Earning too much

2012-07-03 00:00

WITH the 20 significant economies (G20) offering little hope for the birth of a new economic order, activists and shareholders are pushing the drivers of globalisation, major corporations, to revise excessive executive pay. </p><p>When the global economic crisis started in 2007, there was already an expectation from many critics and civil society formations throughout the world that a critical part of the response would be to reduce significantly the kinds of perks that executives of major corporations earn. </p><p>There was both a moral and rational argument behind this expectation. The moral argument was that executives, especially in the financial sector, had acted irresponsibly and precipitated the financial crisis in the first place, so they needed to take pay cuts as symbolic atonement for their errors. They had acted as the  “masters of mankind” that Adam Smith anticipated three centuries ago, which he said, followed a dictum: “All for ourselves and nothing for other people”. This led to the collapse of major financial institutions and poverty for millions.</p><p>Investigations by both the United States Senate (the Levin–Coburn report) in 2009 and the U.S. Fiscal Commission in 2011 blamed the crisis on reckless decisions made by financial institutions and Wall Street. Inquiries in Europe produced similar findings. This triggered the emergence of the Occupy Wall Street protest movement that mushroomed in various parts of the U.S. and spread to other parts of the West in a campaign for reform of the global economic order, a rejection of financial capitalism and globalisation. They called for a post-capitalist economic paradigm, one based on people’s interests and social justice. They opposed their governments’ decision to use taxpayers’ money to finance stimulus packages to rescue corporations when the greedy business executives maintained and in some cases actually increased their exorbitant pay. </p><p>The rational argument was that with corporations reporting a significant fall in profits over the crisis period and in many cases huge deficits, maintaining the executives’ salaries could not be justified. It just did not make sense that institutions looking to governments for a cash injection could justify paying excessive executive pay and generous share options. </p><p>This argument has mainly been made by shareholders in Europe and the U.S. In fact, it is shareholder activism that caused governments which, like the ones  Smith anticipated, had come under significant influence of “the masters of mankind” in the capitalist class, to contemplate tough action on business executives. Even the conservative United Kingdom government is now making noises to the effect that business captains should moderate executive pay. </p><p/><p id="U30891903355G3" style=":first-letter{font-family:'Akzidenz Grotesk BE Cn';color:system-color('_Green');font-stretch:normal;font-weight:bold;display:block;float:left;char-count:1;font-size:200%;}">In South Africa, the government initially bought the lie that our economy was not affected by the global economic crisis, even as the same government reported a million job losses. There was overconfidence in our business sector and this was based mainly on the conduct of the four major banks, which, partly due to the government’s Credit Act, had avoided the excesses witnessed in the U.S. and European financial sectors. The usual myth of South African exceptionalism led to the government and the conflicted bank-based financial analysts and economists boasting about us having very resilient economic and financial sectors. </p><p>Of course, critical formations, like independent economists,  Cosatu and the UKZN’s Centre for Civil Society, disagreed and produced evidence that the poor were actually paying with their livelihood for the sins of capital and governments it controls. This was the time when two of the banks, considered to have weathered the storm, undertook huge retrenchments and were followed by companies in the mining, chemical, and manufacturing sectors. </p><p>In the process, the crisis has sharply increased the number of  unemployed in the world to 210 million people. In South Africa, the inequality between the haves and have nots has increased sharply, thus keeping millions on the periphery even though they now vote. Under these circumstances, grass-roots anger has exploded in the form of service-delivery protests and worker marches. The likelihood of large-scale uprisings by those wanting economic freedom is high. </p><p>Yet, in South Africa, the executive pay issue has not been a popular subject of discussion. Cosatu and a few critical activists are isolated voices in the wilderness. Economists embedded in companies spread fear that this issue could chase talent away and scare investors. It has not been said where else they would go, given recent data showing the scarcity of executive job opportunities. It has not been explained why matters of talent should trounce concerns about social justice and fairness. Clearly, the vile maxim of “all for us, nothing for others” is as alive today as it was three centuries ago. Justice-loving citizens ought to help give voice to the voiceless and thus help contribute to fundamental transformation of global and national economics. </p><p/><p csl="/SysConfig/WitnessMedia/Page/StyleLibs/TheWitness.csl#box nib/blurb" id="U30891903355rkB" style="text-indent:0;">• Siphamandla Zondi is the executive director of the Institute for Global Dialogue. He writes in his personal capacity. </p>

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.