Tuesday, August 30, 2005 AD
The numbers game
As I mentioned in the comments to my previous post, my recent musings on politics shouldn't be read as an advocacy of socialism, so much as exploring what Chris Atwood called "the bright lines where socialism and capitalism taken to the extreme become criminal and immoral".
However, given my background, this inevitably ends up as an exploration of socialist critiques of, and alternatives to, a free-market capitalism that I had been accepting increasingly uncritically in recent years. But this is still only exploration, not necessarily acceptance or advocacy.
Anyway, here are three statistics I've come across recently that brought me up short and made me wonder whether contemporary western capitalism, particularly in the US and UK, is already over that "bright line" at which it becomes "criminal and immoral", at least in some respects.
I'm not claiming that these are especially important issues in themselves (they're not concerned with issues of global inequality, for example), but then it is often the details, the small consequences, that challenge our assumptions about the big issues.
1. Directors' pay in the top 100 companies averaged £2.5m last year - an increase of 16.1% on the previous year. (Source)
Actually, the figure that originally caught my eye was the 2001 average for FTSE-100 executives - a mere £1.7m - as reported in Anthony Sampson's book Who Runs This Place?.
I've generally been unimpressed by horror stories about "corporate fat-cats". That was partly because I found the covetousness, envy and self-righteousness on display in many of these media reports distasteful, but mainly because I'd been assuming that the really vast pay awards were going to two kinds of director: those who really can be said to deserve it, having "added value" to their companies far in excess of the remuneration they are receiving; and a minority of greedy incompetents, a few "bad apples" who are enriching themselves at the expense of the companies that employ them.
What shocked me about that figure of £1.7m, and the inflation-busting year-on-year increases totalling 47% since then, was that this is the average across all FTSE-100 companies. This isn't a minority of stars and crooks - this is the going rate.
I don't blame the companies or the individual directors - after all, if getting a competent director now costs £2.5m, then top companies have little choice but to pay that; and it would be a truly heroic individual who decided to limit himself (and it is almost always himself) to the sort of figure that I would have plumped for if asked to guess the average level for executive pay: around £800,000, say. These sums are clearly what the market is demanding and supplying. But perhaps that suggests the market has broken down here.
2. Comparative rates of child poverty:
And again, I was shocked to see how much higher the figures were for the dynamic, thrusting economies of the UK and US - one in five children.
3. The decline in social mobility in the UK
Research published by the Sutton Trust (PDF) earlier this year revealed that levels of "intergenerational mobility" (i.e. from father to son) were lower among men born in 1970 - that is, those whom one might term "Thatcher's children", heirs of the new, meritocratic, pro-enterprise Britain of the 1980s and 1990s - than among those born in 1958.
Those born in the bottom earnings quartile in 1970 were more likely to remain there into adulthood than those born in 1958 (from 31% among the 1958 cohort to 38% among the 1970 cohort), while the percentage reaching the top quartile declined between the two groups (from 17% to 16%).
On the other hand, those born in the top quartile in 1970 were more likely to remain there into adulthood than those born in 1958 (from 35% to 42%), while being far less likely to drop into the bottom quartile (from 16% to 11%):
At the same time, the gap between the highest and lowest earners has increased significantly in both relative and absolute terms. So as Britain has become less equal, the result has been less social mobility rather than more. In other words, where you are born has an even greater impact on where you end up than it did before 1979.
And this pattern is not just confined to the UK: as the Sunday Times pointed out at the weekend:
Conclusion
Those statistics don't necessarily lead to support for socialist analyses or solutions, of course. The Daily Telegraph's City Editor has been a leading voice in opposing excessive boardroom pay, for example.
As for the decline in social mobility, conservative commentators were not slow to link this with the abolition of state grammar schools, which (they argued) provided a ladder out of poverty for bright children from deprived backgrounds. I have considerable sympathy for that argument (education is one area where I have always been fairly "right-wing", which is perhaps telling).
And some would argue that it is better to be at the bottom of the heap in a dynamic and expanding economy such as the UK or US, as opposed being a more socially-mobile citizen of one of continental Europe's stagnating economies. A rising tide lifts all boats, and all that. This argument would, however, be more convincing if those making it weren't almost invariably some way towards the top of the heap themselves.
So I'm still not quite ready to hoist the red flag to the top of my sidebar. But these are some of the factors that have jolted me into "re-rethinking" my position. No conclusions reached as yet, honest. :-)
However, given my background, this inevitably ends up as an exploration of socialist critiques of, and alternatives to, a free-market capitalism that I had been accepting increasingly uncritically in recent years. But this is still only exploration, not necessarily acceptance or advocacy.
