and merger returns had stagnated and other profit opportunities had to found, first they start selling mortgages then they buy merchant banks/stockbrokers etc and the risks get greater as they move out of their comfort zone. I agree about that sector but it is unique given it is almost impossible to allow a mainstream bank to go under.
That is the problem of public ownership for me - if you take over Royal Mail for example - it does a pretty good job given the restrictions it operates under - how is the government going to run anymore efficiently especially when it has improved the power of the unions? What happens then when the inevitable happens - you can't close it down you just keep ploughing increasing amounts of public money in. You can't easily reduce headcount when its in public ownership!!
The majority of markets work pretty well - the best prosper - the rest fall by the way side. Look at the FTSE 100 from 20 years ago and see how many firms are still in it. There are plenty of opportunity for innovation - how big was Amazon 20 years ago or Google or Facebook.
So the question is how do you decide what a CEO get paid - if we suggest the average person gets £30k for an average job whet do you pay a CEO who manages a business that turns over billions, employs ten of thousands what should the multiple be?
Seriously how many people have the skill set to run a company that's revenue runs into the billions? Whilst they may be rent-seekers at the top - every business contains plenty of rent-seekers at much lower levels who are stealing a living.
Rail is an interesting industry - how much of poor performance is down to those who run the infrastructure? Rail is an incredibly complex inter-dependant industry with timetable adherence subject to other operators behaving correctly, infrastructure maintenance, unions etc.
Your job is to say to yourself on a job interview does the hiring manager likes me or not. If you aren't a particular manager's cup of tea, you haven't failed -- you've dodged a bullet.
Joined: Jun 01 2007 Posts: 12645 Location: Leicestershire.
Sal Paradise wrote: so why is the CEO who actually generates value so despised?
Taking the heat out of it, it isn’t about despising CEOs, it is a feeling that incentives are poorly aligned for the system as a whole.
Poorly aligned incentives aren’t unique to the commercial sector. There was a time when it was reported that the NHS was under pressure to cut the number of people on waiting lists and the only way managers could find to do it was to prioritise quick and easy procedures, sometimes ahead of others for which there was greater clinical need, leading to longer average waiting times. And I have heard anecdotes about teachers, under pressure to improve performance, helping their pupils in tests. The Soviet system knocked out some corkers as well.
Relying on people to do the right thing for all of us when the system is pressurising them to do something different for themselves isn’t going to work. If they don’t game the system, there’ll be somebody else who will to take their place. It is about optimising a system, not changing human nature. Our version of modern Western capitalism is... well, it has its share of exploits and is looking a bit ragged around the edges now to a lot of people, and that has fed into radical politics that, left or right, are a threat to it.
Do you think there’s some sort of balancing mechanism in our system, or a natural limit to growth in income inequality? If you don’t think there is, are you comfortable with ever growing multiples of workers pay for executives?
I guess direction of travel is what turns bubbling resentment into outrage. If things are getting a bit better for most people, then things getting much better for a few at the top might not be much of a concern. If they’re becoming worse for many but still better for the few, there’ll be a greater sense of injustice. If it hadn’t been so obvious that we were not all in it together, things might have turned out differently these last few years!
'Thus I am tormented by my curiosity and humbled by my ignorance.' from History of an Old Bramin, The New York Mirror (A Weekly Journal Devoted to Literature and the Fine Arts), February 16th 1833.
Joined: Feb 27 2002 Posts: 18060 Location: On the road
Mild Rover wrote:Taking the heat out of it, it isn’t about despising CEOs, it is a feeling that incentives are poorly aligned for the system as a whole.
Poorly aligned incentives aren’t unique to the commercial sector. There was a time when it was reported that the NHS was under pressure to cut the number of people on waiting lists and the only way managers could find to do it was to prioritise quick and easy procedures, sometimes ahead of others for which there was greater clinical need, leading to longer average waiting times. And I have heard anecdotes about teachers, under pressure to improve performance, helping their pupils in tests. The Soviet system knocked out some corkers as well.
Relying on people to do the right thing for all of us when the system is pressurising them to do something different for themselves isn’t going to work. If they don’t game the system, there’ll be somebody else who will to take their place. It is about optimising a system, not changing human nature. Our version of modern Western capitalism is... well, it has its share of exploits and is looking a bit ragged around the edges now to a lot of people, and that has fed into radical politics that, left or right, are a threat to it.
