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Can you stay for just 1 hour

April 17, 2009
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That will be $4,800.  What will be $4,800?  An hour of my time.  You believe that is too much?  Well, you have already taken 30 seconds of my time.  Give me my $40 you owe, and I will be on my way.  I do have to warn you though.  If I’m not fairly compensated, I will just blog somewhere else.  You see highly skilled people like myself compete in a global marketplace.  I’m sure East Turkmenistan, Ivory Coast, Peru, or even Cuba would be more than happy to have my skills and those of other highly skilled professionals like myself.  My kids have to eat too.  I’m sorry that you aren’t as fortunate as I am, but the free market says I’m worth $10,000,000 per year.

Of course one of the advantages of continuing to blog in this country is that there are plenty of people willing to protect me from the Jacobin here and there.   Actually, one is tempted not even to address this topic seriously.  The problem is that a lot of people, people one would hope would know better, seem to believe that one can labor for $4,800 an hour.  Well, I imagine most people would labor for that amount.  Let me put it another way.  There are a number of people that seem to think that there are services worth that much.  Perhaps if I managed a hundred billion dollar enterprise with hundreds of thousands of employees I might have a better understanding of how one could labor for that amount an hour.  Does the farmer that plants $5,000 worth of seeds and harvests $50,000 in produce labor for $45,000?  If he pays a hired hand $40,000 to do the work, did he only labor for $5,000?  In part due to the de-unionization that has taken place, we have lost sight of the difference between labor and administration.  The CEO no more labors than the equity analyst of the institutional client that owns a substantialnumber of shares.  This doesn’t mean that either don’t provide value.  It just isn’t labor.

If we don’t pay bank executives or CEOs tens of millions of dollars a year, work will cease to occur in this country, or at least so we are told.  This most certainly isn’t the case.  Grain doesn’t cease growing in a field when a farmer no longer tends to it.  Apples don’t cease appearing in orchards because men don’t manage them.  Likewise oil doesn’t cease to be pumped, people don’t stop lending money, and people don’t stop making cars just because there aren’t executives.  Additionally civil bureaucracies don’t cease working when they are left unmanaged.  This is not to claim that administrators lack value.  Left unmanaged, the field will eventually be overrun with weeds (a plant, but not necessarily the kind we are looking for) and apple trees will grow branches to the detriment of fruit.  Likewise incompentent administration can make government miserable for the people.  And of course poor governance can lead to waste in the corporate world, although it is shocking how much waste seems to occur there anyhow.

But won’t management just move overseas to friendly environments?  It depends.  There are chronic complaints that the President is underpaid.  Yet we still manage to have one.  He hasn’t moved overseas.  Of course he wouldn’t be the US President if he lived in France.  Lee Iacocca famously accepted a salary of $1 when he helped Chrysler through their crisis.  Many executives have accepted salaries of $1 at times of distress.  Even at the low level, many an entrepreneur starting out will taken home little to no salary.  In times of distress, many small business owners will put off paying themselves.  In the case of the President, there aren’t any other comparable jobs and the fringe benefits are nice.  In the cases of the small business owner or the CEOs, they have a greater interest in improving the stream of rents either to collect as profits, bonuses (cash or stock options), or dividends in the future.  Certainly there can be altruistic motives.  For example, a man like Cardinal O’Malley I’m sure would be a valued fire fighter in the corporate world as he has been in the ecclesial world and probably far better compensated for it.  (I should mention that there could be books written about ordinary employees savings their companies from complete collapse that have gotten little more than a thank you for their troubles.  Let’s not over-romanticize the sacrificial entrepreneur.)  Still, owners recognize that their interest is collecting rents in the most efficient manner possible and not concerning themselves with their labor at a particular moment.

Some will be tempted to point out manufacturing plants that have moved overseas or companies that have moved their headquarters overseas.  I think often the reasons are mistaken on these matters.  In the manufacturing sector, overhead is typically between 10-15%.  The big money, at least on a per person basis is in overhead.  Movement of 10 or 20% there aren’t going to be great inducements because in the end they amount to movements 1 to 3%.  Add to that the additional transportation costs, and you don’t have a compelling reason to move operations.  However, if you can cut labor costs by half, something that represents over 40% of revenues, you can have a very compelling reason to move overseas.  So, taxing very high income earners ($10 million+ annually) isn’t going to make a difference on the decision to move a manufacturing facility, assuming the cost of moving is non-negligible.  There are however over the ways of addressing this.  One can use tariffs.  The VAT can also be used to privilege exports.  We can also remove shields from overseas like the US government’s recent action against UBS.  Or we can simply declare a corporation to be US based as was done in the US tax code several years ago to address companies that derived most of their sales and costs in the US.  Billion dollar enterprises have a pretty sizable footprint.  Once you get to a certain level of income, you have to be in some markets to attain that level of income.  And Lord knows it is possible to extort millions (and billions) of dollars for your personal benefit without improving the lives of your fellow countrymen.  See the Middle East, Burma, and various deposed African dictators for examples.

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4 Comments
  1. April 18, 2009 9:38 am

    Moving to Europe would be unpleasant, as CEO types make a lot less there. In Japan, they make far less. The income difference between laborer and top management is by far the greatest in the US.

    In 2005, the average CEO in the United States earned 262 times the pay of the average worker, i.e. a CEO earned more in one workday than an average worker earned in 52 weeks.

    Between 1990 and 2000 in the U.S. worker pay and inflation remained approximately equal, while corporate profits rose 93% and CEO pay rose 571%. Meanwhile, the portion of federal revenue derived from corporate income tax has decreased from 33% in the 1950s to 11.9% in 2005

    The United States long has had the industrialized world’s largest gap in pay between chief executives and blue-collar workers. CEO compensation swelled from 85 times what workers earned in 1990, to 209 times in 1996, and 326 times the following year. In 1999, CEO pay surged to a record 419 times the average worker’s wage, according to the U.S. Bureau of Labor Statistics.

    Comparable figures for other wealthy nations generally do not exceed the double digits.

    Clearly, they need more tax breaks.

  2. digbydolben permalink
    April 18, 2009 2:42 pm

    This is what the Europeans call “the Anglo-Saxon model of capitalism,” and they figure it has no future, because it is wasteful of human resources in the ways in which it marginalizes the contributions of huge numbers of creative, industrious personnel, in order to focus only on the contributions of “managers.” And those “managers” have shown the world recently that they are capable of the wastefulness and the insouciance of ancien regime aristocrats. They deserve a fiscal guillotine.

  3. April 18, 2009 5:00 pm

    Let them eat Twinkies!

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