Salary Ceiling, a Lever for Change

Tuesday, 15 March 2011 13:48 By Herve Kempf and Herv Kempf, Mouvements | News Analysis | name.

Salary Ceiling, a Lever for Change
David Koch, a candidate for maximum acceptable income. (Photo: Gretchen Ertl / The New York Times)

Over the last 30 years, disparities in income have exploded. While a big company CEO earned about 35 times the average salary of one of his employees during the Trentes glorieuses [the French appellation for the period of glowing economic prosperity from 1945 to 1975], today, he earns 300 times as much. Faced with this reality, the idea of a maximum salary is making its way in public debate. Let us review the arguments in favor of such a measure:

The idea is developing slowly - too slowly, undoubtedly, but surely - in sync with the awakening of the collective consciousness: a maximum acceptable income (MAI) is a necessity to repair societal connections and to institute environmental and social policy. Should it be called "allowable," "admissible," "acceptable?" That's not important. The principle is clear: too great inequality is not acceptable. Earning ten or thirty times more than others is perhaps admissible, earning three hundred times or a thousand times more is simply senseless. And in the period since Patrick Viveret and his research group relaunched the idea of a MAI at the beginning of the 2000s, it has become an essential element in policies of change.

I shall first show why the MAI is necessary from an environmental perspective. As we know, the increase in inequality over the last 30 years constitutes the central characteristic of capitalism's recent evolution. Numerous studies document this upsurge in inequalities. One of them, conducted by two economists from Harvard and the Federal Reserve Board, is among the most telling. Carola Frydman et Raven E. Saks [1] have compared the relationship between the salaries earned by the three top executives of the 500 biggest American companies and the average salary of their employees. This indicator of the progression of inequality remained stable from the 1940s, when the study's observations begin, up to the 1970s: the bosses at the companies included earned roughly 35 times the average salary of their employees. Then, starting in the 1980s, there's a discontinuity and the ratio increases constantly until it reaches over 300 in the 2000s.

Thus did capitalism experience a major turning point after the period known as the "Trente Glorieuses" in France [1945-75]. During that period, the collective growth in wealth allowed by the continuous rise in productivity was rather equitably distributed between capital and labor, such that the ratios of inequality remained stable. After the 1980s, a complex of circumstances, which are not appropriate to analyze here, led to an ever more pronounced discontinuity between the holders of capital and the mass of citizens[2]. The share of salaries (earned income) in Gross Domestic Product (GDP) sharply declined in favor of returns to capital. The European Commission's economic database, Ameco, elucidates the phenomenon [3]: in France, for example, salaries' share of GDP went from an average of 63 percent during the 1960s and 1970s to 57 percent during the 2000s, a drop of six points.

Consequently, the oligarchy is accumulating income and wealth to an extent not seen for a century. It spends its wealth in a frenzied consumption of yachts, private planes, immense residences, jewels, exotic trips: a flashy jumble of sumptuary squandering.

Why is this behavior a powerful motor of the environmental crisis? To understand that, we must turn to the great economist Thorstein Veblen. What did Veblen say? That the tendency to compete is inherent to human nature. We all have a propensity to compare ourselves to one another and we seek to demonstrate a little superiority, a symbolic difference compared to the people among whom we live, by such and such an external trait.

Veblen subsequently observed that several classes ordinarily exist within any given society. Each class is governed by the principle of competitive ostentation. And within each class, individuals take as their model the behavior pertaining in the class above, the conduct of which indicates what is good, what is chic, to do. The imitated social class itself takes its example from the class immediately above it on the scale of fortune and so on from the bottom to the top, such that the class located at the summit defines the cultural model of what is prestigious, of what extends to others.

What happens in a highly unequal society? It generates enormous waste because the material squandering that characterizes the oligarchy - itself prey to competition in conspicuous consumption - serves as an example to the whole society. Each at his own level, to the limit of his income, seeks to acquire the most attractive goods and symbols. Media, advertising, films, soap operas, magazines, celebrities are tools for the diffusion of the dominant cultural model.

