Pay Inequality: where it comes from and what to do about it

(Anarchist Writers) “The exploitation of man by man, someone once said, is theft”
(Pierre-Joseph Proudhon)

The global Occupy movement has struck a cord with the 99% and the ruling class is worried. Rightly so, given that the neo-liberal agenda that has allowed the few to become obscenely rich at the expense of the rest has come under fire.

In Britain, November 30th saw a massive public sector workers’ strike. In the run up, we were subject to articles in the right-wing press on “fat cat union bosses.” And, yes, these union officials do have wages between 4 and 6 times the average workers – although unlike bosses they are elected by their members. Anarchists have long argued that union officials should be paid the same wage as their average member and, moreover, that union officials have less power over their members. As any active union member knows, the officialdom happily uses Thatcher’s anti-union laws to clamp down on rank-and-file militancy. The right seems to have forgotten that no “union boss” can order workers to go on strike – a ballot of members is required.

Have they forgotten their beloved Thatcher already? But then the right, like the bosses, are a bunch of moaners. In spite of dominating Britain for 30 years, they still consider themselves as being persecuted and in need of more state aid! Hence the Condems running around trying to weaken further the pathetically few rights we workers have. But perhaps that should read despite – for they spend a significant portion of their time complaining about the consequences of the politics for so vigorously advocated and saw implemented under the party they support.

A few days after the right ranting about “fat cats” in the unions, the High Pay Commission’s report was published. It reported how excessive the pay is for company bosses, with them, executive pay in the FTSE 100 rising “on average by 49% compared with just 2.7% for the average employee” in the last year alone. Meanwhile, they bemoan and lobby against the 50% top rate of tax paid by those on over £150,000 while simultaneously arguing for cuts to the minimum wage. The logic is clear – pay cuts for the many and tax cuts for the few means that there are cuts all round, so we are all in it together!

Since Thatcher’s neo-liberal onslaught against the working class, wealth, as the report states, during “rewards have been flooding upwards… Since the mid 1970s, the general workforce’s share of GDP had shrunk by over 12% up to 2008.” And flood up it has, “with the top 0.1% seeing the most significant growth, followed closely by the top 1% and top 10%.” Comparing 1979 to 2007, the top 0.1% took home 1.3% of the national income this had grown to 6.5%, the top 1% took home 5.93% rising to 14.5% while the top 10% took home 28.4% rising to 40%. Between 1949 and 1979 “executive pay grew by 0.8% per year on average” but over the last 10 years “annual growth in the pay for FTSE 100 executives has been closer to 20%.” In short, “there has been a dramatic escalation in top pay over the last 30 years. This growth has taken place primarily in the private sector; it is our business leaders and bankers who are taking a bigger slice of the pie even as average wages across the private sector have stagnated.” In short, a shift has “occurred in which pay at the top increased exponentially” while the ratio between “the average pay of executives and that of workers has grown from 16 to 63.” Moreover, as inequality has soared, “we have seen social mobility decline.”

With admirable understatement, the report states it “is no longer possible to contest the fact that there has been an enormous upward redistribution of income since the 1980s.”

So the top earners have accumulated more wealth at an alarming way. For example, in 1980 the boss of Barclays was earning 13 times average pay at the bank but now they are on 169 times the average, a 4,899% rise over that 30 years (average UK wages have gone up threefold). Both the 1980 and 2011 amounts dwarf the pay of union officials the right are trying to demonise.

The Commission’s report pointed to the wider negative impact on the rest of society of this massive inequality. Thus there is “little doubt that gross inequality affects morbidity and mortality rates, including infant mortality rates. More unequal societies also have lower levels of social mobility” while inequality “can be harmful to long run economic growth” and within-firm pay inequality “is associated with lower-firm performance” (“No reputable study has shown that executive pay has been successfully linked to company performance… the body of evidence challenging the link between pay and performance has become increasingly compelling.”). Moreover, while it has “traditionally been argued that inequality is actively good for growth” there is “a growing body of evidence which suggests that gross inequality in income contributes to sectoral imbalances, regional disparities in investment and asset bubble inflation.” Investment in assets driven by inequality “can encourage economic instability and increase the likelihood of shocks and financial crises.” It is also no surprise, the report notes, that “economic power tends to beget political power” which can “be used to exert bias that favours unreasonably or unfairly the status quo – or vested interests”

Needless to say, it suggested some trivial reforms and tried to suggest that excessive top pay “is a symptom of market failure.” Yet this is precisely how the capitalist market is meant to work.

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