Commentary by Celestine Bohlen
Feb. 17 (Bloomberg) -- From Moscow to Washington, politicians are ganging up on greed.
That’s fine, but they really need to do more than shout from their bully pulpits if they want to rein in the natural impulse to accumulate wealth.
It’s easy to see why finger-wagging is tempting for elected officials in economic times as bad as these. The last time we had a mess like this, Franklin D. Roosevelt, delivering his 1933 inaugural address, blasted “unscrupulous money changers.”
Now we are seeing all manner of efforts to shame, even regulate, the greedy. There’s the Obama route, which was to push for a $500,000 cap on salaries at government-aided companies. The U.K. is using an honor system to embarrass its bankers, and make them cut their bonuses.
French President Nicolas Sarkozy wants to punish “young traders” who got rich by taking undue risks.
And then there’s Russian President Dmitri Medvedev who also struck out against the undeserving rich -- not bankers or oligarchs, but top government officials. His punishment? A ban on expensive ski vacations in Alpine resorts.
Harsh talk might work in the short term, but let’s face it: Greed always makes a comeback once the good times return. That’s when the lessons from economic crises are forgotten, and individuals and institutions figure out new ways to get very rich by hook or crook.
Get Serious
If politicians want to be serious about curbing outrageous pay, they should take advantage of the current public mood and attack the difficult issues -- corruption, glaring disparities of income or excessive profits on non-productive activity.
Let’s look at what doesn’t work.
Take Medvedev’s ban on Alpine ski trips, prompted by photographs showing top Kremlin officials on the slopes at Courchevel, a fancy French ski resort. Medvedev isn’t all that interested in his staff’s bloated income. What he cares about are the photographs, seen as a slap in the face at laid-off Russian workers.
Even Barack Obama, whose outrage at extravagant salaries seems genuine, must know that no amount of hectoring will work. Nor will pay caps. It took experts no time to figure out that a limit on top salaries at companies getting bailout cash would have been a joke.
This crisis has taught us a couple of obvious lessons. What is astonishing is that they had been so blithely ignored until now.
Rewarding Failure
One is that nobody should be rewarded for failure when their companies are being rescued by taxpayers. When a government pays the check, it has the right to challenge the bill.
Another rule, articulated by Obama, is that in times of economic upheaval, overly generous compensation is “not just bad taste, it’s bad strategy.” Translation: you’d have to be stupid to pay out big bonuses at a time like this, which tells us a lot about Wall Street’s political maturity.
What would more sense is to tackle some of the ugly little breaks that the overpaid get, such as the rule that allows hedge- fund managers to pay taxes at a rate half that of the janitors who clean their offices at night.
Now also would be the perfect time to get serious about going after lawbreakers, scammers and fraudsters. That Bernard Madoff, he of the $50 billion Ponzi scheme, was able to operate for decades in broad daylight with red flags waving all over the place is the real crime.
Exalting Greed
There’s a deeper issue though -- the exaltation of greed during boom times. Remember the speech by Gordon Gekko, the ruthless hero of the film “Wall Street”: “greed is good, greed is right, greed works, greed clarifies, cuts through and captures the essence of the evolutionary spirit?” The film was made before the October 1987 market crash.
The lessons of that crash were instantly forgotten, and salaries and bonuses soon spiraled out of control, in the U.S. first and foremost.
The result was a disparity of wealth that’s a national disgrace. In 2005, the average pay for corporate chief executive officers was 369 times that of the average worker, compared with 36 times in 1976, according to a study by Kevin Murphy of the University of Southern California.
People may have grumbled, but nobody did anything about it. It has taken a recession to get anyone to start thinking about reforming executive compensation.
Remedied by Crash
A similar surge in income disparity occurred in 1929, but then fell dramatically after the stock market crash. Obviously the Great Depression had something to do with it, but so did the political mood, according to the late economist John Kenneth Galbraith.
“In depression, all this is reversed. Money is watched with a narrow, suspicious eye,” Galbraith wrote in “The Great Crash: 1929.” “The man who handles it is assumed to be dishonest until he proves himself otherwise.”
This then is the time to lay the groundwork for some real changes that will make it more difficult for the next group of Masters of the Universe to get rich quick in ways that harm so many of the rest of us.
(Celestine Bohlen is a Bloomberg News columnist. The opinions expressed are her own.)
To contact the writer of this column: Celestine Bohlen in Paris at cbohlen1@bloomberg.net
Posts
No comments:
Post a Comment