Do you think there’s some sort of balancing mechanism in our system, or a natural limit to growth in income inequality? If you don’t think there is, are you comfortable with ever growing multiples of workers pay for executives
I guess direction of travel is what turns bubbling resentment into outrage. If things are getting a bit better for most people, then things getting much better for a few at the top might not be much of a concern. If they’re becoming worse for many but still better for the few, there’ll be a greater sense of injustice. If it hadn’t been so obvious that we were not all in it together, things might have turned out differently these last few years!
Very interesting post
How do you measure/quantify the input of any person within an organisation and how is that rewarded? In the commercial world tends to be financial measures: profit growth, share price increase, dividend increase, cash generation i.e. tangible measurable areas.
In my view nobody's pay should be limited - if we go back to the footballers are we saying if you are Lionel Messi - the greatest in the game your pay should not reflect that? You are Ray Dalio - a true analytical genius - your pay should be capped because the gap between them and the receptionist is too large? This to me is a supply and demand proposition - there are a very limited number of people who can run a huge corporation and if you want one of them they command a price. As businesses grow so do the salaries of these individuals.
One thing is certain the average standard of living across the world is much higher than it was 30 years ago - capitalism might have its issues but it has presided over the greatest improvement in living standards since man evolved.
Your job is to say to yourself on a job interview does the hiring manager likes me or not. If you aren't a particular manager's cup of tea, you haven't failed -- you've dodged a bullet.
Sal Paradise wrote:One thing is certain the average standard of living across the world is much higher than it was 30 years ago - capitalism might have its issues but it has presided over the greatest improvement in living standards since man evolved.
This has been the era of globalisation, the apogee of capitalism: open markets across borders. The interesting thing about this is where the benefit has gone.
Developing countries have seen rapid growth in this period, especially China, India, south east asia, parts of south America. A lot of people in those countries have moved out of subsistence agriculture in to jobs (low-paid by Western standards) where they are now supplying Western consumers.
However, in Western countries, wages for those in the middle and lower middle of the distributions have flatlined. They are now facing competition from overseas labour - either through direct competition when they migrate to Western countries, or even if they don't, through competition with foreign workers through offshoring.
In Western countries there have been huge gains for those at the top end of the wealth distribution, while those in the middle and lower parts have struggled.
Hence the political rejection of capitalism and free markets: Trump, Brexit. Even the Conservative party now has rejected free-market capitalism. Their approach now would horrify Thatcher - rapid rises to minimum wage, wanting to be free from state aid controls so they can use taxpayers' money to subsidise struggling industries, capping energy prices. Northern rail and South Western look likely to be taken under public management.
Who is making the argument for free-market capitalism? The EU do, broadly, other than even there they are restrained by some interest groups (southern European farmers) and so have some protectionist policies.
Challenge Cup winners 2009 2010 2012 2019 League Leaders 2011 2016
Joined: Jun 01 2007 Posts: 12645 Location: Leicestershire.
Sal Paradise wrote:Very interesting post
How do you measure/quantify the input of any person within an organisation and how is that rewarded? In the commercial world tends to be financial measures: profit growth, share price increase, dividend increase, cash generation i.e. tangible measurable areas.
In my view nobody's pay should be limited - if we go back to the footballers are we saying if you are Lionel Messi - the greatest in the game your pay should not reflect that? You are Ray Dalio - a true analytical genius - your pay should be capped because the gap between them and the receptionist is too large? This to me is a supply and demand proposition - there are a very limited number of people who can run a huge corporation and if you want one of them they command a price. As businesses grow so do the salaries of these individuals.
One thing is certain the average standard of living across the world is much higher than it was 30 years ago - capitalism might have its issues but it has presided over the greatest improvement in living standards since man evolved.
Assuming we’re sticking with capitalism, i’d go with more progressive taxation vs what we have now rather than capping wages.
The distinction i’d make between Messi (and maybe Danilo, don’t know much about him), and a lot of CEOs, is that he’s walked a path that 1. You have to be exceptional to reach that destination and 2. Is almost equally open to everybody... well, men at least.
The question for me isn’t so much how you measure/quantify the value of work, but who does it. I do see a case for leaving it to an efficient market. CEO pay is likely the way it is in part because of the role CEOs have in determining it.
'Thus I am tormented by my curiosity and humbled by my ignorance.' from History of an Old Bramin, The New York Mirror (A Weekly Journal Devoted to Literature and the Fine Arts), February 16th 1833.
Joined: Feb 27 2002 Posts: 18060 Location: On the road
sally cinnamon wrote:This has been the era of globalisation, the apogee of capitalism: open markets across borders. The interesting thing about this is where the benefit has gone.
