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Wealth gap

Rants Denmark is the happiest country in the world. Reasons given for this suggest that having a welfare state providing free health care, and other benefits, and a relatively small wealth gap compared to other countries are significant factors. This made me think about the values society puts on the work that people do.

My first thought would be that we would reward those who are most useful to society and possibly give credit to those who put themselves at risk on behalf of others. But a moment's thought makes you realise that this is far from the case. This was made very clear to me when I was living in New Zealand at the time of the Christchurch earthquake in 2011. I imagine myself trapped in the rubble of a collapsed building and after three days in darkness without food and drink I heard a voice calling to me, "Hi, my name's Clive, I'm a stockbroker." This would not fill me with confidence and neither would a host of other highly paid professions nor, to be fair, would I raise my hopes too high on hearing the voice of Barry the hairdresser.

And once everyone has been extricated from the rubble and we look round at the devastation, what do we need? Do we need bankers and lawyers or do we need people who can saw a plank of wood in half and wire a plug? I categorise myself amongst the useless as, living on a farm in Otago at that time, I was surrounded by loads of practical people who could provide food for themselves and others while making a mobile phone out of a piece of number 8 wire.

Disasters are extreme cases but let's look at everyday life. Does the average accountant put themselves or the general public at risk on a daily basis? Not the accountants I know but your average bus driver does. So we are quite happy to put someone who may not even have a university degree behind the wheel of a 9 tonne bus and send him careering round the streets. Each year there will be accidents involving buses knocking down nuns carrying babies who later die from their hideous injuries and the driver is jailed for manslaughter. On a daily basis the bus driver is paid a pittance, risks killing and maiming the general public and losing their freedom while the accountant only risks lead poisoning from chewing their pencil.

Occasionally the poor downtrodden workers take exception to being poor and downtrodden and take strike action. When the garbage disposal workers, or public hygiene executives as they are probably referred to these day, stop work it's not long before the streets pile up with refuse and the public gets annoyed and demands action. If all the auditors decide to go on strike how long will it be before the public are out on the streets protesting?

We feel the need to reward those who study hard at school and go on to take up one of the professions. If people have studied hard, spent three or four years at university then gone through the junior ranks to really learn what they are doing it is right to reward them with a hefty pay cheque. Most people would consider it unfair if the guy cleaning the public toilets was paid as much as a barrister. There are exceptions of course and the fattest cats are likely to be business people rather than professional people anyway, with or without an MBA.

Where the wealth gap causes most resentment is not so much in the different lifestyle that money can buy but in the injustice that money can buy. At the simplest level, let's look at parking fines. Here in Hong Kong we have a problem with cars parked illegally in the streets of Central. If the police catch you and give you a ticket you need to pay a fine. With manpower shortages many people think that the risk of being caught is acceptable so that paying the parking fines works out cheaper than trying to park in a multi-storey. Some suggest that the way to deter people is to double the fine. But what would that do? Many of the cars causing the problem are company cars and fines probably go down as a business expense and doubling the fine is hardly likely to be a deterrent.

People also suggest a congestion charge to cut down the number of cars in Central. That might deter those with less money but it would not deter the fat cats even if they had to pay out of their own pockets. Fines, particularly fixed ones, are an unfair punishment, be it for traffic or any other offence as they hurt the poor offender much more than the rich. Or at least they do in most countries. In Finland, and, I believe, other Scandinavian countries, fines are means tested. A story from March 12, 2015 tells of a businessman fined 54000 euros for travelling 30% above the speed limit . Now that's a deterrent.

In order to try to reduce the wealth gap some countries have tried to put a cap on salaries so that a CEO would be limited to, say, no more than 12 times the salary of the lowest paid worker. Switzerland held a referendum with exactly that proposal but the idea was heavily defeated. One argument often rolled out when discussing excessive executive pay is that if companies were restricted in what they could offer it would reduce their competitiveness. However, such a cap would not prevent the companies from paying their top executives more as long as they increased the pay of their work force.

And then there's bonuses and golden handshakes. A CEO joins a company on a huge salary and in addition receives huge annual bonuses that amount to more than the people at the bottom of the food chain earn in a lifetime. And when the CEO fails to increase the company profits by 10% per month they are given severance pay amounting to many more millions. The story of Dan Price, the CEO who cut his salary so that he could pay a minimum salary of US$70K to his staff is a rare positive. He questions which is more important, the boss or the workforce. Can one exist without the other - which would you rather lose, your head or your body? Good man, let's hope he sets a trend.

The public sector argues that it needs to pay salaries comparable to the private sector or risk losing their most talented people. Sounds like a reasonable argument until you see the constant public dissatisfaction with the performance of these highly paid people. In New Zealand, for example, NZ$100,000 (about US$67000) would be considered by most to be a reasonable amount of money and would provide a decent standard of living. So when you see public sector employees earning $300,000, $400,000 or more and still not appearing to do a great job you have to ask if you could have hired someone equally incompetent for $200,000.

Each of these instances may not be the end of the world but it is the combination of so many factors that make the wealth gap grow and develops further dissatisfaction. I am sure others can offer some imaginative solutions and there will be those who would argue that the wealth gap is not important so long as everyone has somewhere to live and enough to eat. I don't think many would argue that we should all be paid the same, that was tried in Communist states and did not prove to be a resounding success, but in 1965 CEOs in USA earned around 20 times that of their workers, now they earn around 300 times more. I find it hard to see how that can be justified. Even if economists argue that it is economically justifiable it is not morally justifiable and I would hope that still matters to a lot of people.