Wednesday, 29 January 2014

Understanding ever increasing executive pay

Ed Balls announces that, if Labour wins the next election, he will reintroduce a 50p top tax rate (reduced to 45p by Osborne). Assorted captains of industry say that this would be disastrous for the UK economy. And I remembered a recent post by Justin Fox about why “We Can’t Afford to Leave Inequality to the Economists”. While I would not object to his point that inequality involves political and moral issues as well as economic ones, I think he misses a key point. We need economists to provide a narrative of why the pay of the top 1% has surged ahead in the US and UK since the 1980s, a narrative to counter the claims from the 1% themselves that it just represents the market rewarding skill and productivity. This post talks about one narrative that I think has great power, and also has important implications for that top tax rate.

This narrative matters because change has to be mediated through politics. Janan Ganesh in the FT says that although restoring the 50p rate in itself is popular in the UK, in the end voters may be more swayed by business leaders saying it (or a Labour victory more generally) will damage the economy. As I have noted before, Labour under Blair, Brown and to an extent Balls went out of their way to be business friendly and woo the business sector, because they thought this was essential to electoral success. (Robert Peston, who is a better position to know, agrees.) Most of the reasons why they thought this have not gone away.

There is a widespread belief that there is too much inequality in the UK and US, while at the same time the public underestimate the degree of inequality that actually exists. Yet arguably elections get won or lost on who the electorate believes is competent to ‘manage’ the economy. If political parties that aim to do something about growing inequality also appear not to enjoy ‘the confidence of business’, then they may not get elected. We need people who have some knowledge and objectivity about the economy and markets to argue that those that speak for business are actually just speaking for their own personal interests.
 
So what is the alternative story to the argument that executive pay reflects the market rewarding the rising productivity of CEOs? The first obvious point is that executive pay is not determined in anything that approximates an idealised market where prices are set to balance supply and demand. Instead it is set within a bargaining framework between employer (the firm) and employee (the CEO). Even if we imagine the employer in this case to be someone that genuinely reflects the interests of shareholders, the costs associated with losing your CEO, together with informational problems in assessing their true worth (which can lead to the age old problem of judging quality by price, and the ‘arms race’ that Chris describes), mean that the CEO potentially has substantial bargaining power.

Yet this situation did not suddenly arise in the 1980s, and it will be true in most countries, and not just in the US and UK. So why did executive pay start taking off in the 1980s in these two countries? Well something else happened at the same time: tax rates on top incomes were also substantially reduced. Why does reducing the tax rate on top incomes lead to a rise in those incomes pre tax? With lower tax rates, the CEO has a much greater incentive to put lots of effort into the bargaining process with the company. They, rather than the tax man, will receive the rewards from being successful.

This is the idea set out in this paper by Piketty, Saez and Stantcheva [3]. They call this a “compensation bargaining” model. The paper backs up this theoretical model with evidence that there is a “clear correlation between the drop in top marginal tax rates and the surge in top income shares”. In addition, they present microeconomic evidence that CEO pay for firm’s performance that is outside the CEO’s control (i.e. that is industry wide, and so does not reflect personal performance) is more important when tax rates are low. (Things like stock options.)

Now one reaction to this model is that it ignores many other social/economic factors that may also have been important. Things like changing social norms and political changes (loosely, the rise of neoliberalism), reduced union power, changes in financial regulations, growing financialisation etc. I think this reaction is correct, but as the authors themselves say, such explanations are “multi-dimensional and it is difficult to estimate compellingly the contribution of each specific factor”. Economists like simple models that can be tested against the data. That is what the compensation bargaining model set out by Piketty et al does. I don’t think it is too much of a stretch to think about bargaining effort as a proxy for all these other factors. [1]

There is a nice parallel between the compensation bargaining model and the union bargaining model popular outside the US in the 1970s/80s, which made many economists somewhat antagonistic to growing union power. There is a difference. There union power distorted the economy by raising the real wage, and generating involuntary unemployment. In the compensation bargaining model, increasing executive pay is just a rent-seeking redistribution, and is socially costly only because effort is wasted on bargaining. However as it involves redistribution to the 1% from the 99%, I don’t think many besides economists will worry about that too much. (Economists and others have, of course, begun to discuss some of the perhaps more important indirect costs of this inequality. The social costs are documented in a comprehensive way here, but there is also the distortion of representative democracy (see here, here, here, here and here) or encouraging the portrayal of poverty as self-induced.)


