Pay as you earn

In the whole furore over the pay of Cedric Brown, the chief executive of British Gas, the most enjoyable episode concerned Greville Janner, the Labour MP. It emerged that Janner, the Labour chairman of the Commons Select Committee on employment, who gave Brown such a hard time in front of the television cameras, was a ?25,000-a-year non-executive director and member of the remuneration committee of Ladbroke's-whose chairman is paid substantially more a year than Cedric Brown.

Yet it is not as if the outcry over pay has been confined to a few publicity-hungry MPs, hair-shirted intellectuals, and vengeful Trotskyites. Even so studiously moderate-spoken a commentator as Joe Rogaly of the Financial Times was moved to words of reproach. No doubt part of the trouble was that it all blew up when British Gas was both raising prices and shedding employees. Besides, a recently privatised public utility was bound to attract some particularly unfriendly scrutiny.

But why was so much fuss made over a salary which even in the UK is a lot less than many people's incomes (seven rock stars are each making over ?10 million a year), and would be dismissed as chickenshit by any self-respecting chief executive of a similar sized organisation in the United States?



Cedric Brown started his working life at the age of 16 with a pick and shovel in his hands. This, some have argued, entitles him to feel not at all embarrassed about what the "enterprise culture" has done for him. Could the same be said, for example, of Alan Clark, a very different kind of ardent Thatcherite? In his oh-so-readable diaries, the entry for Christmas Eve 1987 opens with "I've got ?700,000 cash in my Abbey National Crazy-High-Interest account. But what's the use?"-the point being that "I'm not rich enough to have servants." Yet it is not as if Saltwood Castle and its treasures, plus the Highland estate, the chalet in Zermatt, the house in Wiltshire and the ?700,000 on deposit had all been amassed out of income earned from a sweaty brow-in other words, from a starting-point equivalent to Cedric Brown's.

And what about the bejewelled wives and daughters of multi-millionaires? Their contributions to the enterprise culture mostly begin and end with helping to organise an occasional charity ball. Or the movie stars whose astronomical incomes are a function of nine parts celebrity to one part acting? And what of the authors of novels so artfully bad that every tired businessman contemplating the long flight to Tokyo or Hong Kong buys a copy at the airport bookstand? Or the barristers who can charge ?800 an hour for their time, simply because their corporate clients have to buy what may be their best chance of winning a deliberately over-complicated multi-billion-dollar dispute with similarly paid colleagues? Then there are the partners in a nickel-plated stockbroking firm, who take home twice as much as Cedric Brown even in a bad year, merely by trading in stocks and shares. While we are thinking about it, what of the fashion models lucky enough to have been born with wide eyes and long legs, or the professional games-players lucky enough to have been born with a bionic eye for a moving ball? And let's not forget the happy few who have won the national lottery despite the pathetic irrationality-to anyone who knows anything at all about probability theory-of ever having a chance to win seriously large sums of money?

The truth is that nobody has a clear and consistent set of standards for judging who deserves to get how much money for or from what. There are, it is true, two entirely consistent theoretical positions-one on the left and one on the right. But nobody actually holds either of them.

The one on the left is, in the words of the most uncompromising of all the French Revolutionaries, Babeuf, that "when anybody is starving, it is a crime to have more than enough." Well, yes, if we were all in the lifeboat together for 60 days on the open sea we would probably both subscribe to, and act by, that maxim. But not even the most egalitarian socialist intellectuals covenant their professional salaries to Oxfam to the point when they and their families live no more advantaged lives than the emaciated refugees-and nobody seriously expects them to.

At the other extreme is the view that whatever the distribution of rewards generated by a free and open market, there is no justification for tampering with it in any way. In practice, however, not even the most rigorously Josephite politician actually believes that all taxation is robbery and that any form of public provision of welfare is a mischievous interference in the workings of the good society-least of all the late Lord Joseph himself.

