If pay rises for the lower paid increase too much, too rapidly then the escalation of these rises from the bottom goes all the way to the top resulting in there being insufficient in the ‘pot’ to accommodate the middle and upper strata; their formidable powers of lobbying the government are brought to bear and there usually follows a turbulent period of confrontation among the three different groups while the re-balancing is carried out by the government in power. The foregoing can be summarized by the statement that ‘everyone wants to sell their labour dear and buy the labour of others cheap’.
This implies  the need for a referee to sort out these conflicting aims but, as there are no rules the only referee at present has to be the government. Hence the quite unnecessary polarization between left and right politics and the waste of time and resources in the unending clash between lobbying powers on the subject of the value of jobs in the economy and each job’s worth to the economy.
Whilst the adage of everyone wanting to sell their labour dear and buy everyone else’s labour cheap applies it must be qualified by the fact that whatever each one of us will achieve in our lifetime can only be possible with the participation and involvement of others. This is because we use our skills and talents to make lives for ourselves within the framework of an enabling society and thus the results of our endeavours cannot be separated from the encompassing society in which we live. It is therefore not only desirable and equitable but fair that we should devise some sort of distribution of all the wealth created as a recognition of this. because it is a social issue as much as it is an economic one.
All who create wealth or contribute to creating wealth in the form of goods or services are doing so from the same ‘pot’ and so returns from this ‘pot’ need to be in harmony with the ideals of a just and fair society, notwithstanding, a society that rewards the relative skills and efforts used to achieve contributions to the good of society in general. This idea is reinforced by the fact that the world we live in  can be a dangerous and uncertain one.
The capitalist ideology leaves this distribution to the abstract market where there are winners and losers with no limit to the amount that the winners can amass and no protection for the losers. The alternative extreme ideology is that of the communist one where central planning aims to ensure a fair standard of living for all society citizens and removes from individuals any opportunity to benefit directly from their skills and talents as these are supposed to be used for the benefit of society and not for individual enrichment. This stifles innate initiative.
There can, in reality, be no form of genuine democratic governance with either of these extreme forms of ideology because for them to function they have to control politicians, by controlling political parties either by allowing private funding of parties or allowing private organisations to create monopoly powers and undue powers in the media.
In a communist society freedom is limited to the support of the aims of one party and its central planning ideology and opponents are seen as subversive to the general good of a society that the planners are aiming to help, just as the opponents to the capitalist system are seen as subversives in denying the natural instincts of humans to better themselves. In both systems the cards are stacked either against individual striving or individual survival. A social democrat understands this anomaly of the two polarized economic systems either of which can appeal to some people when dressed up in suitable language, but the social democrats seem unable to come up with any permanent alternative that would suit the strivers in a communist society or the vulnerable in a capitalist society.
The attempts of dealing with the ideal of the capitalist society where all freely participate in the markets and benefit according to their skills and talents has degenerated into a state where the most powerful’ rich and greediest gain overall control by operating cartels, restrictive practices, false markets and ultimately controlling the political processes through funding political parties.
And similar attempts to create a communist society have resulted in out-of-touch bureaucrats overseeing  a state of economic inertia through central planning which takes into account neither individual ideas and initiatives to rise from below nor from local communities. It also excludes the possibility of democratic pluralism.
Both systems are mutually exclusive and each destroying the good part of of the other.
But there is a way to link the two making them mutually interdependent and the first step for getting to this target – and only the first step – would be to establish a formula for tying the top levels of reward to the bottom levels by means of a pay ratio.
Let us deal with a standard example, the directors of a public company. They are proxies for the owners and responsible for setting levels of pay in their companies. They should be allowed to continue to award themselves whatever level of reward and remuneration they believe the owners and the markets they work in find reasonable. However, as a recognition that they and their workforce exist in a common enterprise within the same society and mutually benefit from  this condition they should be encouraged to maintain a socially acceptable pay differential throughout the workforce. There should be no need for a statuary minimum salary nor should there be any limit to maximum salaries; all salaries would float within a pre-determined ratio of – let us say – 9 to 1. In good times all would benefit proportionally and fairly, whilst in adverse economic times all would share in the necessary sacrifices in the same proportion, making redundancies less likely.

The way this ratio policy would be encouraged would be through a carrot and stick taxation system to underpin its success. All emoluments of whatsoever type would be  included in the definition of ‘Pay’ and taxation on individuals for any pay outside this ratio for top earners would be such as to inhibit such attempts and taxation on the organisation for any pay outside the ratio for bottom earners would have a similar deterrent. This linking social  measures with entrepreneurial ability would make the organisation the unit of endeavour, achievement and reward and not as present, leaving the matter as a perpetual fight between the self-interests of capital and labour.

I think it was George Orwell who said that either we all live in a fair society or none of us do.

10 MAY 2004