The compensation bargaining model has a clear policy implication. The problem with lowering the top rate of income tax is that it encourages the executive class to engage in efforts to raise their pay at the expense of everyone else. We need a high top rate of tax to discourage this, even if this rate might not actually bring in more income. [2] Perhaps most importantly, it provides a plausible alternative to the market rewarding effort narrative that is so frequently used, and it also has the advantage of being closer to the evidence. 

[1] For an analogy, think about central bank independence. There are many reasons why you might be concerned about politicians being able to set interest rates, and why control by independent central banks is preferable. Macroeconomics settled on one particular idea, that of time inconsistency and inflation bias. Was it because all economists thought this was really the most important problem. I suspect for some at least it became a proxy for rather more general, but therefore vaguer, stories.

[2] Technically, the tax rate is raised above the conventional optimum by an amount that represents a Pigouvian correction to the rent-seeking externality.

[3] Now published in American Economic Journal: Economic Policy, Vol. 6, Issue 1, February 2014

28 comments:

  1. What sustained real gdp growth rate have advanced economies achieved over time , and what can we expect over the long haul going forward ? Three percent or so ? Now assume that the 1% achieves 6% income growth. Real gdp doubles in ~24 years , top 1% incomes doubles in 12 years. Extend the exercise , and the top 1% gets the whole pie.

    The current pattern is simply unsustainable , at any sustained growth of top 1% incomes that's greater than the overall growth rate.

    We knew at one time that broad growth in incomes across classes , aligned with productivity growth , was not only sustainable but more beneficial socially. You still have individual winners and losers , but you don't have class winners and losers.

    How did we forget this ?

    I blame the conflicted economists , and the not-conflicted but cowardly economists who failed to stand up to them.

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  2. Surely executive pay is dependent upon the fear or self-interest of the members of shareholder remuneration committees?

    I have a feeling some people need to apply that simplest of economics models, the Fixed Costs/Variable Costs v Revenue chart to the tax band model to see how a progressive tax rate is fairer, more remunerative for the country, and better for equality and maintaining a balance between executive and non-exec pay while maintaining motivation and productivity.

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  3. In addition to the excellent points you make: can we distinguish between 'business' and 'big business' here? The majority of business are owner-run small enterprises whose owners and top employees (if they have any employees) are unlikely to venture into the 45%/50% tax bracket. What these business leaders are really talking about is a relatively small number of senior executives at a relatively small number of large businesses. To tacitly accept the framing of 'business' = 'big business' is to unnecessarily cede the debate venue.

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  4. 1. 'The World Top Incomes Database' website by Facundo Alvaredo, Tony Atkinson, Thomas Piketty and Emmanuel Saez looks at the top 1% in many western countries, and shows how awful we are in the UK.

    2. Independent remuneration committees that are used to set executive pay keep putting each wage change into the top 25% of wage earners in comparative positions in a similar industry, so the spiral has been and is inevitable.

    3. I think Diamond and Saez put the optimim higher income tax take at mid-70%, Romer and Romer early-80%.

    So, in that regard, Labour is making the higher rate of income tax political, because if it were economic it would not be 40% versus 50% under discussion, it would be 70% or 80%.

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  7. Yes, "inequality involves political and moral issues as well as economic ones", but why not broaden economics to include political and moral issues to enable tackling the inequality issue as a whole?
    After all politics can be defined as organising societies as wholes, while economics deals with organising satisfaction of needs in the face of perceived scarcity: they largely overlap.
    And organising people evidently is a largely ethical issue, THE organising issue being whether to do so with in mind the greater good or own interests.

    Yes, "economists like simple models that can be tested against the data".
    Which show the poverty of economics, given the selectiveness and limitation of (macro-economic) data gathered: we hardly gather and test against data beyond what can be measured directly or indirectly as 'market' outcome (and thus in monetary terms).
    It is like searching truth under a static street light (the 'market' metaphor) while it should evidently be somewhere in the dark outside its circle of illumination (because the economy is much more than what can be described as a system of 'markets', even if we extend that -grudgingly- with government regulation).