So: if we are all hedgers and trimmers of one kind or another, is there any way of clarifying whatever muddled presuppositions underlie our notions about who should get how much more than whom? Of course, we shall all disagree about the level of the "minimum." But is there a set of criteria to which everybody would, or at least might, be willing to appeal, once that condition had somehow been met? I would like to suggest three such criteria.

The first is effort. There can be nobody who seriously maintains that if one person works twice as hard, or twice as long, or both, at the same job somebody else is doing, he or she doesn't deserve a higher reward. Of course there is plenty of room for argument about what does and does not count as hard work. You can be certain that many of those compulsive businessmen who go on about their 70-hour week are actually enjoying it just as much as, say, the string quartet players called back to give another encore, or the university dons paid to read the very books that most interest them. For this kind of person, as for the late Mr Gordon Selfridge, "There's no fun like work." But the principle still has an immediate intuitive appeal, does it not?

The second is risk. Once again there is plenty of room for argument about what this actually means in the real world. Are we talking here about the physical dangers faced by trawlermen or coal miners, the financial risks run by Names in Lloyd's of London-those individuals whose wealth underpin the insurance market-or about the willingness of scientists or perhaps inventors to stake their reputations on ideas which will bring them either fame or ridicule in 20 years time?

But take the actual case of Barry Houghton, reported at about the same time as the Cedric Brown furore. Houghton left his job and sold his house in 1971 in order to start his own electronics business. He paid himself a salary of ?30 a week. In 1975, the enterprise nearly went under, but this year he has floated his company at a stock market valuation of ?64m, retaining for himself a ?30m stake after selling ?7.5m worth of shares.

According to your political point of view, you may think him a great British hero or you may think him a knock-down argument for much higher and more steeply graded levels of income and capital taxation. But can anyone deny that Houghton deserves to have made more money than if he had stuck to his safe marketing job with Alcan?

The third criterion is, oddly, luck. I say "oddly" because if somebody's wealth is down to luck, it is by definition unmerited; and in that case, how can it be justified? But we don't begrudge lottery winners their winnings, do we? We may envy them; we may think they should pay a large slug of tax on them; we may hope that they will devote much of the money to good causes. But do we seriously deny their entitlement to them? I don't think we do-any more than we would want to deny anybody else a legacy from a long-lost cousin in Australia, or a super-generous present from an indulgent grandparent, or a prize at a fairground.

Some people, on the other hand, will say that all this is beside the point because the relativities are what counts. If everybody else who works for British Gas, including the teenage lads with picks and shovels such as the teenage youth Cedric Brown once was, were earning half as much as he is earning now, what would be the problem? Only if they take home a hundredth of what he takes home is there something wrong. Likewise: if everybody can inherit a decent house and a modest "competence" (as it used to be called) from their parents, what's the objection to inherited wealth and unearned income?

Only where some people are born to enjoy hundreds of millions of pounds, while others are inextricably poor and inescapably propertyless, does the cause for a steeply progressive inheritance tax begin to look rather more compelling.

But whatever the actual distribution of income and wealth, some people will always be very much less sensitive than others to inequality as such. To some of us, it is cryingly obvious that a society in which a very small proportion of people own a very large proportion of property and marketable assets is morally indefensible. But there are others who are quite unmoved by this line of argument: they will refuse to judge the legitimacy of what one person has by reference to what somebody else does not have. All that matters to them is that whatever "competence" a person has, it must have been acquired by fair rather than foul means. Once there is a minimum subsistence level below which nobody is allowed to fall, what possible objection can there be to everyone being free to do as well as they can for themselves and their families?

So far, I have merely been putting forward a range of responses which might be expected from proverbial passengers on the Clapham omnibus. But should not the academics be able to help us in this matter too? Don't sociologists have something to say about what kind of people hold what kind of views? Have philosophers nothing to say about the views which people ought to hold, even if they are too stupid or self-interested (or both) actually to hold them?

