Wednesday, May 21, 2008

So How Much Is Too Much?

Much has been made of the reported $80 million handed to Alan Moss as he retires from running the Macquarie Bank. As might be expected, people from the Prime Minister down to ordinary everyday people have criticized the payout as excessive, even obscene. But is that simply envy?

Would taking this money away from Mr. Moss make any difference to pensioners struggling to get by on $270 a week? Would it mean the government would invest one extra cent into hospitals or schools? Would reducing the wealth of Mr. Moss make the rest of us better off? The answer is no. In fact I would expect that the taxes paid by Mr. Moss are helping to pay for those pensions and hospitals.

To label this payout as obscene is to miss the point entirely. It’s not illegal or even immoral for people to pursue wealth, and in fact our success as a free enterprise economy depends upon it. It’s a free country and he, like everybody else, is entitled to be rewarded for his efforts.

Having said all that however, the rapid increase in the level of executive remuneration over the past decade or two is an alarm bell ringing loudly. As an economic indicator it is a figure which represents part of the larger economic eco-system, and that eco-system is becoming badly out of balance. At a time when wage earners are expected to be satisfied with growth around 3 or 4 per cent, executive remuneration has been growing by 20 per cent or more. Company profits have also been growing at a rate well above inflation. The gap cannot simply keep getting wider without social consequences, and that in turn means political consequences. If wealth distribution continues to become more and more top heavy, eventually the whole pyramid will fall over.

In a repressive regime such as Zimbabwe, it results in the degradation of human rights and destruction of society. In a democracy such as Australia it results in political action.
Already we are seeing a ground swell of pressure for increased pensions and wages. From there, higher inflation is likely to ensue, undermining everybody’s wealth. But unless we elect a government which is prepared to actually legislate for legal restrictions on remuneration, and of course that will never happen, the market will find its own level.

The payment of executives like Mr. Moss is a matter for the shareholders who pay him. After all, it’s their capital which is on the line.

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