RETURN OF THE MONSTER PROFITS
“Goldman's huge profit stirs public outrage” reads the headline on a recent Toronto Star article. The sight of recently rescued U.S. financial institutions paying multi-million dollar “bonuses” for top employees is sure to leave a bad taste in your mouth.
Canadian financial institutions have not needed such bail-outs, but we also have high paid executives, who get as much money in a day or two as most of us get in a year.
Inequality has been growing in Canada since about 1980. Mostly, it is the top 1% or so who have been pulling away, getting a larger and larger share.
There are four basic attitudes we could take to this large and growing gap between the richest and the rest of us.
The first is that this is just fine. Rich people are our smartest, most productive citizens. We need them to create the wealth of our country. They are just getting a fair reward for their skill and hard work.
It has become rather harder, recently, to argue this way with a straight face.
In the U.S. and Europe, we have witnessed some of the highest paid executives earning their bonuses by approaching governments on bended knee.
Here in Canada, we had a similar spectacle with GM and Chrysler.
The second attitude to the growing inequality is to get mad. Lots of people do this, pointing out the problem and complaining about it, but not suggesting anything constructive.
The third attitude is to try to get even. In the past, growing dissatisfaction with vast social inequity has triggered violence like the French and Russian revolutions.
But these did not produce great results. It is all too easy for a new upper class to emerge after all the terror and injustice of revolution.
The final attitude to growing inequality is to advocate something effective.
One measure is to look at the way the decisions to grant those huge executive payouts are made. Giving shareholders more of a voice in those decisions and executives themselves less might produce lower compensation.
In Britain, shareholders now have the power to call a special meeting to change executives. This has not yet actually occurred, but the threat is there.
There are proposals to tie executive bonuses to company performance as measured by accounting, rather than to stock performance, as often happens now.
But it is not clear that it is always in shareholders' interests to reduce executive compensation. For today's massive, global companies, even multi-million dollar executive paychecks are not a huge expense.
Shareholders who are willing to pay top dollar for top decision making may be getting a good deal. But to me, even if that is true, we still need to reduce inequality.
What someone is worth as a person should not be just governed by what the market will bear. For example, a person who is too handicapped to work at all is not worthless.
This brings me to the second type of measure which could reduce inequality. This is the imposition of higher taxes on very high incomes.
Obviously, raising taxes on the wealthiest would have some tendency to make them want to move elsewhere. But the Scandinavian countries show that it is possible to have a considerably higher level of taxation than us, and a vibrant, healthy economy.
Higher taxes on the wealthiest would allow us to do things that make the country more attractive to business, like providing better education, roads, and health care.
The kind of executive we should be trying to attract might not like paying taxes, but would also not enjoy stepping over homeless people on the sidewalk.
also ought to look at international co-operation in this area. If we
can have international rules on tariffs and other trade measures, why
not have rules to eliminate tax havens for the super rich?
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