As it happens, a team of Oxford sociologists has recently been engaged on this very topic: their research is part of an international project. With the help of a statistical technique known as factor analysis, they have systematically sampled and analysed the opinions held by the adult population of Britain about social justice. Their detailed analysis, which you can find and read in a recently published title Social Justice and Political Change (ed. JR. Kluegel and others, Aldine de Gruyter, 1995), is only for those of us comfortably at home in the world of orthogonal and oblique rotation, Cronbach's alpha, and adjusted-goodness-of-fit indices. But some of the simple percentages they have reported are immediately suggestive without detailed cross-tabulation.

To start with, their analysis would seem to show that 95 per cent of Britons agree that "people who work hard deserve to earn more than those who do not," and 80 per cent agree that "it is just that disadvantaged groups are given extra help so that they can have equal opportunities in life." Both these views obtain with very little variation across the range of party political affiliation.

Second, and perhaps more surprisingly, only 16 per cent agree that "it is simply luck if some people are more intelligent or skillful than others, so they don't deserve to earn more money."

Third, and perhaps less surprisingly, no more than 42 per cent agree that "it is all right if businessmen make good profits because everybody benefits in the end." Furthermore, 55 per cent of Conservative voters agree with this proposition as against 33 per cent of Labour voters and 43 per cent of Liberal Democrats.

But the Oxford researchers asked their sample questions not only about principle. They also asked about the actual state of Britain. Less than half of the sample thought that people in Britain today do get rewarded for their effort, and only slightly more than half thought that people in Britain get rewarded for their intelligence and skill. Although 40 per cent agreed that "income differences in Britain today are just, because they encourage hard work, so that everyone benefits in the end," there was a marked difference between Conservative (60 per cent) and Labour (29 per cent) supporters, with the Liberal Democrats coming once again in the middle (35 per cent).

So it looks as if we can safely say that on the one hand the British are not much attracted to egalitarianism in principle (any more than they ever were, many social historians would say). But on the other hand, they are far from wholly satisfied that, in 1990s Britain, the people who do get more are the ones who should. Interesting as they are, however, these findings don't and can't tell us what views we ought to hold. This is a question for the philosophers, not the sociologists. In recent decades, a large and constantly growing academic literature on the subject has emerged. Undoubtedly the most influential publication has been the book A Theory of Justice, by Professor John Rawls of Harvard University.

All Rawls's numerous commentators and critics agree that his theory doesn't quite work, if only in the sense that his conclusions cannot carry the conviction of either empirical verification or formal proof. But Rawls's strength lies in his argument that agreement on what social arrangements are just or unjust must ultimately derive from moral institutions which have been purged of any vested interests.

Rawls asks us to imagine ourselves in what he calls an "original position" where we do not know what sort of society we shall find ourselves living in or what our tastes, talents, or circumstances will be. For example, would you opt for a society such as Nazi Germany, in which you might find yourself a Jew rather than an Aryan? Or a society such as the ante-bellum American South, in which you might find yourself a slave rather than a plantation owner? I doubt if you would-and I am quite sure that I wouldn't.

Applying this to the distribution of income and wealth, and to the merits (or otherwise) of a capitalist system, Rawls argues that we would agree (among other things) that inequalities in the distribution of goods would be justified to the extent (but only to the extent) that those of us who turned out to be among the least advantaged would be perceptibly better off as a result. To be sure, you may or may not be disposed to agree with this proposition; one of the difficulties which it poses is that it is easy to devise a hypothetical pay-off matrix-albeit a rather contrived one-such that, if rich, we might well think the prospects of becoming much richer outweighed those of becoming fractionally richer if poor.

But the device of the "original position" is, to put it bluntly, a very effective "bullshit detector" when it comes to assessing arguments over the distribution of income and wealth, advanced from positions which are visibly bulging with vested interest-one, in particular, on the right, and another on the left. For convenience, I shall label the one on the right "market rules OK" and the other one, on the left, "equal for equal's sake." On the "market rules OK" view, Cedric Brown is perfectly entitled to his remuneration package because it is the rate not only set by the market but also approved by a voting majority of the shareholders to whom the organisation belongs.

