It’s growing: the gap between rich and poor, fat cats and workers, in the UK and USA

Plenty of high powered executives will remind us that their own hard work and talent needs to be suitably generously rewarded. Fewer step up to the podium to brag that their profit-making talent is actually dependent on less privileged workers being paid as little as 11 cents per hour.

So, let’s look at whether relative hard work and talent is really being suitably rewarded.

The Chief Executive of Tesco was paid £5m in 2005. In 2006 the average employee will be paid £11,594, down from £12,713 a year ago. Bearing in mind the usual rational for higher earnings, is it credible to argue that the Chief Exec is 430 times more industrious and qualified than the average Tesco employee?

Of course, Tesco executives are not alone in creating the wealth that makes for soaring incomes. But, the real threat to a company’s competitiveness, they say, is not the fact that one super-exec can produce the same outputs as 430 mere mortals - it is the fact that the least well paid workers are forever demanding more pay than they ought to, forcing companies to seek harder workers willing to work for less.

Let’s assume for a moment that super-execs can really do the work of 430 average folk. What a wonderful opportunity this represents. By my calculations, the UK population need only nationalise all businesses and put 85,000 super-execs to work on average wages to produce enough savings to free the rest of us from the need to ever work again.

Alas, I fear the Chief Execs will resist being put to work purely in the interest of others. Supermen they may be, but self-less they are not.   In the US, whilst the national average income per head has doubled in real terms since the 60s, Chief Executive incomes have grown by a multiple of 11.   Meanwhile, those who depend on wages have gained little or nothing. The graph below (right) helpfully shows the rising ratio of the income of the richest fifth in society vs the poorest fifth in the US since 1975.

Note that the rising ratio on the right almost exactly mirrors the steep rise in Chief Executive incomes on the left.

Few economists would dispute that US society is becoming increasingly unequal. National income is being redistributed away from the majority earning the least to the privileged owners and controllers of capital. Legislative policies authored by and for the super-rich have, over the last 25 years, led to the systematic transfer of tax burden off the richest 5% onto working people.

President Bush makes no bones about whose interests he represents, hence his statement at a dinner fundraiser of the rich and wealthy… ‘"This is an impressive crowd - the haves and the have-mores. Some people call you the elites; I call you my base."

George Bush’s tax cuts for the wealthiest 1% in society is just one example of this cosy alliance between our leaders and those who frankly, already avoid paying more tax than a patriot ought to.

Of course, this could only happen in the USA, right? Erhh, no. Actually the size of the gap between the richest and poorest 20% of society has been growing in the UK since the late 1970s almost mirroring the USA (graph below). If you wonder how much privatisation and financial deregulation have to do with this, look to Russia (right) where, since the population were ‘liberated’ from the shackles of communism in 1990,  the rise in inequality has been acute.

Russia offers a timely warning of how the majority suffer when income loses all relation to hard work and talent and simply becomes proportionate to an already powerful person's access to capital and preparedness to steal value from others.

If our power elite can't set an example, we must make an example of them. One UN report warns that, at  the current rate, one third of the world's population will be slum dwellers by 2030 living on $1 a day. 

Ends | 15 Oct 2006 | The Leg

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Essential Reading:
Bush: Before and After
100 Ways of seeing an Unequal World by Bob Sutcliffe
The Spirit Level by Richard Wilkinson and Kate Pickett
An ordinary person's guide to Empire by Arundhati Roy

Related Graphs:

Graph: Male mortality rates in Russia (green) compared to Belarus (red). Life expectancy for Russian men fell from 64 to 58 years between 1991 & 1994! Contributing factors? Sudden rapid privatisation producing unacceptably high levels of unemployment, wealth inequality, insecurity and related drink and drug abuse. Belarus wasn't in such a hurry to privatise. See Stuckler, King and McKee's analysis.

Graph: In afluent Western market democracies, no one is in danger of dying of starvation. However, there remain significant problems. Where the income gap between the richest and poorest 20% in a country or US state is larger, the problems are exacerbated. The result is detrimental not just to the poor, but to the vast majority of society.

The graphs published by Wilkinson and Pickett in The Spirit Level, suggest that many problems - low social mobility, high numbers in prison, low public trust, higher mental illness, drug use and obesity - tend to be worse in less equal societies.

Question: Do these problems hinge on perceived relative human worth as implied by relative rewards/income?

If so, 5 might just be the required magic number. Only when the top fifth of earners decide they can make do with earning 5 times more than the lowest paid 5th of earners (as in Finland, Sweden and Denmark) do these problems diminish. Without pay restraint at the top end, the problems persist.

Enter the 26 year old city trader of Liar's Poker. On the day his salary (before bonus) rises to $60,000 he starts to feel cheated. Why? Because he looks round and sees other traders being paid much more. Then a colleague explains:

"You don't get rich in this business...you only attain new levels of relative poverty."

Clearly, even the highest earners 'suffer' where top executive pay shows no restraint.


Graph: Excessive banker salaries a predictor of depression?

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