Wednesday, October 12, 2011


Scenes of protest by predominantly young people in the developed world continue to cross our television screens.  The causes are mixed and the aims are varied, but there is a common thread: a sense that the dream is over, and that this generation will be the first since the industrial revolution whose prospects in life will be worse than those of their parents.

I don't buy a lot of the garbage that is being touted.  There is no alternative to capitalism, and communism, in particular, is as dead an end as it was when the Soviet Union fell apart.  On the other hand, I do believe that we should strive for a society in which all people are born with equality of opportunity, and our current version of capitalism is patently not delivering on that.

One of the themes of the #occupy movement is that they represent the 99% of [insert your nationality here] that the system does not seem to be working for.  I'm not going to go into the statistics here, but it is evident that in many countries the gap between rich and poor has been widening, that median incomes are struggling to keep pace with inflation and that most of the rewards from economic growth go to the top 1%.

Why is that?  Are the top 1% that much smarter, more innovative or harder-working than the rest of us?  I'm sure that, for a few individuals, this may in fact be the case.  For the majority of the 1 percenters, however, I think there's another factor at play.

That factor is the self-perpetuating management elite.  These are the folks who are in control of our 'corporate capitalist' model.  It should be the shareholders, but due to weaknesses in company law, it's not.  The elite grant themselves high salaries, share options, golden handcuffs, golden parachutes and all kinds of other goodies.  These are justified by 'the need to retain top talent'.

The elite perpetuates itself through defensive measures (e.g. sitting on each other's boards, using wealth to reinforce positions) and generationally (by sending the kids to the best schools and then placing them in positions from which they will have privileged access to senior management positions later in their careers).

The problem with this system is that it robs the 99% of opportunity, which is, I believe, what the protests are really about.

Here's my proposal.  Tax income over $300,000 per annum at 70% and income over $500,000 at 100%.  Basically don't let anyone earn more than $500,000 a year.  I contend that

  1. The 'retention of talent' argument is a falsehood.  I believe that in any corporation you can find someone earning a few hundred thousand who is just as capable of running the outfit as the colossally overpaid incumbent.  It will be cheaper for the company and the boss will once again be part of the team rather than some omnipotent, omniscient but invisible God-like creature.
  2. Placing an income cap on top management will force them to seek self-realisation in ways other than building their bank accounts.  This will express itself in scientific, cultural, artistic and other forms of achievement, which will have a positive effect for society as a whole.
  3. Anybody who says they can't live on $500,000 has issues.  On that sort of income you can live in a very nice house, fly first class, keep a yacht etc.  There is absolutely no need to earn more.
  4. Most importantly, the income cap will undermine the self-perpetuation of the elite, in part by attacking the obscene wealth that keeps it in power, in part by bringing the 1% and the 99% closer together, not just financially but in terms of lifestyle and opportunity as well.
Some will be shocked at this proposal.  It appears to be a socialist-inspired 'soak the rich' approach, far from what a self-professed liberal as myself should be proposing.

If the higher tax rates were to kick in at, say, $100,000, this criticism would probably be fair.  Innovation and hard work would be seriously discouraged and we would end up in a utopian society where we were all equally poor (think Minsk).  With threshold levels of $300,000 and $500,000, there is still plenty of room for initiative and for fulfilling the [enter your nationality] dream.

At least for the 99%.

1 comment:

  1. All good, but how should this plan be implemented in a down to earth situation. I guess, none of the Scandinavian social-democracies would be able to push forward such a change.