Crises of capitalism by David Harvey and RSA

In Uncategorized on August 17, 2010 at 9:37 am

The animation is brilliant! You can see the full lecture below.


What recession? A few pockets haven’t seen a better time…

In Uncategorized on August 16, 2010 at 7:04 pm

Businessman's Pockets Filled with Money

While the economy is still struggling to come to grips with the severe recession that hit the UK in 2007-08, real wages for most workers have declined. But the average pay package among the UK’s top executives increased by £500,000 in the past financial year, according to a report by employment consultancy Hewitt New Bridge Street.

The report says that the pay hike was partly due to weak targets set for the bosses but primarily due to an “improvement in economic conditions”. At the same time, wages of a third of the employees of blue chip companies still remain static since the 2009 wage freeze for 60% of the workforce. 

I’m sure that the workers of many of these companies would like to know why gains from these improved conditions could not be shared with them, at a time when reduced purchasing power is having a major impact on consumer confidence.

Pay for performance?
Executive pay over the last two years has risen on average by 5% despite a 1% fall in share prices over the same period. In fact, in the last ten years the salary packages for executives in the FTSE 100 companies have quadrupled while share prices have declined showing no relation of their pay to a key performance indicator.

Why such massive pay increases then?
CEO pay packages at top firms are set by a board of directors which often comprises of executives from other similar companies. The CEOs in question may be serving or are likely to serve on other companies’ boards performing a similar function. It is a small circle where “you scratch my back and I’ll scratch yours” is an indulging self-serving game. Also, the compensation is recommended by consultancy firms who try to match what is offered by other companies. Most importantly though, the consultancy firms are hired by the same elite group and the consultants have every reason not to upset their paymasters. 

Why do shareholders not object?
Some shareholders do object. Just recently, 47% of the largest supermarket Tesco’s shareholders revolted against boardroom pay at their annual meeting, and it was not the only instance this year. However, in many cases where large shareholders like banks, pension and mutual funds are involved, they may not object since their own executives would not like to draw attention to their high salary packages. In any case, shareholder objections in most cases are not binding on the board of directors and cannot overturn directors’ decisions on compensation plans.

Surely, some CEOs deserve their million pounds annual compensation packages?
I would not question the absolute figures but if the executives are paid 100s of times relative to the average worker, it certainly seems obscene and excessive.

Let’s say that the profits of a company double under a CEO. Should all the credit go to the CEO alone? What of other workers who must have contributed to the growth? What about suitable market conditions playing a role? What if the growth in profits relative to the previous term were only an indication of the poor performance by the previous executive? 

Leadership matters immensely but so does the contribution of those who are led. There’s no easy way to numerically compare a CEOs talent and contribution compared to the rest of the workforce. But a fair society and a fair economic system would recognise the contribution of all workers in the economy and not tolerate the grotesque levels of income and wealth inequality that are prevalent today.

Years of research show significant social costs of excessive inequality. And the latest report on inequality shows that the UK is now one of the most unequal among the economically developed countries. 

While some inequality may be justified to provide incentives for performance and create efficiencies in the economy, maximum wage level must be tied to a reasonable proportion of the minimum wage, say 10-20 times, to ensure that the gains of economic growth are distributed fairly across the population.

Otherwise we have an absurd system where “to make the rich work harder you pay them more, to make the poor work harder you pay them less – or so it seems,” in the words of Billy Hayes, the general secretary of the Communication Workers’ Union.


Unemployment dips but the numbers are far from comforting

In Uncategorized on August 12, 2010 at 12:52 pm

BIRMINGHAM, ENGLAND - FEBRUARY 24:  John Bull alias Ray Egan poses outside the LDV van factory in Washwood Heath on February 24, 2009 in Birmingham, England. Self styled campaigner Ray Egan is backing the workers at LDV who could all lose their jobs after the government told the troubled van maker that it would not bail them out with £30m in loans.  (Photo by Christopher Furlong/Getty Images)

Unemployment in the UK declined by 49,000 to 2.46m in the last quarter. However, the number of claimants seeking jobseeker’s allowance fell by only 3,800 which is less than what many economists had expected, raising concerns about a slower than expected recovery.

Here are some other numbers to take home from recent reports and statistics on the UK job market:

  • The number of 18 to 24 years old who are out of jobs for two or more years increased by 42% over the last year to reach 72,000. In the same age group, numbers of those unemployed for over a year has increased from 104,000 to 184,000. According to the Recruitment and Employment Confederation’s Youth Employment Taskforce, the direct cost of youth unemployment is £4.7bn a year.
  • Jobseekers over the age of 50 are finding it particularly difficult to get back into the market. Numbers of those out of job for more than 12 months has increased by 52% over a year to reach 170,000, the worst numbers in a decade. While the government plans to extend the retirement age limit, the job market is struggling to find place for a number of over-50 workers.
  • An extra 40,000 people over the age of 65 have taken up jobs amidst fears of reductions in expected pensions.
  • According to the Chartered Institute of Personnel and Development, it is likely that private sector job creation will not keep pace with public sector cuts for at least the next two years, as nearly one-third of employers, among the 600 surveyed across all sectors, were looking to downsize in the coming three months.
  • Another survey among businesses in Wales shows that around 84% of those businesses have no plans to recruit this year.
  • Scotland saw a rise in unemployment by 34,000 over the last quarter to reach 223,000, or an 8.4% unemployment rate compared to 7.8% for the UK.
  • Vacancies have increased by 9,000 over the quarter to reach 481,000.
  • Real wages continue to decline among those employed as earnings growth rate falls behind the rate of inflation.