Consume Less to Share Better

So then, how does the oligarchy block the developments necessary to prevent aggravation of the environmental crisis? Directly, of course, through the powerful - political, economic and media - levers it enjoys and which it exploits to maintain its privileges. Indirectly - and just as importantly - by this cultural model of consumption that impregnates the entire society and defines normality for it.

Now, preventing the aggravation of the environmental crisis and even beginning to restore the environment resides in the rather simple principle: humanity must reduce its impact on the biosphere. Achieving that goal is also simple in principle: it means reducing our extractions of minerals, wood, water, gold, oil etc. and reducing our green house gas emissions, as well as chemical, radioactive, packaging, and other wastes. In other words, reduce our societies' overall material consumption.

Who is going to reduce their material consumption? The 20 to 30 percent of the world's population that consume close to 70 percent of the resources extracted annually from the biosphere. Therefore, it's from these 20 to 30 percent that the change must come, which essentially means from the peoples of North America, Europe and Japan, as well as from the rich classes of emerging countries.

However, within these overdeveloped societies, we are not going to suggest that the poor, that those with modest income, reduce their material and energy consumption. Nor is it the hyper-rich only who must effect this reduction: there are not enough of them for that to sufficiently change the collective environmental impact. In fact, a reduction in material consumption must be suggested to the aggregate of Western middle classes.

We see here that the question of inequality is crucial: the middle classes will not agree to reduce their material consumption if the necessary change is not equitably adopted. To recreate the feeling of solidarity essential to achieve this radical reorientation of our culture presupposes that a rigorous tightening up of inequalities be undertaken - which, moreover, will transform the effective cultural model.

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The proposition of reducing material consumption is provocative in the eyes of the dominant ideology. However, today, increase in overall material consumption does not increase our collective well-being - on the contrary - it harms it. Moreover, a civilization that chooses to reduce material consumption will find that doors open to other policies. Prepared by the transfer of wealth that will allow a reduction in inequalities, such a society will be able to stimulate socially useful and environmentally low-impact human activities. Agriculture, education, culture, health, transportation, energy are some of the domains where needs are great and opportunities for job creation, significant. It's a matter of renewing the economy through the idea of human utility rather than through the obsession with material production, of encouraging social connection rather than individual gratification. In the face of the environmental crisis, we must consume less to share better, to live better together rather than consume all alone.

To summarize: why is the sharp reduction in inequality through the MAI socially and environmentally indispensable?

*To transform our societies' dominant cultural model so that the middle classes may accept a reduction in materials and energy consumption;

*To recover the share of collective wealth that has been looted by the oligarchy in order, on the one hand, to improve the lot of the poor, and, on the other, to finance the reconversion of part of the economy into activities that create jobs and supply useful social and low-environmental-impact goods.

To What Extent, How?

The good news is that the necessity for a MAI is beginning to convince ever larger circles and finally penetrating the political arena. The MAI has been part of the Europe Ecology Party's platform since 2009; it has also been endorsed by the Parti de gauche [Left Party], which introduced a proposed law on October 16, 2009, aimed at the "re-establishment of progressivism in income taxes allowing a maximum income ceiling." For its part, the Socialist Party has accepted an attenuated version of the MAI, introducing, also in October 2009, a proposed law on maximum salary. The environmental pole of the Socialist Party goes further and is clearly in favor of the MAI, but without having convinced the entire party yet.

Where should maximum income be set? The Utopia Movement envisages a range of ten to one between the maximum income and the minimum income; the Left Party goes from twenty to one; the "Save the Rich" collective, thirty to one; the Europe Ecology MP Karima Delli has written a forty to one gap into her proposal to the European Parliament. There is no magic number: democratic deliberation should determine it.

Knowing that the average salary for a person in France is along the order of 1,500 euros a month, we see that a ten to one scale would clip monthly income above 15,000 euros, that a forty to one scale would impact income over 60,000 euros a month. That figure is very close to the income threshold -57,000 euros - above which one belongs to the 0.1 percent of the richest people in France, according to the [French] National Institute for Statistics and Economic Studies.

