I’m guilty of usually seeing the world through a rigid prism of right vs wrong. But I think that’s understandable since I’m often writing about clear-cut issues such as the corrupting nature of big government or the foolishness of class-warfare tax policy.
But I periodically come across topics where I’m not sure about the right answer. So I throw these topics out there to see what other people think.
Previous editions of “you be the judge” include: Putting politicians on trial, vigilante justice, brutal tax collection tactics, child molestation, sharia law, healthcare, incest, speed traps, jury nullification, and vigilante justice (again).
Now I’ve come across another example. Over in France, the socialist government says it wants to impose pay caps on corporate executives. That seems like a very bad idea, but there’s a catch. The proposal applies to government-owned companies.
Here’s a description from the Financial Times.
France’s new socialist government has launched a crackdown on excessive corporate pay by promising to slash the wages of chief executives at companies in which it owns a controlling stake, including EDF, the nuclear power group. …According to Jean-Marc Ayrault, prime minister, the measure would be imposed on chief executives at groups such as EDF’s Henri Proglio and Luc Oursel at Areva, the nuclear engineering group. Their pay would fall about 70 per cent and 50 per cent respectively… The government also wants to pressure other companies in which it owns a stake to follow its lead, even though it has no legal power to force such a change. France is unusual in that it still owns large stakes in many of its biggest global companies, ranging from GDF Suez, the gas utility; to Renault, the carmaker; and EADS, parent group of passenger jet maker Airbus. Mr Ayrault said he “believed in the patriotism” of company leaders and their willingness to share the country’s economic pain.
The analogy that pops into my mind is Fannie Mae and Freddie Mac. Those government-created entities (before the crash) were used as piggy banks by members of the political elite, who would take a break from climbing the ladder in Washington and spend a couple of years raking in millions of dollars by overseeing subsidized mortgages.
Or what about Government Motors? Or companies like Solyndra that are part of the green energy scam?
So even though I’m completely opposed to salary controls on the private sector, I don’t view government-owned and government-subsidized companies as being part of the free market.
But I also worry a lot about slippery slopes, so here’s my thought process.
- I fully support pay caps for government-owned entities, such as the Postal Service. Indeed, I assume those already exist.
- And I like the idea of pay caps for government-subsidized entities, such as Fannie Mae and Freddie Mac. I don’t know if there is a limit now, but if one exists, it’s way too generous if this story is any indication.
- But I get nervous about subsidies being an excuse for government regulation of executive pay, even when I’m disgusted when big business gets in bed with big government. This is why I was so conflicted in this interview about pay caps for banks getting TARP bailouts.
- Moreover, I’m instinctively opposed to pay caps on companies that have contracts with government, though obviously my views are affected by whether a contract deals with a legitimate function of government (buying a tank) or whether it’s a festering waste of money (paying a politically connected PR firm to boost the image of the IRS).
- Last but not least, I get very scared that politicians inevitably will take a good idea and turn it into a bad idea. In other words, if we give them the power to do something reasonable, like regulate pay at Fannie Mae and Freddie Mac, they’ll probably get intoxicated by power and decide they should be able to control compensation levels at genuinely private companies.
So what’s the right answer? If we’re allowed to fantasize, the obvious decision is to shrink government to its legitimate size so there aren’t any government-owned or government-subsidized companies.
But if we’re forced to deal with the world as it is today, then the choice is much more difficult. If we oppose pay caps, then political insiders can use cronyism to get undeserved payouts. But if we endorse pay caps, then we’re giving politicians power that almost surely will be abused.
If you put a gun to my head, I guess I would oppose pay caps. But I hate saying that since few things are as outrageous as rich people using the coercive power of government to take money from those with less.
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Live by the sword, die by the sword, says I. If the government owns a controlling share, then you should either get the government out or submit to their rules. sorry.
The cure, government imposed pay caps, is worse than the disease, crony capitalism, because inevitably the ruling class will seek to extend its power over all private business.
Dan, you could right a book about this topic.
Any government entity should have pay caps, including Fannie Mae and Freddie Mac. Why are they any different from the Post Office — including their power to screw things up royally? Otherwise, they quickly and easily become “legal” ways to pay off the politically-connected at taxpayer expense. The bonuses paid for poor performance at these entities is a total rip-off of the taxpayers, who also have to pay the costs entailed in the disasters they create.
Government funding of companies like Solyndra also merit very tight control of how such grants are made, and who is responsible for what and how much when they fail. The idea of making the money paid to Solyndra secondary to other investors and lenders should automatically put it in a different class. It is no longer an “investment” in any sense, but a pure gift. Imagine giving Bain Capital money on those terms in the “hope” they might create a few thousand jobs. They’d be hanging Romney from the nearest lamp post if he failed to pay it back. Unquestionably, somebody should go to jail for that deal. These days, politicians can get away with anything. Just look at Rangel, Pelosi, Reid, and yes our dear wayward John Edwards. Clinton was a pauper when he squeaked by in 1992. Today’s, he’s a multi-millionaire, and his wife is getting in line to repeat that performance. They got away from the White House with a lot more than the silverware. And pardoned a bunch of crooks as they left.
Arms length government contracts awarded on a competitive basis are a different story, but they’ve got to pass the smell test re: favoritism or again the taxpayer’s is in jeopardy. The proper way to view these things is to recognize that the taxpayer is, in effect, a shareholder in the government and deserves all the protection against fraud and abuse that ordinary shareholders are entitled to by law. It is our government. It must answer to us, or we are no longer a free republic. And, in fact, today we aren’t.
I think in private sector, there is a way to know how much salary an employee is worth of, given the market conditions, profit margins and other motives of the organization. In government sector or in government subsidized firms, the motives of the organization are not aligned along the same line as of private companies, there is really little illuminating logic as to how much an employee really deserves or worth of. So in higher positions in govt. sectors, employees or bureaucratic clique usually secure huge pay packets for themselves. But the wealth they amass also comes from sources outside their general pay. Their are other ways of swindling public money. I guess there is a chance that political elite made millions of dollars in Fannie Mae and Freddie Mac from sources outside their pay packages. I am guessing because this is what I usually see happening in govt.-owned or subsidized companies. So putting a cap can’t be of much help. Besides, its wrong for various reasons mentioned in this article. Two wrongs cannot make a right. Wrong plus Wrong = Wrong. The first wrong is establishment of govt owned/subsided companies. The second wrong is the step taken by the politicians to marginally correct the symptoms of the wrong, completely overlooking the real wrong. So doing this makes no sense, i.e. no good thing is going to come out of this.
No subsidized industry or entity is acceptable..GSE’s should be cut loose and the market should decide.
I understand about the moral quandary, but I have to say I’m in favor of pay caps for companies in categories 1 through 4. Obviously the government has no business intruding in the affairs of private companies, but private companies can make a choice, even those in category 4, as to whether the contract with the federal government is worth having to live under the fed’s rules.
For instance, in higher ed, schools that accept any federal dollars, even those that go with a student, are subject to all kinds of federal guidelines. Most schools just play along because they want the dollars. But Hillsdale and a few other dollars do not take federal money at all and don’t have to play by the federal rules. Does Hillsdale lose out on students who need the federal money? Yes. But it is apparently worth it to Hillsdale to follow its principles.
I think the same could happen with private corporations.
Although, as you say, the danger is when the federal government decides to tyrannically impose its will upon businesses that choose the right path.