Anyway, here are three statistics I've come across recently that brought me up short and made me wonder whether contemporary western capitalism, particularly in the US and UK, is already over that "bright line" at which it becomes "criminal and immoral", at least in some respects.
I'm not claiming that these are especially important issues in themselves (they're not concerned with issues of global inequality, for example), but then it is often the details, the small consequences, that challenge our assumptions about the big issues.
1. Directors' pay in the top 100 companies averaged £2.5m last year - an increase of 16.1% on the previous year. (Source)
Actually, the figure that originally caught my eye was the 2001 average for FTSE-100 executives - a mere £1.7m - as reported in Anthony Sampson's book Who Runs This Place?.
I've generally been unimpressed by horror stories about "corporate fat-cats". That was partly because I found the covetousness, envy and self-righteousness on display in many of these media reports distasteful, but mainly because I'd been assuming that the really vast pay awards were going to two kinds of director: those who really can be said to deserve it, having "added value" to their companies far in excess of the remuneration they are receiving; and a minority of greedy incompetents, a few "bad apples" who are enriching themselves at the expense of the companies that employ them.
What shocked me about that figure of £1.7m, and the inflation-busting year-on-year increases totalling 47% since then, was that this is the average across all FTSE-100 companies. This isn't a minority of stars and crooks - this is the going rate.
I don't blame the companies or the individual directors - after all, if getting a competent director now costs £2.5m, then top companies have little choice but to pay that; and it would be a truly heroic individual who decided to limit himself (and it is almost always himself) to the sort of figure that I would have plumped for if asked to guess the average level for executive pay: around £800,000, say. These sums are clearly what the market is demanding and supplying. But perhaps that suggests the market has broken down here.
2. Comparative rates of child poverty:
- Sweden: 2.5%
- France: 7.9%
- UK: 19.8%
- USA: 22.4%
And again, I was shocked to see how much higher the figures were for the dynamic, thrusting economies of the UK and US - one in five children.
3. The decline in social mobility in the UK
Research published by the Sutton Trust (PDF) earlier this year revealed that levels of "intergenerational mobility" (i.e. from father to son) were lower among men born in 1970 - that is, those whom one might term "Thatcher's children", heirs of the new, meritocratic, pro-enterprise Britain of the 1980s and 1990s - than among those born in 1958.
Those born in the bottom earnings quartile in 1970 were more likely to remain there into adulthood than those born in 1958 (from 31% among the 1958 cohort to 38% among the 1970 cohort), while the percentage reaching the top quartile declined between the two groups (from 17% to 16%).
On the other hand, those born in the top quartile in 1970 were more likely to remain there into adulthood than those born in 1958 (from 35% to 42%), while being far less likely to drop into the bottom quartile (from 16% to 11%):
At the same time, the gap between the highest and lowest earners has increased significantly in both relative and absolute terms. So as Britain has become less equal, the result has been less social mobility rather than more. In other words, where you are born has an even greater impact on where you end up than it did before 1979.
And this pattern is not just confined to the UK: as the Sunday Times pointed out at the weekend:
Not only has mobility declined in Britain as inequality has increased, but it is lower than in most other countries. America, usually thought of as a highly meritocratic society, also has low mobility.So the desire for a more equal society is not based on an envious, covetous desire to grab other people's wealth and property, but a recognition that inequality "locks in" privilege and denies people born at the bottom the same life chances as those born at the top. Thus "equality of opportunity" is meaningless unless it is combined with greater (not, please note, "absolute") equality of outcome.
Canada, the Scandinavian countries and Germany are "flatter" societies where income inequalities are smaller; they have significantly higher social mobility.
Conclusion
Those statistics don't necessarily lead to support for socialist analyses or solutions, of course. The Daily Telegraph's City Editor has been a leading voice in opposing excessive boardroom pay, for example.
As for the decline in social mobility, conservative commentators were not slow to link this with the abolition of state grammar schools, which (they argued) provided a ladder out of poverty for bright children from deprived backgrounds. I have considerable sympathy for that argument (education is one area where I have always been fairly "right-wing", which is perhaps telling).
And some would argue that it is better to be at the bottom of the heap in a dynamic and expanding economy such as the UK or US, as opposed being a more socially-mobile citizen of one of continental Europe's stagnating economies. A rising tide lifts all boats, and all that. This argument would, however, be more convincing if those making it weren't almost invariably some way towards the top of the heap themselves.
So I'm still not quite ready to hoist the red flag to the top of my sidebar. But these are some of the factors that have jolted me into "re-rethinking" my position. No conclusions reached as yet, honest. :-)