Wait a minute. If we were contemplating this sort of arrangement from Rawls's "original position," wouldn't we want to make sure remuneration was demonstrably related to personal performance, and that whatever position we might end up in ourselves, it was impossible for bosses to write themselves contracts under which they would be massively compensated for loss of office in the event of dismissal for manifest failure?

And wouldn't we also insist that those at the top should have proved themselves, against any of the rest of us who might have wanted to be considered for their positions? This can't be said plausibly to apply to Cedric Brown, or to anybody else whose pay is set by a committee which simply looks at the "going rate." So far as we know, Brown was happy to do the same job as he was doing before, for a fraction of his current salary; he wasn't being offered what he's getting now to do anything else. So it is highly likely that there are other fast bowlers up country, as the Australians used to say, who would do his job as well, or better, for significantly less.

It's an old joke that, under capitalism, in order to make the rich work harder you pay them more and to make the poor work harder you pay them less. But the serious point, of course, is that if none of us knew whether we were going to turn out rich or poor, we would certainly not sign up for a system which worked like that. If anything, we would sign up for one in which it worked the other way round, and in which nobody was paid very much more than both the mean and the median for a prestigious and comfortable job.

On the other hand, the old joke which applies to the "equal for equal's sake" view is that it's a scandal that half the population of this country is forced to live on incomes below the median. Here, the serious point is that if we didn't know what our eventual positions in society were going to be, we would be unlikely to sign up for a system in which the lower paid had a claim for redistribution in their favour whatever the reason they were lower paid in the first place. It is no surprise that the lower paid themselves, together with the union officials who represent some of them and the MPs in whose constituencies they are concentrated, think that the distribution of incomes is more unequal than it ought to be; and if the work which they are doing is at the same time useful, difficult, and unpleasant, we may be disposed to agree with them. But would we, in Rawls's "original position," actually choose a constitution under which all of us, no matter how talented, hard-working, and willing to take risks we were, were committed to subsidise those less well remunerated than ourselves simply because that is what they turned out to be?

However sympathetic we might be to the proposition that inequalities have to be justified by some criterion or other, we would not, I think, commit ourselves to regarding prospective differentials as bad simply because they are differentials. In other words, we would be no more inclined to sign up for Bennery than for Thatcherism.

You may fairly say that this still doesn't take us all that far. Neither the British public's views about the extent to which its society falls short of what would make it fair, nor a philosophy professor's thought-experiment for exposing inauthentic self-justification, amounts to a method for deciding who ought to get how much for what.

But our society, whatever its faults, does have two institutional features which we might all find attractive, looked at from Rawls's initial position: universal suffrage and income tax. If politicians in both the main parties are really as disapproving of Cedric Brown's pay package as they claim to be, let them do more than slide a hospital pass to Sir Richard Greenbury-who must be wishing that he'd traded the government's invitation to chair a committee on the subject for a slap in the face with a wet fish. Let them ask the appropriate civil servants the best way to tax Cedric & Co. down to size. Let them put that into their parties' manifestos for the next general election, and let the voters respond to it as they choose.

Meanwhile, at a personal level, we shall continue to judge the differentials which most closely affect us with the same mixture of inconsistency, prejudice, and hypocrisy as before. No doubt we all have a repertory of anecdotes about how our various friends, colleagues, and rivals justify (or do not justify) their entitlement to what they earn and their grounds for thinking they should be richer than they are. I owe my own favourite story of relative deprivation to Professor Ronald Dworkin of Oxford University. At a dinner in New York a few years ago, he found himself talking to an investment banker who was lamenting the fact that he had personally lost $20m on a single recent deal-"and Ronald," said the banker, looking the professor straight in the eye, "I'm not a rich man."