It’s easy to mock Jeremy Corbyn. He rather sabotaged his own relaunch when he called for a maximum wage. But there is a problem with excessive executive pay – and capitalists can’t just laugh it off.
Make no mistake: a maximum wage is a daft proposal. They tried it in Russia last century, and still do in places like Cuba and Venezuela today. It’s fair to say it has been disastrous each time.
But that doesn’t mean there isn’t a problem with corporate pay. A survey of FTSE 350 companies published by the Lancaster University School of Management last month found that, between 2003 and 2014, average CEO pay rose by 82%, but the average return on capital was less than 1% per year.
In other words, the people who run companies are enriching themselves at the expense of people who own them.
Jeremy Corbyn offers retro socialism. Capitalists need to offer more than kleptocratic corporatism.
Few seem to understand that we now do capitalism without capitalists. We have diluted corporate ownership – so that shares are now held through third party organisations like funds and trusts. That makes it easy for managers to help themselves to other people’s capital.
We’re experiencing the resurgence of an old problem. In the eighteenth century, the East India Company became a byword for parasitism by expropriating not just Indians, but its own shareholders.
Poor corporate governance today is likewise sapping economic dynamism. The number of well run businesses and successful start-ups is declining – especially on this side of the Atlantic. Productivity is stagnant. That’s because capitalism has been corrupted.
So how do we fix it?
I’m working on a couple of ideas in my new book. One is to insist that directors don’t draw a salary at all, but own equity instead. Another is to give shareholders more power to control the management.
One way or another, free marketeers need to come up with a cure for corporatism. Otherwise, in a few years’ time, Jeremy Corbyn’s Castro impersonation won’t sound so stupid.