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We Can't Dismiss Corbyn's Notion Of An 'Earnings Cap' Outright

Inequality in Australia is at a 70-year high. Unfair dinkum.

18/01/2017 11:36 AM AEDT | Updated 18/01/2017 12:33 PM AEDT
Neil Hall / Reuters
Britain's opposition Labour Party leader Jeremy Corbyn last week called for an 'earnings cap' to prevent growing inequality in the UK.

Last week Jeremy Corbyn, the beleaguered British Labor leader, raised in an interview the prospect of 'some kind of high earnings cap'. For this, he's been pilloried and ridiculed -- even in Australia.

But this isn't a notion which can be dismissed out of hand.

Anyone concerned about inequality and its consequences must be prepared to ask the question: 'How much is enough?' For us in formal politics, we have to be up for bringing together morality and practicality when it comes to responding to a real wages explosion that is serving the interests of the few, not the many.

In Australia today, inequality is at a 70-year high. This has been driven, in large part, by a massive increase in the earnings of a small group of people. It's pretty hard to see how these earnings reflect any true value of the work performed. Of course, while these executives and financiers have been raking it in, most Australians have experienced record low wages growth.

This is a case of market failure, and it carries wider consequences. It impacts on our politics and society as well as the world of work. As we continue to appreciate that high levels of inequality constrain economic growth, it seems prudent, to say the very least, to look at both sides of the income inequality equation.

Some ask why it should affect others that someone is being paid huge sums. As they would. They decry 'the politics of envy'. But they fail to offer much in the way of a defence beyond that old conservative standby; it's just the way of things.

This is a case of market failure, and it carries wider consequences. It impacts on our politics and society as well as the world of work.

Fair enough for the defenders of the status quo to take this line. After all, that's the business they're in.

Not so for progressives. If we say that there are problems with the way things are, and the way they are going, it's not much of answer for us to blithely put ideas in the too-hard basket.

And it's not good enough to confuse ideas with the form of their expression.

We should always be very slow to accept the proposition that the way things are is set in stone. Too many Australians (like too many Americans) have proved receptive to the corrosive notions that politicians are all the same, and voting doesn't -- can't -- change anything.

When political news has been dominated by the incompetence of the Turnbull government in Centrelink debt recovery, and by evidence of abuses of work expenses by senior MPs, business as usual just isn't good enough.

Let's make sure we don't miss the woods for the trees, and let us dismiss attacks on strawmen for what they are. I accept the impracticality of simply legislating a cap on wages. But this isn't the point.

This is a small group of people continuing to benefit disportionately from arrangements which serve no wider societal or economic purpose. Past claims of the demands of a global market for 'talent' have fallen quiet, except when it comes to the likes of actors and sportspeople, because this always was self-serving nonsense.

The old mantras of risk and reward, indeed of a wages-work bargain, expose this. It's not just so-called bonuses which are payable despite failure. Research demonstrates a poor relationship between executive pay, performance-based or otherwise, and company performance. Indeed, it seems that a focus on the short-term in fact has harmed shareholder interests. The Productivity Commission has found that a large gap between managerial pay and average wages could actually demotivate workers and adversely affect priorities.

And a study of over 800 CEOs conducted last year by MSCI found that the only correlation between the highest paid CEOs and a company's success was negative. In short, the CEOs with the largest pay packets ran the worst-performing companies.

In government, Labor put in place arrangements to give shareholders a greater say over executive pay. These laws have been widely used, and have drawn greater attention to managerial excess in many businesses. But there's more we can do.

Last year, I argued in the parliament that Australia follow the lead of the US and the UK -- and require the disclosure of the ratio between executive pay and average wages within corporations. Unsurprisingly, I didn't get support from government members.

Now, Mr Corbyn's proposition draws attention to an important question for policy makers, and warrants a serious response. It is a problem that we have a culture and structures that have enabled the top 1 percent of Australian earners to accrue almost 10 percent of income. A problem that is not beyond our capacity to address.

Often we can be too quick to suggest the boundaries of what's possible have been set in stone. This is symptomatic of a wider malaise in our politics, which has been fuelling a reactionary populism -- a movement of anger, not answers.

When it comes to income inequality and obscene executive pay packets, we can make changes for the better. We have to.



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