|Source: Glenn Caley Bachmann,|
Creative Commons 2011
There isn’t one? Should there be one? 90% of respondents to a recent Sydney Herald poll said that they thought the amounts paid to some CEOs compared to their staff was obscene. In the UK the “shareholder Spring” has seen 46% of the CEOs in the FTSE 100 companies having their basic salaries frozen.
So, without articulating the question itself it seems that Australians and Britons are considering answering that there should be a maximum wage. With so much attention being given to the minimum wage there has been little given to a maximum wage. It’s time to do so.
There is, of course, the moral case for putting a curb on salaries. Fairness, equity and justice come to mind. Some though, are unlikely to be swayed by moral arguments. Increasingly pragmatic arguments for limiting maximum salaries are being raised.
Until the recent global financial crisis very few economists gave any attention whatsoever to income inequality. James Galbraith (son of the highly regarded economist James Kenneth Galbraith) has likened those economists working in the field of inequality as working in a backwater. However, a slowly growing body of economists are now undertaking research in the field.
One of the major findings that these economists are noting is that “the growing income divide help(ed) to drive the the global economy over the cliff in 1929 and 2008 (and) it is now helping to prolong the crisis.”1
I’m not an economist, hence I am in no position to offer a complete economic theory nor to suggest economic recovery packages. One thing is blindingly obvious though: income inequality is not just unfair and immoral, it is also downright “bad for business".
A maximum income might just be worth throwing into any global economic recovery package.
“But that’s ridiculous” I hear those of orthodox economic theory cry. “Where would be the incentive for innovation and investment?”
First, rather than fuelling productive investment over the past couple of decades, most of the growing surplus that has become available due to the growing income inequality has in fact been swallowed up in commodity speculation, financial engineering and corporate take-overs.2
A Basque Example
Second, income fairness can work, extremely well in fact. Take the example of the Mondragon Corporation in the Basque region of Spain. Founded in 1956 this federation of cooperatives now employs 85,000 people across 256 companies. Within each of these companies the wage ratio of the General Manager to the minimum wage in that company varies from 3:1 to 9:1, with an average ratio of 5:1. This is a ratio far, far, lower than that of most traditional companies, with some CEOs on exorbitant ratios of 400:1 or more.
How are Mondragon companies faring in the current financial crisis, remembering that Spain is one of those countries hardest hit in the Euro-zone crisis? Very well it seems. The Basque region has an unemployment rate half that of Spain generally and the area in which Mondragon is concentrated has a rate even less again.
Arantza Laskurain (Mondragon Corporation Secretary-General) admits that Mondragon has been affected by the crisis. But, she emphasises, the corporation is still growing and it is maintaining worker levels.
Yes, it’s time to bring in a maximum wage. What is more, it can be done, has been done, it’s fair and it contributes to economic, business and social stability.
1. Stewart Lanskey, “Inequality, the crash and the crisis”, June 2012. Lanskey is the British author of “The Cost of Inequality” published in early 2012
2. op cit.