What to do about inequality? Everyone can see it. Many are appalled by the spectacle of it. Most think nothing can be done. Inequality to them seems as natural as rust.
It wasn’t always thus. New Deal interventions, strong unions, a postwar boom, and consensus politics, among other factors, created the neighborhood in Chicago where I grew up in the 1960s. Janitors, brain surgeons, electricians, cops, and brokers all lived similar lives side by side, with one income enough for a family. They went on vacations. Their children went to college.
The brain surgeon today, by contrast, might have six houses and a private plane, while the janitor and his wife work two jobs each and carry unsustainable debt.
All indices that measure social health — on everything from life expectancy and obesity to the incidence of mental illness and homicides — show better results in countries with greater income equality, as Richard Wilkinson and Kate Pickett relate in their landmark study, The Spirit Level. Logic alone suggests that equality brings about greater social mobility, motivation, civic involvement, and a wider base of economic activity. Yet we all watch equality ebb away into its opposite.
People hope decency might fix this. Or government, through job creation schemes, benefits, a raised minimum wage, graduated taxation. Most of these efforts aim at alleviating poverty. But others, like Congressman Keith Ellison, have made interesting calls for a “maximum wage.” The problem is that the rich have become virtually invincible as they move to increase their income share. Accountants, lawyers, publicists, and, above all, lobbyists and the politicians they pay protect them. These rich own the political process and the courts, which have declared that money is speech and corporations are persons.
The agenda of the rich is simple and endlessly repeated: tax low, deregulate, and crush the opposition. Trade agreements contain provisions for unaccountable tribunals that allow corporations to sue nations that impede their profit-making with laws that protect the environment or their people’s health.
In my youth, government, business, and unions together provided some rough checks and balances. Now union power has been scaled back and government, never more obviously than in the present American administration, has become the servant of the wealthy, whose appetites do not diminish no matter how disproportionate their share.
An idea (perhaps fanciful, certainly modest in scale) occurred to me when I was listening to the BBC in my garden. The tiny British Green Party, the BBC report noted, had adopted a policy of reducing pay ratios between top executives and average workers to no more than ten to one. This policy had no chance, I thought, to come into effect through legislation. There would be lawsuits and lobbying and, in any case, the Green Party had only one M.P.
But pay ratios do act on the public imagination. They’ve had some attention through the ages. Plato in The Republic suggested a healthy figure would be five to one. J.P. Morgan ventured twenty to one. George Orwell and the British Green Party chose ten to one. I’m told that during my childhood typical ratios between executive and worker pay hovered around sixty to one. That would certainly sustain a comfortable lifestyle. Average earnings of $40,000 in a company would deliver $2.4 million to the CEO. You could run a few houses on that. As it happens, CEOs of S&P 500 companies currently make over 350 times more than their rank and file.
It’s worth distinguishing rich from rich. There are athletes, entertainers, entrepreneurs, and speculators who get their money from talent, ideas, luck, or the taking of risks. There are heirs who have it bestowed on them. And then there are executives who get theirs from their salaries.
In this, these top executives resemble the managers, accountants, designers, engineers, and errand-runners who work beneath them. They venture none of their own capital. They take no risks.
Executives have obfuscated this simple fact by spinning a tale that they belong to a class of supermen, that they are as precious to their companies as some kind of magical nectar, and that without them there would be failure or mediocrity. “You get what you pay for,” they say, and then set the price.
The idea I had in my garden? What if we combined pay ratios for salaried employees with a system of certification? Certificates have been part of business for decades — quality and safety certificates, recyclable, biodegradable and fair trade certificates. Michelin certifies restaurants, and the Audubon Society certifies golf courses according to their environmental standards. Businesses desire these certificates. Certificates can enhance their status and revenues. Businesses pay Audubon to undergo the examining process. Cities certified as gay-friendly experience increases in numbers of higher-spending tourists.
Could a certification system be applied to corporate pay ratios — say, one star for fifty to one, two for twenty to one, and three for eight to one? What would the benefits be?
Gargantuan salaries for administrators only benefit the administrators themselves. A narrowing of the pay ratio would release money for shareholders, research and development, and better pay at the lower levels. “Trickle down” economic policies have been shown not to work. The money stays at the top, inequality (and unhappiness) increase, and the economy stagnates or becomes chaotic.
A voluntary certification system for pay ratios that had specific, measurable, achievable targets could appeal to either business self-interest or to a sense of justice. How could such a system be made to work? Research would have to be done to arrive at sensible ratio numbers, according to the size of the companies being certified. An authoritative organization — like Michelin or the Audubon Society in their fields — would have to be set up to make the assessments and issue the certificates. A Canadian organization called Wagemark already operates such a system, but this group only certifies at the perhaps unrealistic level of eight to one.
The benefits from a voluntary ratio certification process could be equally appealing to shareholders, boards of directors, and workers. That offers the possibility of general support. The economy gets the benefit of a greater spending power spread throughout the population. Governments get higher tax revenue and relief from paying benefits to the low paid. Citizens get relief from the spectacle of emperor-level wealth existing beside tortuous poverty.
Business schools, chambers of commerce, and unions could all see benefits from this voluntary certification system and promote or even insist upon it, as could international organizations like the World Bank, the IMF, and the G7. Journalists and economists could discuss, refine, and promote it, as could political parties. Fund managers could use it as a guide for investment. Local and national governments could insist on certificates when awarding contracts.
This may sound fantastical, but less likely things have happened.
Timothy O’Grady is an American living in Poland. He is the author of three novels and four works of nonfiction, the most recent of which are Divine Magnetic Lands, his account of a long drive around his homeland after thirty years of living in Europe, and Children of Las Vegas, testimonies of young people who grew up in that city. He welcomes comments and can be reached at email@example.com.