I just read about a disturbing idea for financial reform. It’s a concept that I am sure many will champion, though I doubt most will stop to consider the ramifications. The idea is for executive pay to be moderated by government regulation. It’s a terrible idea, but not for the reasons that its supporters might expect.
The number one reason why the concept of government regulation over private sector pay, in any sector, is that it gives the government too much power over the public. Much like the problem with Obamacare, government regulation over pay kills opportunity and choice. It is one more way in which the government gains Rights, while limiting the freedoms of private citizens.
If the government can decide what the CEO of Microsoft can get, they can decide what the CEO of Apple or Harpo recieves. Oprah Winfrey and Warren Buffett might not care anymore, they made their billions already, but it doesn’t stop there. Why can’t the government decide what the CEO of Facebook makes? What about the next company on the rise that will replace any of these companies or creates a new industry yet to be in the Fortune 500.
Why would the government stop there? Why not control the pay of the Fortune 5000, why not every company on the NASDAQ? Why not any company that makes $250,000 or is even potentially capable of making that? What makes control over the pay of any CEO less important or possible than any other? Why just stop at corporate executives?
Of course supporters will say the government just won’t do that. Why not? What will stop it? Though I agree that this may not happen overnight, but once the boulder starts rolling down the hill exactly what is big and strong enough to stop the government?
Another problem, not quite as long-term. There is nothing that the government does that it is successful at, nor is there anything that the government does that the private sector cannot do better. Except maintain a military.
Mail delivery, every year or so the Post Office has to raise prices and it runs at a loss even with that. They cut services as well, to no avail. Yet Fedex makes tens of billions doing the same thing. Plus they are faster. Ditto DHL and dozens of other companies at far smaller levels. How about the internet? Created by the military, it reached full potential once introduced to the private sector. The examples are rampant.
Government, at all levels, is inefficient, plodding, and plagued by red tape. Try to build something and be amazed at the permits, regulations, reviews, and forms that are required. The larger the project, the worse government is.
Another problem, government is virtually always wrong. Because it is so big, and so slow, government does not realize when its made a mistake until far down the line. At that point, its too late to change and government keeps going even though the mistake is known.
Now apply those 2 concepts to determining executive pay. Government will pay the wrong executives in the wrong industries, and will keep paying them even though there are obvious losses. Can’t happen some will say. 2 words. Fannie Mae. 2 more, Freddie Mac.
Still these are not the only reasons. Government is fickle. The whims of politicians ebb and flow more than the ocean tides. Currently the focus of, arguably, too much taxpayer money is going to “green” companies. Solyndra, A123 Systems, et al. They fall into the reasons above, but what if executive pay were in government hands with these companies.
CEO’s in this industry would be paid more, just as these companies were given tens of millions in grants that other industries and companies were denied. Because it was politically popular for the party in control. But what happens when Administrations change and a new flavor is favored? Will companies and CEO fold, causing unknown layoffs? What happens if really smart executives play the government game, and switch industries to make sure they get top dollar, at the expense of getting anything done? Can’t happen? Fema Director Michael Brown, unqualified and friends with the Administration in charge. How did that work out?
But let’s say that all the above is wrong. Let’s say that none of that happens, though I doubt there is a bookie in Las Vegas that will take odds on that. There is one more reason, and a big one. A reason that tens of thousands of Americans have lived through, and I have personally seen. The USSR.
The USSR already put into place a system of the government picking who got paid what. The tens of thousands of Americans I mentioned are the immigrants that left the USSR, to find a better life for them and their families. Don’t believe me, ask any of those immigrants how well that system worked. Better yet, look at a current world map and see how well that worked out. It took about 75 years, but on a global geopolitical level, its not that long. In its aftermath, there is confusion and a worse inequality than what they started with.
The concept of private sector executive pay, and yes I’m calling it Obamapay, is a horrible idea. It stagnates productivity, kills innovation, deprives individuals of the Right to choose and pursue happiness, and ultimately is a failure.
It will be sold with bold words and bright colorful (rose-colored) ideas, demonizing the successful – which last I recall are a driving force in the American dream. Whether President Obama pitiches it to the public, or someone else, it will be the same thing. But the genie is out of the bottle. Sooner or later someone will pick up the concept and sell it hard to the public. I can only hope that the public has the willingness to consider the concept to its full conclusion before damage is done.
Thank you for reading my opinion on this matter.
President – M V Consiulting, Inc.