“I guess maybe Bernie Sanders shouldn’t exist.” That was the response from Stephen Schwarzman, CEO of The Blackstone Group, to a question about the growing movement to abolish billionaires at a recent event at New York Public Library.
Schwarzman, inevitably a billionaire himself, doesn’t seem to have understood the basic principles of the abolish billionaires movement. Despite involvement in a number of dodgy deals, nobody is calling for Schwarzman to be wiped from the face of the earth. The call to abolish billionaires is not a personal vendetta. Instead it represents the struggle against the vast accumulation of wealth in the hands of an ever-diminishing number of individuals.
This struggle has been front and centre of the campaigns run by Bernie Sanders and Elizabeth Warren in the run up to next year’s US election. Yes, there are important distinctions between the two candidates, but both have real commitments to tackling levels of income and wealth inequality in the U.S.
According to U.C. Berkeley professor Gabriel Zucman, Sanders’ wealth tax proposals couldn’t be better designed to maximise revenue generation from the top 0.1%. And, earlier this week, Sanders’ campaign also released plans for a so-called income inequality tax.
The plan, inspired by the Institute for Policy Studies, would see corporations that have a pay ratio of over 50:1 between CEO and average worker face increased rates of corporation tax. Quite simply, as the company’s pay ratio increases so does their corporate tax bill.
Unsurprisingly, many corporations far surpass this target. Walmart leads the way with a gap of 1,076:1 while the ratio at PepsCo clocks in at 545:1, and at Nike it’s 379:1. These kinds of disparities are not only amoral but have long been proven to damage corporations themselves.
Bosses taking home more than their workers’ annual salary on a day-to-day basis is hardly good for employee morale while the reckless pursuit of profits and dividends often inhibits investment and innovation.
If the US is the undisputed king of excessive executive renumeration then, unfortunately, the UK is next in line for the throne. As the High Pay Centre recently highlighted, average FTSE 100 CEO pay is now 117 times that of the average worker.
Scandals involving the collapse of Thomas Cook and Carillion have demonstrated the primacy of so-called shareholder value, where directors and executives can essentially fill their pockets through dodgy accountancy practices while offloading or outsourcing risk onto powerless employees. The 2006 Companies Act makes clear that the definition of a company’s success is ‘one for the director’s good faith judgement’.
Fortunately, though, proposals do exist to counteract these gross inequalities. A recent paper from trade union think tank CLASS called for a similar tax-based solution to income inequality. The idea, known as the excessive pay levy, is to set an upper limit on the tax deductibility of executive remuneration at ten times the UK median pay.
Currently, all pay to any employee, director or officer is deducted from the taxable profits of a company. This proposal would see the cost of any pay that exceeds £300,000 per annum disallowed as an expense when calculating those taxable profits.
Any amount past the £300,000 exemption is therefore taxable at the normal rate of UK corporation tax which is 19 per cent. Calculations suggest that this could raise as much as £4.6 billion annually.
The benefit of such a policy, however, lies beyond its revenue raising ability. Justifications for excessive executive pay normally rely on the greater ‘productivity’ of their recipients. CEOs, the story goes, work harder and are more productive than average workers so deserve their lofty pay-packets.
However, as many others have pointed out, income and wealth are determined more by power than by productivity. Restrictive trade union laws and weak enforcement of workers’ and social rights, for example, help to increase returns to capital while keeping labour costs down.
It is the mantra of neoliberalism that the market is the arbiter of value. As Mariana Mazzucato, Director of the Institute for Innovation and Public Purpose at UCL, has written in her new book, “no income may be judged too high, because in a market economy competition prevents anyone from earning more than he or she deserves … [but] in practice, markets are what economists call imperfect, so prices and wages are often set by the powerful and paid by the weak.”
The normative function of the excessive pay levy and Bernie’s plan, therefore, is to suggest that work is a collective endeavour and, as such, the proceeds should be shared more equitably. It is a signal that no CEO works 1,000 times harder or is a 1,000 times more productive than the average worker.
Importantly, these policies are popular with the public. BritainThinks polling found that 39 per cent of voters strongly backed a 20:1 cap on the ratio between an employer’s highest and lowest paid workers, while just 8 per cent strongly opposed one.
When asked to define their ideal gap, the British public state a ratio form highest paid to lowest paid of about 5 to 1. The public estimate that the gap is only about 15 to 1 but the reality, as we have seen, is that it is significantly larger.
Perhaps in an ideal world these disparities would not exist in the first place. What better way to tackle gross inequalities in income and wealth than to stop them from forming in the first place?
For this, taxes on wealth alone will not be enough. Instead, collective forms of ownership are needed. In this regard, there is hope to be found in the work being done on community wealth building while it has long been known that a strong trade union movement acts as a countervailing force to the power of capital.
The excessive pay levy does not represent an end to the goal of decreasing inequality but merely a beginning. It is an explicit repoliticisation of the corporation, away from an extractive and individualised notion of shareholder value towards a more collective endeavour.
Thus far, the corporate world has insulated itself from the spread of democracy but there are increasing calls for proper representation. As Isabelle Ferreras has argued, this should move beyond simply dropping a few employee representatives on company boards to an entirely separate board for workers who govern alongside investors.
In those circumstances, it would be hard to imagine workers giving the seal of approval to a director’s seven-figure salary while they themselves were sat on poverty pay.
Ultimately, these kinds of policies point the way towards a fundamentally different economic system, limiting the damage of capitalism while opening the door to an alternative.
As the late Erik Olin Wright argued, “we need a renewal of an energetic progressive social democracy to neutralise the harms of capitalism in ways that also facilitate initiative to build emancipatory alternatives with the potential to erode the dominance of capitalism.”
The days of relying on the ‘good faith judgement’ of directors are over. From 2020, UK listed companies with over 250 employees will have to publish pay ratios. Naming and shaming those with massive disparities has never sparked change and it will fail to do so again.
Legislating and incentivising more equitable outcomes must represent the start, from which a movement to abolish billionaires altogether might flourish.