Developing countries have seen rapid growth in this period, especially China, India, south east asia, parts of south America. A lot of people in those countries have moved out of subsistence agriculture in to jobs (low-paid by Western standards) where they are now supplying Western consumers.
However, in Western countries, wages for those in the middle and lower middle of the distributions have flatlined. They are now facing competition from overseas labour - either through direct competition when they migrate to Western countries, or even if they don't, through competition with foreign workers through offshoring.
In Western countries there have been huge gains for those at the top end of the wealth distribution, while those in the middle and lower parts have struggled.
Hence the political rejection of capitalism and free markets: Trump, Brexit. Even the Conservative party now has rejected free-market capitalism. Their approach now would horrify Thatcher - rapid rises to minimum wage, wanting to be free from state aid controls so they can use taxpayers' money to subsidise struggling industries, capping energy prices. Northern rail and South Western look likely to be taken under public management.
Who is making the argument for free-market capitalism? The EU do, broadly, other than even there they are restrained by some interest groups (southern European farmers) and so have some protectionist policies.
Are you saying the standard of living in the UK and Europe hasn't moved on in the last 30 years? Perhaps the benefits are not just how much you earn it is about how much things cost in comparison or what you get at no individual cost. Improvements in health care increase life expectancy and quality - perhaps some of the benefits have disappeared into drug development which costs billions. Infrastructure is better, we have better roads, we have new technology this all costs huge amounts of development money. Perhaps this is where the levelling off is really happening? Whether you earn minimum wage or millions - the M1 is the M1 - your internet is as good. The drugs you take for your heart condition are identical etc. This is where Capitalism really wins out.
Your job is to say to yourself on a job interview does the hiring manager likes me or not. If you aren't a particular manager's cup of tea, you haven't failed -- you've dodged a bullet.
Joined: Feb 27 2002 Posts: 18060 Location: On the road
Mild Rover wrote:Assuming we’re sticking with capitalism, i’d go with more progressive taxation vs what we have now rather than capping wages.
The distinction i’d make between Messi (and maybe Danilo, don’t know much about him), and a lot of CEOs, is that he’s walked a path that 1. You have to be exceptional to reach that destination and 2. Is almost equally open to everybody... well, men at least.
The question for me isn’t so much how you measure/quantify the value of work, but who does it. I do see a case for leaving it to an efficient market. CEO pay is likely the way it is in part because of the role CEOs have in determining it.
I think your point about Messi is true - if you are exceptional you will make it to the highest level no matter where you come from and there are plenty of examples of that.
CEO's don't start as CEO's someone appoints them and decides what they have to pay usually non-exec directors who understand the market and what they are looking for.
Your job is to say to yourself on a job interview does the hiring manager likes me or not. If you aren't a particular manager's cup of tea, you haven't failed -- you've dodged a bullet.
Joined: Jun 01 2007 Posts: 12645 Location: Leicestershire.
Sal Paradise wrote:Are you saying the standard of living in the UK and Europe hasn't moved on in the last 30 years? Perhaps the benefits are not just how much you earn it is about how much things cost in comparison or what you get at no individual cost. Improvements in health care increase life expectancy and quality - perhaps some of the benefits have disappeared into drug development which costs billions. Infrastructure is better, we have better roads, we have new technology this all costs huge amounts of development money. Perhaps this is where the levelling off is really happening? Whether you earn minimum wage or millions - the M1 is the M1 - your internet is as good. The drugs you take for your heart condition are identical etc. This is where Capitalism really wins out.
This is probably a semantic point, but are you claiming roads, the internet and healthcare for capitalism?
If the future turns out to be a post-scarcity technological idyll (something like Iain M. Banks Culture with benevolent AIs rather than the Skynet version), then it'll all be moot because money won't matter. And if it goes the other way it'll be moot because our few dozen surviving descendants will be being hunted relentless 8-foot-tall cyborgs.
It is true that the relatively poor live better than the relatively rich of past decades/centuries, in many ways.
To be honest, I don't think much of this discussion is about capitalism vs something else. It is more whether our capitalist system is working as it should or is it distorted and inefficient? Obviously, inevitably, it is the latter to some extent - nobody expects perfection. But in some areas it feels like we're at the 'hang on a minute, WTF?' stage, and that is eliciting political re-alignments. Not all of them efficiently directed, imo, but a lot of people of had enough... of something or other.
'Thus I am tormented by my curiosity and humbled by my ignorance.' from History of an Old Bramin, The New York Mirror (A Weekly Journal Devoted to Literature and the Fine Arts), February 16th 1833.
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