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12 December 2011

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Roy Grieve

Brian Ashcroft is certainly justified in raising the issue of 'fairness' (Blog 12 Dec). There are, as he makes clear, at least two aspects of the present situation which are manifestly unsatisfactory from that perspective.

One is that the fat cats of the financial sector, whose greedy and reckless over-lending threatened to bring down the banks and plunged the world economy into recession, survive largely unscathed and unapologetic, while the rest of the community, having paid for the rescue operation, is being made to suffer the consequences of the financiers' incompetence. Further, there is real concern that, in the face of rising unemployment, the attention of policy-makers is focussed more on budget balancing than on a (Keynesian) strategy of stimulating demand and growth.

The growing inequality across western societies - as confirmed by the recent OECD report - ia another evidence instance of current inequity. Professor Ashcroft hits the nail squarely on the head in making the point that the ballooning salaries and bonuses of corporate (and indeed other) top executives have nothing to do with rising productivity or an increasing social contribution on their part - but everything to do with the greater economic power they have come in recent years to possess. Relative to rival claimants (shareholders, workers) the position of such executives has strengthened, enabling them to pocket a larger share of the proceeds.

Adam Smith long ago understood that in a capitalist economy the answer to the question of 'who gets what?' depends essentially on the relative economic clout of the parties concerned. Thus (Wealth of Nations, Book I, ChapterVIII):

What are the common wages of labour, depends everywhere upon the contract usually made between these two parties, whose interests are by no means
the same. The workmen desire to get as much, the masters to give as little, as possible. . . . It is not difficult to foresee which of the two parties must,
upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms.

Of course the economy is now very different from what it was in Smith's day, but nevertheless, putting aside (as we must) subsequent sophistries to the effect that 'factor' rewards correspond to 'marginal productivities' we can accept that Smith's insight into the question of 'who gets what?' still holds good.

There is indeed good cause for continuing public disquiet and protest.

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