The 1% may be worth it, but we deserve some of it back

Fraser Nelson is one of the best right-wing commentators in this country, because what he says is often non-conventional and even in his most objectionable pieces is often hard not to concede he has a point. He recently penned something for the Telegraph claiming the top 1%, an expression that has entered mainstream political discourse via the Occupy movement, deserve their wealth. Talking about the widening gap between the ultra-wealthy and the rest, he says:

“If this were just an issue of plunder and greed, then it could easily have been stopped… But the shareholder revolution failed because it ran up against a simple and depressing fact: by and large, the much-maligned 1 per cent are, actually, worth it. We may hate the fact, but they do – on the whole – seem to generate even more money than they’re paid.”

He makes the point that in comparison with the past:

“Today’s stars – from the world of business, literature and sport – are able to leverage their brand on a global scale.

The same rules apply to architects, lawyers, computer programmers – and, yes, financiers. The trend has been underway for decades, but politicians have shown little interest… the growth of sky-high pay… is, depressingly, justifiable.”

Nelson’s argument is that individuals earn vast amounts of money not because those paying them overvalue them, or because of collusion between the elite, but because companies must pay exponentially more to attract the best now they compete globally instead of nationally. Furthermore, this is an economically sensible decision because in a globalised labour market the most skilled, or at least the more desired, produce a lot more money for their employers than they demand themselves. This is a convincing argument. Many will be familiar with this argument in the prism of football: clubs pay millions to stars because that is the market rate and also because the club judges it will recuperate the money. 

Nelson acknowledges the moral case against such wages, but insists this is irrelevant:

“But salaries are not a measure of anyone’s intrinsic value. The only relevant factor is productivity, whether they’ll be worth it… Morally, there is no defence for golden parachutes. Financially, they can be worth every penny. It doesn’t take a socialist to be deeply uncomfortable about one man being paid a thousand times more than another.”

Of course to regulate pay in the private sector based on some predetermined idea of how much someone deserves is unworkable. As Nelson says “in a free country, there is not much you can do about how people choose to reward each other”. This contradicts his claim that the 1% are “worth it” or that their pay is “justifiable”, or at least he thinks this is only true in purely economic terms. The point he is actually making is a rather defeatist and presumptive one: that the massive curved pyramid of income distribution produced by the free market is a) inevitable and b) not harmful.

He is wrong about b). The extortionate wealth of the elite compared to the rest is bad because, quite frankly, their money could be put to better use in a country where Nelson’s top percent earn 25% of all the wealth. To quote Phillip Collins in an excellent Times article last year “The top 1,000 richest people in Britain were £137 billion better off at the end of 2010 than at the start of 2009. If they all had an outbreak of charity and gave it back we could take a year’s deficit holiday. There is a reason that we call this “silly money”. It is because having so much money is silly. ”

We don’t need to wait for a charitable outburst. Across the Western world, governments are told they cannot raise taxes on the rich, because it will be uncompetitive: the highly mobile, internationalised rich will move elsewhere. We are told our banking sector will relocate to Singapore, while David Cameron urged rich Frenchmen to escape to the UK to avoid François Hollande’s tax hike on the wealthy. But faced with deficits, rising welfare bills due to the employment crisis, and stagnating incomes for the average worker, the UK needs more tax from the wealthy. So, the solution is an international agreement to tax the wealthy more; perhaps through ‘wealth taxes’ which don’t penalise earning.

It is short-sighted of libertarians to argue the rich don’t owe anything to the government. To follow this line of thinking is to assume that had these people been born at any other time era in any other country in they world they would have done just as well. This is nonsense. As well as the public services every citizen relies on, fertile conditions for earning money are created by the collective efforts of people and governments over many years.  The stumbling block for an increase in the money the government takes from the wealthy is probably actually the apathy of the majority. As Fraser Nelson says:

In his seminal 1931 book, Equality, R H Tawney lamented that the public did not seem resentful of the rich so much as fascinated by their goings-on. Little has changed. For most Brits, stupendous wealth has always been something that is aspired to more than resented.

The reaction to the birth of George Windsor, a baby who will never have to worry about his upbringing, receiving a good education, finding a job, finding a house, caring for children, caring for older relative and so on, is testament to this.

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