    "Bargaining" is a good concept to use as a search light outside the reach of the static 'market' street light.
    It only helps us escape that limitation if we don't assume that the income sum of the zero-sum-negotiation-game between employer and employee (or that employer and all its employees or that firm and all its stakeholders or all firms in that sector and their stakeholders) is a given 'market' outcome, however.
    The temptation of the productivity-determines-income-as-reward narrative can only be escaped and its value tested against alternatives if we assume that higher incomes of the executive class under certain conditions may very well increase the income of say the financial sector as a whole, regardless of the 'productivity' of that sector as part of the wealth creation of the economic system as a whole.
    ('Productivity' can't be measured except by applying the 'market' metaphor and thus assumes the possibility of determination of income as reward for 'market' success.)

    In other words: bargaining results may well STILL be rent-seeking in nature EVEN if the income of the WHOLE financial sector increases because of "ever increasing executive pay".

    My suggestion is to assume for a while that the outcome of negotiations about remuneration of exectutives in any organisation are not (or not primarily) determined by 'market' 'mechanisms', but by the fact that executives are pinnacles (or near pinnacles) of hierarchical power and (of increasing importance) information systems.
    They can effectively threaten to put the whole pyramid to great harm (or even to destroy it) by wielding their substantial share of that power and by tapping, blocking, leaking, modifying etc. that information.
    Their remuneration can be understood as the result of blackmail and bribe to prevent them from abusing that power and information access.
    Their remuneration increases because the size of their organisations (the size of the hierarchies) increases despite diseconomies of scale and scope.
    Organisations may well grow in large part (despite diseconomies of scale and scope) BECAUSE it enables such rent-seeking by executives (who also happen to be those in a position to choose growth or limitation of the size of their organisations).
    As bigger organisations are better able to thwart or limit competition and thus the limiting effects of the supposed 'market mechanism' on the income sums of their games, the growth of organisations may well imply a perverse 'economy of scale' DUE to such rent-seeking at the expense of other sectors of the economy, where hierarchical organisations are inherently less feasible.

    Wim Nusselder (wim.nusselder@antenna.nl)
    coordinator vision development of the economics working group of the Dutch Green Party

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  8. First of all, I still don't understand why inequality is an issue. As far as I am concerned, poverty should be the only concern. What the others are earning shouldn't be. I don't see why we should succumb to making policies through envy as opposed through justice. France just proved to us that picking the pocket of the so called 1% doesn't necessarily help the cause of the fight against poverty.
    Secondly, you mis-characterize what a market is. A market doesn't decide what a just price is, the market decides what each party gets out of the deal. It is a negotiation... like all transactions. This reminds me of the debate of what is a just price. I am with Von Mises on this one... whether the diamond is picked up on the road side or whether it is mined from the pits by a thousand men, the price is the same. Price is determined by supply and demand not amount of labor put into a job. In short, the just price theory is a scenario that doesn't exist.
    This brings me to my last point. The reason being overlooked as to why CEOs are earning more today than they did 20 years ago is because they run bigger companies in bigger markets spanning continents in a lot of cases. How can they not earn more? You refuse to state that a lot of these CEO's paychecks are success based. You do economists a disservice in this post...

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    1. Inequality is an issue because (among other things):
      - it concentrates resources in the hands of those who spend relatively less of it, which causes depression by failure of demand,
      - it amasses fortunes seeking investment opportunities that blow bubbles,
      - it limits upward social mobility and utilisation of talents of the poor, because the wealthy seek ways and have more opportunity for passing wealth on to own offspring,
      - without sufficient social mobility jealousy becomes a political issue,
      - the lifestyles of the rich set standards of natural resource use (which others try to emulate) which the earth can't afford and
      - the attention of many wealthy people is diverted from leading meaningful and socially beneficial lives (leaving society better to live in for all than they found it), in other words: wealth diverts people from contributing to (or entering, depending on one's faith) the Kingdom of God.

      You are right that 'market mechanisms' don't automatically result in just prices, especially if market imperfections are not corrected.
      Executive remuneration is indeed often based on success in growing their organisations.
      In line with your own argument that doesn't justify it, however.
      The size of their organisations strengthens their position in negotiations about remunerations, which provides them with an incentive to grow their organisations, even beyond justification by economies of scale and scope from a technical and organisational (wealth creation) point of view.
      Larger organisations (outgrowing government jurisdictions and power) DO provide more opportunities for rent-seeking (evading the correction of market imperfections, outright monopoly and other abuses of power).

