nef: A Bit Rich

Finished reading the report that was in the last Friday Linky about comparative pay levels. Quality-wise it’s a mixed bag, but I appreciated it, so here’s some more thoughts.
The report is called A Bit Rich and it’s by the new economics foundation or nef (the lower-case is deliberate, frustratingly). The report is short and easy-reading, and it weaves together two strands.
First, busting myths of pay and value. The report works through ten myths surrounding pay levels for jobs, and dismantles them. The myths they attack include: “The City of London is essential for the UK economy”, “We need to pay high salaries to attract and retain talent in the UK”, and “The rich contribute more to society”.
The mythbusting is set about with vigour and usually follows the same pattern – a common-sense argument bolstered by a reference to one or maybe two pieces of supporting research. It isn’t rigorous argument, but it’s effective rhetoric because of the conflict between the common-sense argument and the myth. Take, for example, Myth 6: “The private sector is more efficient than the public sector”. This is certainly a belief that is widespread and often taken as inarguable. WikiAnswer states it baldly: “Generally the private sector is more efficient because efficiency means lower cost and more profit. The public sector doesn’t have to worry about profit so there is no incentive to be efficient.”
The common-sense argument nef gives in response simply points out that lower costs have their own price. They give the example of hospital cleaners, where profit-incentives lead to reduced cleaning quality which leads to negative health outcomes. So, efficiency measurements are misleading unless social and environmental outcomes are included. There’s nothing complex about this point, and it’s not even a new point, but it’s bracing to see it laid down here in simple language. It isn’t going to convince anyone to change their views if they have really thought about the issue, it simply doesn’t have the firepower for that, but for people who haven’t reflected on this it’s a kick in the pants about accepting received wisdom.
The other strand of the report is the case studies. Six jobs are evaluated using the social return of investment methodology, and their value to society is compared with their salary range. The jobs are deliberately chosen to be provocative, with three high-paying low-social value jobs and three low-paying high-social value jobs. Predictably, these produce deeply troubling results. City bankers destroy £7 of social value for every £1 of social value they generate, and are paid enormous sums for the privilege; childcare workers produce a net gain for society, generating £7 of social value for every £1 they are paid. The appendix discusses how these calculations were performed, and it’s not exactly rigorous. For example, the whole financial crisis and recession is laid at the feet of the City bankers and counted against them. Another example: estimated tax avoidance (to hold against the tax accountant) is referenced to some guy’s blog, and not even to a specific post on that blog.
Again, though, while it isn’t rigorous it does work as effective rhetoric, providing a clear framework for talking about how value in society works and how it is rewarded.
The main point of the report is to argue that pay disparity in the UK is far in excess of what is warranted by any reasonable metric, and to put on the table a maximum wage to balance out the minimum wage. This last idea strikes me as particularly pie-in-the-sky thinking; a legislated maximum wage is almost inconceivable in a developed capitalist country, and even if there was political will it seems unenforceable. I do, however, like the suggestion of a maximum appropriate pay ratio within an organisation, limiting the possible disparity between highest and lowest. Such a measure could only be adopted by the organisation itself, but I think it’s something interesting to talk about.
Ultimately, I enjoyed reading this report, for all its shonky under-analysis. Partly that’s because it fits my preconceptions perfectly, big ol’ lefty that I am. Partly because I think it puts an engaging and readable case on the table for reducing economic disparity within society. This is becoming a more prominent argument recently, largely thanks to Wilkinson and Pickett’s book The Spirit Level: Why More Equal Societies Almost Always Do Better. There’s definitely a move in leftish circles towards perceiving financial inequalities as problematic in and of themselves. New Labourite Peter Mandelson’s famous comment about being “intensely relaxed about people getting filthy rich” has become even more problematic in hindsight.
Further, this report clearly signals the interconnectedness of the problems facing society. Economic disparity within and between communities, environmental degradation, failed governance, and the like are all joined. Like a cats cradle, when you tug on one string you inevitably find yourself tangled up in others.