It goes without saying that the MAI must cover not only salary, but the totality of remuneration - bonuses, stock options, golden retirement plans - and capital gains. How to proceed? Via taxes. As economist Jean Gadrey reminds us, a ceiling on income was established in the United States starting in 1942 by taxation at a very high level on income tranches above a certain threshold: "Roosevelt established 88 percent taxation on income from the highest tranche, then 94 percent in 1944 -1945. From 1951 to 1964, the tranche above the equivalent of $400,000 of today's dollars was taxed at a rate of 91 percent, then between 70-75 percent up until 1981." This kind of taxation was practiced in all Western countries up until the 1980s. In short, it's only a question of returning to a previous, better balanced situation.

Two important points, however, must be emphasized. One, this step must be taken internationally, with the European level appearing essential to its success. If the idea of the MAI catches fire as it has in France, in the Netherlands, in Great Britain, and in other countries, it will be necessary to stoke those fires in each country as well as at the level of the European Parliament to achieve a continental norm that, additionally, would be the exemplar at the global level.

Secondly, the MAI is not a magic weapon: it must be structured within a framework of complete taxation overhaul, specifically including a determined struggle against tax havens and for public control of financial circuitry. However, the MAI - easily understood by everyone and so obviously fair - could be the most visible standard for this indispensable fiscal reform.

A Positive Imaginary

A less technical dimension should be kept in mind. In October 2009, I was struck by the fact that, even as the Left and Socialist Parties were publishing their MAI or salary ceiling proposals, this information was virtually ignored by the media. Of course, one could explain this censorship by the fact that the media are largely under the control of the oligarchy, which obviously does not want this subject bruited publicly. But it was also necessary to acknowledge that the politicians themselves did not press the subject very hard: although they put it in a corner of their platform, few considered it a real issue.

To understand this situation, I spoke with Patrick Viveret, one of the people who launched the idea of the MAI, to better understand. "Politicians highlight income ceilings - it's a new idea - but they do so without conviction," he says. "In a society where the sole scope for the imagination is imagining having and owning, the MAI is perceived as a restriction on freedom. A real campaign is necessary to convince people of its utility: first of all, it must be shown that there is already a ceiling on income for the vast majority of the population. And the campaign should, above all, work the field of positive imaginings, such as that of happy moderation, of well-being. That runs counter to the dominant economism which proposes consumption as compensation for malaise and offers consolation through advertising."

"However," Patrick Viveret continues, "that range is blocked: consumption is becoming ecologically insupportable. Therefore, the dominant discourses are little by little replacing the compensating-consoling range with an authoritarian register. If the compensating-consoling route is no longer possible and people reject the authoritarian register, it will be necessary to work on democracy and on happy moderation."

To be happier owning less, certainly. But above all, by dreaming in new and different ways. Like any political measure, the MAI means nothing unless it is implanted within another culture of well-being and collective happiness.

Hervé Kempf is the author of "Pour sauver la planète, sortez du capitalisme" ["To Save the Planet,Let's Exit Capitalism"] Éditions du Seuil, Paris, 2009 and "Comment les riches détruisent la planète," Éditions du Seuil, Paris, 2007 ["How the Rich Are Destroying the Planet," Chelsea Green, 2009].

Footnotes:

1. C. FRYDMAN & R. E. SAKS, "Executive Compensation: A New View from a Long-Run Perspective, 1936-2005," Finance and Economics Discussion Series 2007-35, Board of Governors of the Federal Reserve System, Washington, 2007.

2. See H. KEMPF, Pour sauver la planète, sortez du capitalisme [To Save the Planet, Exit Capitalism], Seuil, Paris, 2009.

3. See http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm, click on "7-Gross domestic product" then click on "7.6-Adjusted wage share." To read also: "Part des salaires: et pourtant elle baisse" [Salaries' share: and yet it drops], by M. HUSSON; T. VEBLEN, Théorie de la classe de loisir, Gallimard, coll. « Tel », Paris, 1970.

Insee, dossier de presse, Les revenus et le patrimoine des ménages, Avril 2010.

J. GADREY, Les États-Unis instaurent un revenu maximum pour sortir de la crise, December, 2008.

See also the file: "Le revenu maximal admissible, pourquoi ? comment ?" ["The Maximum Allowable Income, Why? How"]

Leslie Thatcher is Truthout's literary editor, French translator and sometime book reviewer.

Last modified on Tuesday, 15 March 2011 13:48