Ocado CEO’s Pay Passes The Guardian’s Utility Test

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The Guardian wants to know why some folks get paid oodles of cash. Because, you know, people aren’t just to be allowed to pay people what they want, it has to pass the newspaper’s moral smell test.

Something it never does offer us on its editor’s pay of course.

What is, other than this blindness to the idea of private property, a significant problem is that the CEO pay at Ocado does in fact pass The Guardian’s test it’s just that they’re too dim to realise it:

Almost 50 years ago, the American philosopher John Rawls published a celebrated account of what fairness looks like in a liberal democracy. Though scrupulous in its safeguarding of individual freedoms, Rawls’s groundbreaking A Theory of Justice incorporated an important rider. His so-called “difference principle” stipulated that resulting inequalities were justified only if they benefited the least well-off in society.

It is doubtful that Rawls would have judged the pay of Tim Steiner, the chief executive of Ocado, to fall into this category. A report by the High Pay Centre thinktank has revealed that Mr Steiner last year earned £58.7m.

OK, so, let’s test it. Ocado is a pretty entrepreneurial company. It’s designing and building a new way of doing retail. Such innovations have, over time, distinctly improved the lives of the least wel-off in society.

W£e can take the example of the last generation but one or two in retail:

Productivity is the principal driver of economic progress. It is the only force that can
make everyone better off: workers, consumers, and owners of capital. Wal-Mart has
indisputably made a tremendous contribution to productivity. From its sophisticated inventory
systems to its pricing innovations, Wal-Mart has blazed a path that numerous other retailers are
now following, many of them vigorously competing with Wal-Mart. Today, Wal-Mart is the
largest private employer in the country, the largest grocery store in the country, and the third
largest pharmacy. Eight in ten Americans shop at Wal-Mart.

There is little dispute that Wal-Mart’s price reductions have benefited the 120 million
American workers employed outside of the retail sector. Plausible estimates of the magnitude of
the savings from Wal-Mart are enormous – a total of $263 billion in 2004, or $2,329 per
household.

Capitalise that benefit – use the method of Saez and Zucman to turn an income into a wealth – and we get to a valuation of about $5 trillion to consumers. The shareholders in Walmart – or, to be more accurate, the shareholders of the entrepreneur, the Walton family – have about $150 billion of stock.

The justification is that they have $150 billion, we have $5 trillion, yep, that works. Not on any moral grounds or anything, rather that if we let the last generation, or this generation, of entrepreneurs gain pots of money then we’ll be encouraging the next generation. So, there will be more people trying to grasp the brass ring of $150 billion at the cost of gifting us $5 trillion in value.

We, and the least well-off in society, are made better off by encouraging entrepreneurs to do their thing. This is also not unusual, this is how the system works. As William Nordhaus pointed out, entrepreneurs tend to end up with about 3% of the value they create. Near all the rest coming to us consumers.

That is, we out here are on the thick end of the greatest economic bargain ever offered. Something that even Rawls would suggest we should accept even if The Guardian can’t understand it.

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Spike
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Spike

John Rawls might not have understood what the chief executive of Ocado does to earn his pay, but it’s certain that a Guardian columnist would not, and would claim not to know even if he did. Even if Ocado never deals directly with “the least well off,” it’s not clear they don’t benefit – from an economy with new retail options and that rewards this and other innovations – and Rawls would have known that. “Famous economist wrote something once that suggests that an Incomes Policy might be useful in this one case.” No, but please play again.

TD
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TD

Isn’t a big chunk of his compensation a result of cashing in on incentives that were granted several years ago when there was no real way of knowing how much they might be worth down the road?

Spike
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Spike

If so, it would be unsurprising and typical; and the Guardian’s chorus of “How dare he make so much?” could follow a verse of “How dare you make him work for free?”

Michael van der Riet
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Michael van der Riet

Purely out of interest, why was the Wal-Mart Effect last measured sixteen years ago? Has it ceased to exist? Is it too speculative and difficult to measure?

Paul Marks
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Paul Marks

The modern system, in many countries, has little to do with “capitalism”. The modern system is based on vast amounts of Credit Money from the government and the pet banks (which are joined at the “Woke” hip) – Richard Cantillon (John Law’s partner) would, three centuries, have understood that much modern wealth is based on “legal” fraud. One reason that vast Corporations dominate the economy, controlled by highly paid “Woke” managers who do little apart from rant on about the Frankfurt School “Diversity and Inclusion” Agenda – denouncing ordinary people as evil “racist, sexist, Islamophobic, homophobic, transphobes” whilst sipping expensive… Read more »

Paul Marks
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Paul Marks

As for John Rawls – his writings really have nothing to do with JUSTICE, which is to each their own. His writings are about the “distribution” of income and wealth which ASSUMES (wrongly) that income and wealth belong to the Collective (“the people”) and are then “distributed” according to some principle or other. In short the late Professor Rawls (a “Christian Socialist”) denied the basic principle of private property in in the means of production and assumed that people have to “justify” their income and wealth. He wrote books and essays with the word “justice” in the title and the… Read more »