Executive Pay: Who Cares?

I must admit that I am already tired of the shrill nonsense being poured into the blogosphere over executive pay. Given the level of shouting and indignation one could be forgiven for thinking that America was not the home of the highest paid athletes, movie actors and doctors amonst other massively remunerated groups, and that it was only CEO’s who were paid egregiously.

So: executive pay, who cares?

This is America last time I looked. This is a country one of who’s deepest myths is that it is the land of opportunity. Loosely translated that means that anyone can make a buck and that there is no class system or government constraint on how wealthy an American can be. So what’s the issue with all these CEO’s and those bonuses?

Well another deep American myth is that the representative American is from a small town in the Mid West. They are down home and self reliant. They survived. They go to church and are loyal to their family. This is an intensely populist image. And it runs counterpoint to the ‘land of opportunity’ myth. It is also way off the mark. For instance, the truth is that most Americans live in big cities not in some idyllic middle America small town.

The point is that these two visions co-exist uneasily. Every so often they conflict. American history is hardly a smooth progression of never ending bonhomie and humility. Populism has frequently clashed full bore with the capitalist streak. In fact capitalism as we now understand it has been the loser more often than not.

Democracy is inherently unstable in large countries. That’s why our system is not strict democracy but is representational. None of the world’s democracies are truly democratic in this way. We use intermediaries called Congressmen and women to make sure we don’t over react to current events. The system acts as a bulwark against our temper and slows the whole process down so a more considered view is what shapes legislation. Unchecked democracy is a certain recipe for instability.

Nor do we live in a pure capitalist society. That would be as equally rotten. Unfettered capitalism brings a different set of evils: huge income inequality; concentration of power; oligarchic rule; indifference to poverty; and, ultimately, a class based social structure inimicable to the ‘American Dream’. America has periodically veered towards such a society, in the 1920’s and the 2000’s, but has stopped short. We have institutions, laws, and social habits that prevent the country from being truly capitalist.

So we are neither capitalist nor democratic. That’s our great virtue. And it is a virtue being expressed in the rage against executive pay. The populist strain in our character is up in arms against the untrammeled pay CEO’s and others have been able to extract from their companies. Rightly so. That pay seems to have come without any accountability. When profits rise CEO’s get paid handsomely. When profits fall CEO’s still manage to be paid handsomely. That seems wrong. But it is a problem for shareholders, not the general public. After all it is shareholder wealth being expropriated.

The illusion is that taxpayers have now become shareholders via the various recent bailouts such as TARP and the actions announced by Secretary Geithner yesterday. So we feel as if it is our money being used to pay these bonuses that now occupy and vex the media so much. But the truth is we are not shareholders. The bailout has been constructed to avoid that so far. The American government has gone out of its way to avoid taking an equity position in all but the most extreme cases. And where it has taken over it is determined to liquidate the organization taken over rather than restore it to health. So the ‘bad’ behavior can continue beyond our reach.

We are left with populist outrage and the potential to lurch away from excessive capitalism toward excessive democracy. So we need to resolve the pay issue before it gets too out of hand.

The solution is paradoxical. We should rein in capitalism temporarily by inserting ourselves as active shareholders not just lenders of last resort. That gives us the right to fix the bonus, pay scales, and anything else to our liking. It vents our populist rage before it carries us too far.

It buys us time to find the balance between the two myths once more.

That insertion is called nationalization and is often presented as the enemy of capitalism. It isn’t as long as we are firm that it is temporary. If we are careful and allow the taxpayer to be the shareholder for the time it takes to get the economy back on its feet then we can mobilize both these two conflicting parts of our heritage. That would be better than trying to play with only one half our strength.

So on the question of executive pay: who cares? The taxpayer as shareholder does. That’s who.