      'Markets' + unchecked inequality in income and fortunes = unbridled rent-seeking that hinders wealth creation (rather than unjust and ecologically unsustainable wealth redistribution).

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    2. With regard to inequality please have a look at this NYT book review: http://www.nytimes.com/2014/01/29/opinion/capitalism-vs-democracy.html

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  9. It is about politics not economics, specifically the neoliberal agenda!
    The high level of executive pay is a result of the increasing separation of ownership from control. Effectively, managers have created a false market due to imperfect information.
    At the most basic level why do managers require incentives to do their jobs? The simplest way to reward manager is to set a ratio of their pay to the median earnings in their company. Then they have an incentive to raise the wages of their workers rather than just their own pay.

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    1. then they have an incentive to fire low paid workers and outsource (or automate if possible) whatever they were doing.

      it's a nice idea to tie CEO pay to median earnings, but it would have to be to an economy-wide median, which would rein in CEO pay but sadly would not give them a direct incentive to wage raises in their own firms.

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  10. Many of these CEOs are taking pay in terms of stock market capitilizations demanded by shareholders versus a fixed salary. Thus, the rising stock market is what exacerbates income inequality and probably why these hedge managers are so high. My only point is, if we agree that the way to fix income inequality is to increase income tax at the upper end, would we really be solving the problem? Would CEOs turn to alternative methods for compensation?

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    1. It seems to be happening at the same time many companies are seeing short term shareholder gain as more important than long term investment, and pushing shareholder value above company health. Is that related to taking a large % of pay/benefits in shares and share options?

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  11. I'm not sure if this argument is right, and not good enough at stats to test it...but I'm glad you've raised explicitly what a lot of us suspect.

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  12. I understand that the top 1% of earners pay 28% of all income tax, a by product of the skewed income distribution. However if total income remained the same but was distributed more evenly it would lead, all other things being equal to a fall in income tax receipts as the marginal rates of taxation are lower at lower income levels.

    So if higher tax rates for the 1% led to a more equal income distribution would higher rates then be needed for the 99% to maintain overall income tax levels for the government?

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    1. Redwood Rhiadra31 January 2014 12:19

      Marginal tax rates are largely a fiction, because the very wealthy have the means to shield much of their income (in the U.S. for example, much of the income of the very rich is capital gains and taxed at a flat 15%, far below the top marginal rate - and that's assuming it isn't hidden in a tax shelter).

      Look at *effective* tax rates. The effective tax rate for the upper 1% is far *lower* than for the middle quintiles.

      So a dollar that gets redistributed from someone in the upper 1% (who paid an effective tax rate of, say 10%), to the middle quintile (paying an effective tax of maybe 25%) results in *higher* tax revenue to the state.

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  13. Again the answer is:
    'It is the competition stupid'.

    CEOs good ones are in high demand. And with the EMs entering the worldstage all sorts of workers (lower and middle level, trend moving up) are in huge numbers available. Just do your micro economic stuff how that works out.

    1. The issue for countries like the UK is that their lower end and middle group workers are heavily overpriced from a worldwide perspective. Economics simply requires a drop in those wages.

    2. Cies get bigger and bigger that is also a reason why there is a huge battle for top talent. Same with professional footballers or musicians. The absolute top sees incomes rising like crazy, the rest is going sideways.

    3. What is however worrying that a lot of mediocres are riding on this wave. Average material that are able to get themselves priced as the next Jobs.

    4. Probably even more worrying is the social aspect. The differences get huge and donot really fit in with the way a lot of people in the West see things (as fair if you like).
    See the living wage discussion. idiotic concept from an economic pov, but a very important one from a social and therewith political one.
    Politically an answer should be found on this question. What to do when large parts of your population isnot able to earn enough to have an as acceptable seen (in that society) lifestyle. Norm adjusting; economic foolish increases of minimum wages; supplements and how, reduce prices of standard basic packages (housing food clothes etc); a combination and which one?).
    This political issue is very likely working as a big spoiler for normal economic processes. Like we see now in Germany. Hard to believe that reversing the reform that made Germany so competitive from being the sick man of Europe will long term be very benificial. Still it is done largely for pure political reasons. And still it will be done in other countries.

