Proposed new economic system

Great Debates
#1

Me and a mate of mine were downing a few Carlton Cold’s watching Australia disassemble Zimbabwe in their World Cup pool match when we started discussing a recent news story which saw a corporate executive get a $32 million golden handshake when he left his post at Colonial Bank. My mate thought this was far too excessive, to which I responded that the market demands these sorts of pay outs in order for banks to compete with each other in order to lure the top CEOs to their company. While I conceded that the current economic system is not perfect, I argued that it was the best we have. My friend agreed that Communism is never going to work, so my challenge to my friend was to come up with an economic system better than the current one, that would prevent such handsome pay outs, but not damage market competition, and retain the most efficient use of resources as possible.

Here is what he proposed:

Basically, you have a ‘Central Labor Committe’ (CLC) that is a branch of the government that decides the relative weight of each job. Take a bank, for example, the CLC would decide that the manager’s work warrants six times the payment of a regular bank clerk. On the surface, it would look like this would completely destroy market competition, however my friend (Brad), came up with an amendment; if the bank wants to pay the manager more money to out compete other banks, they can, by giving ALL of their employees a proportional pay increase, relative to each other. I then pointed out that this wouldn’t allow employees to seek pay rises, destroying the incentive to work harder than other employees. The response was, that for each job, there could be different ‘pay levels’. So, our manager, if he wanted to seek a pay rise, could work harder and seek a pay rise to “Manager: Level 2”. However, if he slacks off at this level, he could slip back to the pay level of “Manager: Level 1”.

Basically, each employees’ salaries at any given company must be directly proportional to their co-workers. The CLC would decide how many more times (3X, 4X, 5X etc…) a given job is worth over another. So, let’s say the manager is entitled to 10% of a company’s weekly wages allowance, the company could decide to pay him more money, but it would result in a pay rise to every other employee at the company, unless, that manager was promoted to a different pay level for excellent work.

Thoughts? Would this be better than our current system?

#2

So, lets sum this up; proportionality in pay between different levels of workers would be overriden by performance-related factors.

I don’t see how this would be any different to our current system in practical terms.

#3

No.

#4

Many very large companies in the U.S. use a system very similar to this one. It is basically the same system that the rest of the private sector uses with tons of extra beauracrcy thrown in. I can’t see any real difference or advantages to what already exists.

#5

I once proposed a system based on the ratio of expenses to results.

Those who can do more, with less, will get rewarded. This provides in incentive to “leanness” in staffing. Managers would make bids on resources, such as computer network time. Clever managers might find ways to emphasize peer-to-peer networking in his department, rather than central networking. (Cheaper!)

By this logic, if someone in my hierarchy got a multi-million dollar bonus package, my own bonus package would be reduced, as opposed to the same guy getting a smaller bonus. At the same time, the bonus has to be large enough to hire and maintain good workers.

In theory, this is called “The Invisible Hand.” In practice…

Hm…

Trinopus

#6

Natural oligarchial effects are already at play in price-setting for both the cost of goods and the cost of labor. While the natural inclination of business is to pay people the least they can for labor, things like unions serve to push that the other direction. A lot of us have benefits that unions demand if for no other reason than that the unions demanded them.

The problem with proportional pay is a different beast. The most likely affect of implimenting such a scheme is to have companies break up into smaller and smaller units so that the employees in those units more or less maintain their pay. This is a decrease in efficiency for no gain. To counter this, wholly owned subsidiaries would also have to be subject to this, and I think that would cause some considerable havoc.

Depending on the industry, there are several factors that decide fiscal organization, whether intense specialization is good or stronger central organization is good. No magic formula there. Leaving the ability to go either way is most likely the best of these, though it does place us in the situation we are in.

I do think that CEOs, on the whole, make too much money, but I think that is because their job is also too important. Companies, for a governmental analogy, seem to center largely on dictatorship or a pure republic (not a democratic republic, for comparison). Given the way in which our social freedoms are often tied to economic freedom I don’t think we have achieved the best solution yet. Fiscal conservativism in the private sector is probably quite difficult to dig out unless we have a clear path to take.

#7

Keep the gov’t out of business as much as possible. The best they ever do is to muck things up.

Here’s a system worth considering that’s never been tried before:
Free Market Capitalism.

#8

What about new types of jobs - this system would discourage new job types from being created, stifling innovation, due to the lag between your CLC deciding what this new job is worth, and the creation of this new job type. Also, if there was a shortage or surplus of a certain job type, you get the loss of effiency because your CLC wouldn’t be able to respond to the change quickly enough. For example, if you had a surplus of clerks in the job market, under your system, only some would get jobs at the artificially high salary the CLC has set for clerks; lots of clerks would be out of work until the CLC changed its ratios. In a free market system salary for clerks would lower, and more of them could be employed(at reduced salary, but a low paying job is better than a no job at all.) Also, what happens if the CLC sets the salary ratio at a level far out of whack with the market price - say, too little for CEO’s, this would provide an incentive to pay the valued worker ‘under the table’ to try and get the best CEO.

#9

Let’s pray it is never implemented.

We need a new system, comunism is clearly unfair, in an ideal form everyone receives the equal income no matter what they do. It’s unfair because it does not take into account individuals merits.
But capitalism is also unfair, it doesn’t take into account individuals necessities. In a free market system if you don’t produce you die. If you produce less than what you need to eat, you starve.
The solutions is difficult, at this time of our history the best we can achieve is a mixture of both systems.

#10

If I might be so bold as to point this out, the first and most obvious solution would be the removal of barriers to production. Without unnatural interference (such as, say, the OP’s proposed bureaucragarchy*) in the origination of valuable goods, more production of same would occur, benefitting society. That’s why the Free Market is generally considered (by those who have actually considered it) to be the best goal.
*I’m pretty sure that isn’t a real word. You know what I mean by it, though.

#11

How is this not far? Sucky, yes. But unfair?

#12

To robertliguori according to Aritstotle justice is treating men equally in what they are equal (dignity) and unequally in what they are unequall (merits). Capitalism only deals with the second part of the definition. Do you really believe it is fair that children die of starvation? That old men die because they lack medical treatment?
And that is the main problem with capitalism, every economic system at the bottom line deals with human beings. And don’t answer with that crap of “equal chances” because you know it isn’t so.

#13

Okay, but there are three different classes of “unequal chances”:

[list=1]
[li] Regulation of the market by the government. This can only ever reduce participation. Remove government intrusion, and this goes away.[/li]
[li] Unequal motivation. Some people bust their asses to compete, and others do not. Said Ass-busting can’t ensure success, of course, but it can put you ahead of the people who are unwilling to be equally competitive. One of the basic principles of Capitalism is that it tends to reward people who put more into it (more capital, more risk, more time and effort) over those who do not. This is, of course, entirely fair, and need not be discussed further.[/li]
Unequal Starting resources. This is what you’re talking about, Estilicon, and I’ll certainly grant you this: People who start with more cash on hand to risk are more likely to be able get a start than those who have no cash. People with available resources can pump more cash into a business they have started than people beholden to a bank. However, their money didn’t magically appear out of nowhere - they earned it, or their parents earned it and wanted to share it with their descendents, or however they got it, it was earned. Furthermore, someone who takes that amount of cash, and puts it in a productive business enterprise, is benefitting society far more than someone with the same bankroll who just buys a new car every year. If they have their own money to keep a business afloat when another person couldn’t in the same situation, guess what? They, personally, are paying the wages of their employees out of their own money. To say that this is somehow evil, or unjust, is immensely shortsighted, if not purely ignorant (though I don’t think that you, yourself, are ignorant, only mistaken).