Saturday 31 January 2009

Cruddas: why don't we debate a maximum wage?

Jon Cruddas writes in The Guardian that the current strikes reflect a broader sense of working-class disempowerment, leading him to set out an expansive agenda for a new left political economy.

The left must offer a real and viable alternative. We have to reverse the years of wealth redistribution from poor to rich. We need regulation to end low pay, low skill and casualised labour. Strong trade unions are the best defence against exploitation. Work and quality of life can be improved by introducing a living wage. And why don't we discuss having a maximum income? Both can be defined by establishing a maximum ratio of difference between the most and least well-paid. We need to create new forms of economic citizenship, and bring the economy and work under greater democratic control. That should be the agenda, not "British jobs for British workers".

Could the call for 'discussing' a maximum income go anywhere? I am very sceptical -but perhaps opening the public discussion is a large part of the point. That seemed to be the mood of the Fabian New Year Conference 'dragons den' session earlier this month when Kevin Maguire of the Mirror proposed a 10-1 differential in any organisation: this was debated and backed not just by Ken Livingstone but by the audience too, including by many people who understood David Aaronovitch's argument that it was patently unworkable. One of our 'dragons den' judges, Dawn Butler, a junior member of the government, may well have best caught the mood in saying that she thought it was probably a useful public debate to have about attitudes to inequality - without in any way suggesting she would be recommending it should appear in Alastair Darling's next budget!

After all, the great shift in the multiples earned by the top 1% and top 0.1% reflect changing social norms and attitudes perhaps as much as global economic conditions. And if a maximum wage seems unlikely as a policy response, changing attitudes to progressive taxation and tax avoidance, transparency and scrutiny of bonuses and executive pay, and the creation of a Top Pay Commission to help inform public debate have all come into the mainstream of political debate.

There is some emerging evidence that public attitudes are hardening. Fabian Society and YouGov polling on attitudes towards pay, back in the summer of 2007, suggested that the public, on average, believe that pay differentials of 10 to 1 across society would be a much fairer reflection of the value of different jobs. The suggestion was that £135,000 would be a top salary in a fair pay league: the nominal figures applied may strike many people as surprisingly low.

There would be no practicable way to bring anything like that about. But differentials within the range of 20-1 are comprehensible, and that the case for differentials of 150-1 and 200-1 within companies has never been publicly made or understood. The moderate social democratic Croslandite claim 'no justified inequalities' would demand sufficient transparency and scrutiny for there to be confidence that these were rewards for success, and not rewards for failure.

In our post-crunch poll late last year, 70% agreed that "those at the top are failing to pay their fair share towards investment in public services". But it is not unusual for polling to find that the public agree to competing, and apparently contradictory, proposals - highlighting the importance of how public debates are framed. So I would not have been surprised to find a majority also agree that taxes
on high earners should be kept low so that "British companies can attract the talent they need to succeed". In fact, only 19% supported that.

One unlikely advocate of how a maximum wage proposal could meet the New Labour "what works" test is Rotherham MP Denis MacShane, a member of the Fabian Executive and widely understood to be among the most enthusiastic New Labour modernising voices. Denis warmly supported Kevin Maguire's proposal, pointing out that he had proposed this in the House of Commons back in 1994. "But then New Labour came along and the rest is history", he said in a droll contribution. I have just looked up the record from Hansard. Here is how the MacShane proposal would have worked.

That leave be given to bring in a Bill to fix the emoluments of chairpersons, chief executives and senior managers of private limited companies and public bodies so that their combined annual earnings do not exceed twenty times the average take-home pay of their non-managerial employees save if the said employees agree through a ballot of their non-managerial employees or through their union to permit salaries of their chairpersons, chief executives and senior managers to exceed a 20:1 ratio.

This model offers some interesting responses to several of the most obvious objections (partly by the 'maximum wage' being something of a misnomer for a moveable ceiling, or norm).

But one Fabian audience member offered a centre-left (archetypally Brownite) critique: 'what public services would you cut to account for the lost tax revenues?'. A good question - but the value of the maximum wage debate may well be to legitimise much greater scrutiny of whether corporations and individuals are paying their share in taxes. Polly Toynbee today promises that corporate tax avoidance will be the focus of a major Guardian investigation next week.

More interesting evidence on this subject was presented from Stewart Lansley, speaking at a Fabian discussion late last year on whether we were returning to the Victorian era of the super-rich, held as part of our project on the Webb Memorial Trust which is looking at poverty, inequality and affluence. Lansley presented evidence that, having gradually fallen to one-sixth of Victorian levels during the post-war period, the super-rich had returned to Victorian levels of affluence in 30 years since the 1980s. He found that the evidence also suggested that the Victorian super-rich could stake a much greater claim to be the 'deserving rich' than most of those on the Sunday Times Rich List today.


Stuart White said...

Sunder, I am not sure I understand why introducing a maximum income limit set to achieve a ratio of 10:1 between top and bottom earners is 'impractical'. Do you mean politically unfeasible? Or is there some reason why the idea is unworkable even if a government had the courage of its convictions and tried to introduce such a ceiling?

Presumably the idea is not to legislate top wage rates (which would anyway miss capital incomes, which are proportionately more of top incomes), but to use the tax-benefit system to achieve the ratio. I'd agree that the tax-benefit levels necessary to achieve the goal are probably politically unfeasible. But I'm not sure they would be inherently unworkable.

Stuart White said...

Sunder, a closer read of your post indicates that people ARE proposing to legislate top wage limits. I agree that THIS is a bad instrument to use to try to achieve the goal of a 10:1 incomes ratio. As I said in my previous comment, for one thing, this does nothing to limit income from capital, which accounts for a larger share of top incomes than bottom incomes. As James Meade argued for many years, it is in general a bad idea to regulate prices (including wages) for distributional ends. The appropriate tool, usually, is the tax system.

Stuart White said...
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