    On increasing the tax rate.
    Pure optics and done mainly for political reasons.

    Last rise did show that it is simply not really working. Extra revenue was marginal and it made an awful impression on investors especially the foreign ones.
    Top incomes simply move into increased tax planning. Longer term the last increase is likely even very negative. As this tax planning is very likely still in place, while the rate is down again. And the PR damage has been done and a lot of people will still think the UK rate is 50%.

    I have seen probably more than a 100 expat packages negotiations with CEOs usually as part of a new set up somewhere abroad.
    And always is the tax position of the new CEO one of the most important items. At the end of the day your top people simply donot move to a country when the whole package with tax on top of the agenda is not attractive. Which means that either the cie has to make up the difference (which makes the new investment less attractive as costs go up) or second class people go. You want however the best ones in your country. The success of a new foreign daughter is simply highly depending on the quality of the first management. Top talent in a new venture simply often makes the difference.

    In that process the CIT rate is of course the most relevant, but the top rate for its officials/employees is as well. Cies simply look at that to get an overall impression of a possible new location. And often the location has to be determined first.

    In that respect France's 75% has done a lot of harm. FDI has dropped last year with 77% which is enormous. If you would use that as reference, 45 to 50% increase (5% for Anglosaxon mathematicians) would mean something like a 15% drop in FDI. In France the rate went up roughly with 25%. Of course there are a lot of other relevant issues in France but it simply makes an important lousy impression on foreign investors.

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  14. Part 2

    As said on a political level it might however work. Most voters are simpletons and think very one dimensional and somebody having to pay more taxes in their eyes simply means more tax revenue and with that amount. They simply keep the rest as givens. As they are not able to see the world as a moving thing (the panta rhei stuff) where people react when their enviroment changes.
    So for standard Labour voters of which a substantial part will simply be jealous presented as being principled on social justice it likely will be seen as a positive. Especially if the last group with high incomes in the news were the all popular bankers.
    Of course presenting yourself the next day as pro-business is simply moronic simply makes you look like a totally lost, incompetent and uncredible joke.

    Imho the focus/priority' should be keeping standards of living (close to purchase power) for as many as possible people from falling or get it even rising. Seen the fact that incomes/standards of living go sideways (often even at best) and likley will keep doing that, anyway the times of several %% rises annually are gone.
    But as you can see in the discussions above a lot of social nonsense will be put on the agenda in this discussion so the end result might as well be a partial shot in your own foot.

    Anyway in your modells you need to keep into consideration that the relevance of abroad will simply rapidly increase increase. Cies move more, people as well. 70% taxrates that were possible several decades ago even if the neighbour was much lower are no longer realistic, not even close.
    The world is rapidly becoming a village. With competition on many issues. Costs in general but that can be labourcosts, housing, energy, taxes, red tape, reputation/brand.
    In that respect the whole of Europe looks simply crap. The main thing that plays for them is the size of the market (and that is decreasing at least in relative term very rapidly), the rest is horrible.
    Seen from the tax increase angle: that will come on top of heavily overpriced labour (and a high coststructure in general (energy is among the most expensive in the world, housing is as well, red tape is on the top of that list and so are tax rates). Simply would be spoiling the general bad picture even further.

    And this process has not yet ended yet, the end isnot even insight.
    From a pure competition pov UK rates are pretty stiff (Europe being even worse).
    Another point is you have to look at real rates. North Western style tax collection is simply different from that in nearly any other place in the world. Also acceptance of tax schemes is relevant as that is how most of the time tax-burdens are limited nowadays.

    Overall so a very lousy/risky idea.
    Same as reducing CEO payment (that are often the people that simply move abroad) and with them their business or the dynamism in a business.
    Should be done in very creative ways not with this simpleton's approach that will likely see you shooting yourself, partially at least, in your own foot.

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  15. You should also properly understand that you never get a decent survey on the issue of CEO remuneration or the taxation thereof or the taxation of their cies.
    You might about the way the general public thinks about it. Like recently on the 45% to 50% issue which confirms btw that for Labour it is probably a wise political move if they want to focus on the lower income voters even if it would make no economic sense to do it.

    Basically the only ones that can answer these questions for cies however are the CEO (topholding) themselves (as it is future corporate strategy related) and a lot of them know that this is very politically sensitive. And anyway nobody wants to portrait himself as a money hungry wolf.
    Real world simply shows that CEOs like their income taxes low.

