In 2002 I published an article on a maximum wage in the centre-left theory journal Renewal. The idea of putting a ceiling on what people could earn was left-field, to say the least. It was more a thought experiment than a serious attempt to influence political debate. The article and the idea sank without much of a trace.
Wind forward seven years. I’m sitting in a meeting in Nottingham to discuss ideas about how to live in the 21st century. On his feet is local Labour MP Paddy Tipping; Paddy is a Labour loyalist. A former junior minister, he has never voted against the government on any major issues – ever. Half way through his talk on the banking crisis and bonus bonanza he says that what we need is a maximum wage.
My jaw dropped and my mind raced back to the long forgotten article. What seemed almost ludicrous seven years ago was now being placed on the political agenda. If Paddy Tipping could advocate this, then other mainstream Labour MPs could. Just entertaining the thought of a maximum wage challenges all the key assumptions of market fundamentalism: risk, reward, effort and justice. In those seven years, and in particular in the economic crash, something had happened. We have reached, literally in this case, a tipping point.
So why should we now seriously consider not a living wage but a maximum wage, and how? As we are now beginning to discover, it is not absolute poverty that does the damage, but the relative difference between top and bottom. You can raise the floor but if those at the top race away then the stress and strain of living in such long shadows leads to mental illness and early death. Richard Wilkinson and Kate Pickett in the Spirit Level have taken the evidence further to show that everyone, even the rich, suffer from a society that forgets to mind the gap. Where once those at the top earned ten or twenty times as much as those at the bottom, now ratios of over 400 are not uncommon. Greed has been unleashed and has led to the kind of wild risk taking that precipitated the economic crash.
We live within a culture of turbo-consumerism in which we struggle not to keep up with the Jones, but the Beckhams. So enough is never enough. It creates a restless and anxious mood. Putting a ceiling on rewards at the top would stop the scramble to outdo each other in a never-ending game of one-up-man-ship.
A maximum wage would have other benefits too. It would explode the myth of the heroic CEOs who have to be paid whatever they demand because they are perceived as the source of all wealth creation within a corporation. All organisations are social entities that rely on the effort and ingenuity of all workers. As the Work Foundation has reported, there is in fact an inverse link between runaway salaries at the top and a company’s performance. The bigger the pay differential, the less well the corporation performs. If top pay becomes ratio of the people at the bottom, then, if executives want to earn more, those at the bottom must too. By closing the gap in company pay scales we would increase moral, trust, social capital – and therefore productivity.
Happiness economics tells us no one gets any more fulfilled at such ludicrous pay levels. Instead, it just creates an over-class that sets the terms of political debate, the standards to live by, and the conditions for environmental disaster. But if a maximum wage is desirable, is it feasible?
For some sectors at least the short answer is yes. In some sectors a maximum wage or salary cap already exists or is being seriously considered. US football matches have sold out crowds because a salary cap means every game is competitive. In Europe, UEFA has been proposing a similar lid on earnings for soccer players. Sweden had a maximum wage in the 1960s and any upper rate of tax over 90% – witness the US and UK in the 1960s and 1970s – had a de facto maximum wage.
More than 100 years ago, business guru JP Morgan said no company should have a differential between highest paid and lowest paid greater than 10. He thought that enough to create motivation. The Royal Navy, for example, has had a de facto differential of 8. Even if the ratio was 50 times an average salary of £20,000, that’s still £1 million. Who needs more and what does more do to our society and planet?
The road to a maximum wage doesn’t have to start with legislation but a voluntary system based on full transparency of company pay structures. Bonuses could be linked to long-term social and environmental performance. The government could start with the public sector and put a limit on top salaries and lead by example. Of course, the market fundamentalists will say it is impossible; there will be a brain drain. Again, the Work Foundation has shown there is little global mobility amongst senior executives. Compass, the organisation I chair, has been campaigning for a High Pay Commission to assess the link between greed, risk and the financial meltdown. One remedy could be a maximum wage.
There are times in which the gap between the impossible and the possible can be tiny. The NHS, like a minimum wage, was decried as an impossible pipedream. The economic crisis and our desire not to turn back to the mistakes of the past now make the notion of a maximum wage not just desirable, but tantalisingly feasible. Not least because the backlash against the bankers means there would be public backing for reform.
The article all those years ago was written by Alex MacGillivray and Ian Christie. They should take a small bow. They dared to put an issue on the agenda that back then no one would touch. Marx said ‘we make history but not in conditions of our own choosing’. The crash means its time to make history – all we have to do is choose.