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
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.