    And their corporate taxes as well. This one both for direct as indirect reasons. Corporate taxes going from say 20% to 50% structurally, simply means a drop in company value with 40% as that is how valuations work. That in practice the drop will be lower is simply only a clear indication that almost every analyst will assume that measures will be taken to mitigate this. Anyway a basic 40% drop means that a CEO will need his whole period in charge to correct that (so no big boni).
    They simply will react. Surveys like that on taxevasion of a couple of years ago are simply on that aspect complete rubbish. Cies will play the PR game (see Starbucks and Amazon in the UK) but when things have cooled down go back to business as usual (which is maximising nett profit). Only doing it is silently as possible as they know it is bad PR. Furthermore saying it in the open would likely start a transferprice discussion.
    And what is more their shareholders will simply demand it from them. You get in serious problems as CEO when your results are worse than those of the direct competition because you pay 40% tax iso their 20%.
    I know of a huge multi national where the issue came up in the media 1 or 2 years ago and all was properly denied of course in the media. I also know that that same multinational had already more than 2 decades these plans in a drawer in case it would start to play and even already part of a revised structure in place.

    Anyway effective tax rates for multinationals is now probably between 20 and 25. Increase it and they will react. Simply because their shareholders expect that from them.
    All multinationals know that this is negative PR as often the lowest incomes pay the same or more.

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  16. Part 2 on this one.

    Same with CEO pay. They know it is very PR sensitive. Just look at the Jamie D discussion and that is in the US not socialist Europe. Simply in practice highly important but will simply be lied about by a lot of people when surveyed.

    50% is a magical border. It means half your money is gone. Psychological easy to understand. It is like the 10% treshold for import or withholding tax. When things get higher than that all taxplanning registers go open. here it is the 5 showing up. In that respect 48% would be a lot better, not great but a lot better than 50%.

    As said earlier you need a lot more creativity to solve this than simply raise taxes. How? I donot have a clue tbo, but starting with keeping your eyes on the ball which is assuring standards of living/purchase power for as many as possible would very likely be a good start. And not make the discussion more complicated than it already is. Bringing in living wages and political theories will unlikely be helpful. The more difficult or infantile (thinking this will do the job) the discussion get the more likely you will shoot in your foot.

    Probably at the end of the day Europeans simply have to learn to live with (much) larger differences as well as with the fact that corporate taxes can unlikely be increased from the present rather low level. The latter as cies will simply move, either profitable activities or the whole house if necessary (like FIAT did recently). Archaic taxsystem in Italy getting punished for being not able to accommodate one of its largest multi nationals. Which was very likely also scared that the current financial mess will end as higher taxes.

    I doubt if they will btw. I really believe that this is likely to play out especially in Zombie-Europe (aka as the EuroZone) via high taxes, cies moving and not coming back when things are reversed. As starting a new activity has different maths from increasing existing activities or staying somewhere. One case a lot of costs have already been made in the other these costs are still part of the equation. And they are still way to expensive.

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  17. Btw2 Correlation is not equal to causality.

    It is imho much more likely that simply the 2 things happened at the same time both caused by different external factors
    Like internationalisation/globalisation. Entities getting bigger. Workers galore now over the world and such.
    Which pressures workers wages down, and CEO pay up And income tax rates (top rates) and multinational corporate tax rates down.
    Workers simply have overall a lousy position in negotiations and increasingly so as more and competition for them has arrived.
    CEOs both towards their own firms as towards the country they are living in and their cies are located as well as the cies themselves have an increasingly stronger position.

    70% toprate on wages as was usual 2-3 decades ago in Europe simply now means cies will move unless this is compensated by much lower than average corporate taxes. As their management will simply get too expensive.
    50% corporate taxes (normal again 2-3 decades ago) will simply mean that your big business will move its headoffice and limit all its normal activities as much as possible. So it might work in Ireland or with the Kiwis. However it would be a very funny (unusual) combination.

    I agree with the fact that cies and CEOs do it for themselves. But you go into the wrong direction from there.
    Yes, that is not really nice (that is why these things are kept as quiet as possible), but the issue is what can you do about it (and for your field is that economically sound).
    And the answer is you can do very little about it, as practice shows. You jump in line with the 10s of other countries that face the same issue or cies move abroad and pay no taxes at all (or at least reduce taxable income dramatically).

    And to be honest I donot think Europe is in anyway in a position to go for the expiriment (try to find out how this will work out in practice). That probably some will try anyway is more an indication that the political processes in Europe simply suck than of anything else.
    Especially as the present situation have become the norm. And changing that if possible at all will be very difficult and very time consuming. Time that imho Europe simply cannot afford to waist.

    Hard to see the CEO world. But from the papers you can get a very good picture how the 75% French tax played out. Some big players moving abroad. And with the football starts that moved to France how thge negotiations went. Basically they moved to non tax paying Monaco or had to be compensated by their Parisien club that had the resources and for the rest a braindrain.

    So in a nutshell practice shows that your main point is simply BS. You and the researchers you refer to simply havenot got a clue how decisions on this are made in real life and what is deemed important for that.
    Other things are simply much more relevant.
    Anyway Europe is not in the position to challenge business on structural higher taxes, not all countries will go along with that and the ones who will not (Irish model) will get most of the business (as also reality showed that has happened)
    The ones that follow the French model will extremely likely get their backsides kicked. On pay you face now an international situation (which you have completely missed). Top talent will move and likely taking alot of the jobs attached to their business with them. At least in such quantities that it will hurt. Unlike 2-3 decades ago.

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  18. Btw3

    More in general.
    I did a few years ago 4 or 5 some research on economic papers that were dealing with issues of which I know very well how they worked in practice or at least had a very good idea how practice worked combined by having access to people who really had wide experience on the issue. Not on this one but mainly international trade related btw.

    I took as much as possible at random (if I am correct) 20 papers on these issues. Will not be far from that anyway. It ended up as not totally at random btw (all came from one CB, well their KnowHowCentre). But their original source was from basically all over the world (well mainly Europe and most of the rest US).
    If I remind it correctly half of them were absolutely talking out of their noses. Simply missing, to completely missing how things work in reality.
    They looked very much like this thing. Not much research combined with very difficult to find out how things really work in practice if you are not an insider as people simply donot tell the full picture (even have an incentive not to do that). Simply hear it is beyond naive to believe that any CEO will show all his cards to a (likely easily recognisable) lefty. You simply are bearly certain to end up either with people that don ot have a clue about the corporate strategy or receive a nice PR story. If you do the research and think otherwise you need a brainimplant and are simply in no way fit for purpose.

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  19. @ Rik versus Simon:
    Simon provides an alternative narrative for the 'market rewards effort' narrative that discourages increased taxation of executive class remuneration, because "narrative matters because change has to be mediated through politics".
    (I provided a slightly different alternative narrative, focusing on sector-wide rent-seeking, in order to also counter Rik's 'market rewards company growth' narrative.)
    Rik effectively argues that national politics is not able to raise taxation on multinationals and their executives as they are in a position to evade it and -en passant- that corporate shareholders and executives are money hungry wolves even if they deny it.

    Both seem right to me, which together makes a case for breaking/eroding/undermining the power of corporate shareholders and executives in other ways than through (national) politics (alone).
    For instance by mobilising international public opinion around this narrative.
    For if it makes political sense to limit inequality (because of voter preferences) it automatically makes economic sense too, political preferences being relevant inputs for decision making about the economic order.

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  20. a #newecomomy is needed to redistribute #opportunities - please also sign and share this petition to bring back the 50% millionaires' tax rate https://www.change.org/en-GB/petitions/david-cameron-prime-minister-bring-back-the-50-millionaires-tax-rate-to-pay-down-the-deficit-in-a-fair-way

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  21. J. K. Galbraith wrote already much the same:

    «The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself.»

    But there is a nice diachronic argument: neoliberals argue that executive pay is the reward for the executive's productivity, not the corrupt fruit of self-dealing and accounting fraud.

    Executive compensation today is far higher than in the 1950s and 1960s, when USA industry was at a peak. How can one argue that executive productivity has increased by orders of magnitude since then?

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  22. What a fantastic line: "redistribution to the 1% from the 99%".

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  23. Automatic 28% of CEO pay including perks and bonuses to government seems just since that is what their employees pay. america can't even manage this!

    So we tax the poor, and pay the rich; wonder why inequality?

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