Oct 1, 1997|
Measured by Money Alone..
Capitalism is a strange animal. Our textbooks tell us that it is supposed to reward those who have a skill and wish to encash it, and
punish those who don't have a skill or choose not to exploit it. This reward and punishment relationship is taken care of through the
mechanism of the "invisible hand". What the textbooks fail to tell us is that somewhere along the line, your "invisible hand" begins
to clash with the interests of my "invisible hand" and ultimately the stronger "invisible hand" wins. That is the law of the jungle.
That is the law of capitalism much of the world has adopted.
Somewhere along the line the meaning of money has changed from a medium of exchange to a measurement of power and
respect. From being a means to an end it has become the end itself. From being a medium of exchange, money is now the
message. How one gets it, has it, or multiplies it matters less than how much money one has. And many times, the distribution of
wealth (as measured by money) is probably far in excess of the actual contribution made by a person.
A little aside on the fairness of distribution of wealth. A visit to a site manned by a labour union in the United States
site on the internet tells you that in 1996 Michael Eisner, CEO of Walt Disney Company, had a total
compensation of US$ 204 million and has another US$ 303 million worth of exercisable options. The AFLCIO, a union of US
workers, works out that Eisner's compensation in 1996 was 1,021 times that of President Bill Clinton and 8,269 times that of an
average worker in the US. Data for Fed Chairman Alan Greenspan was not given but, assuming his annual salary to be US$
150,000 it suggests that Michael Eisner was making 1,361 times as much money as Alan Greenspan. The figures for the CEO of
Coke are a little less startling as he made "only" 36 times the pay of President Clinton, "only" 293 times the wage of the average
worker and has "only" US$ 113 million in exercisable stock options.
I may have missed something there. Alan Greenspan and Bill Clinton are being hailed as the guys who gave the US economy the
platform which resulted in this goldilocks economy of seemingly unending steady growth with no inflation. At a macro level the US
stock markets have created wealth in excess of US$ 4 trillion (12 times India's GDP) over the past 4 years, yet, Greenspan and
Clinton don't seem to have been compensated barring allegations of some dubious donations made to political parties. Neither has
there been any substantial reward given to the workers in the companies that made it all happen. AFLCIO data suggests that in
the 15 year period between 1980-1995, CEO pay was up 500%, company profits up 145%, inflation gained 85%, and factory
wages gained 70% - less than the inflation rate! Not only is the pay scale of a CEO in USA rising but so is the discrepancy
between CEO pay and average workers compensation from 44 times in 1965 to 212 times in 1996. Common sense suggests that
everyone probably contributed to the well being of the US economy, yet the fashion of stock options indicates that some people
walked away with a lot more.
In India, data on a sample of 200 companies (The Quantum Stock Market Yearbook), shows that in FY94 wages and salaries
were 44% of the profits before taxes and employees costs. By FY96, the share of labour (managers and factory workers) had
declined to 36%. Although, Quantum does not compile any numbers to see the share amongst the managerial class and the factory
workers, my gut feel is that factory workers have probably lost out.
There are probably a couple of messages in all of this the most obvious one being to make sure that your children are groomed to
be CEO's before the pendulum swings in favour of the working class! I guess the days of rewarding hard work are over and the
days of rewarding hard thinking and strategising are in. In the last thirty years, not only has the nature of the work changed from
"body" strength to "brain" power, but a fewer percentage of the population controls a larger chunk of the world's wealth.
Capitalism is a great energiser and I support the move that India is taking to energise its economy though I have my fair share of
doubts because, at times, the people in control of our economic destiny do things that are fashionable as opposed to what is
correct. Convertibility is fashionable, stock options are fashionable, and creating wealth (as opposed to worrying about its
distribution) is fashionable.
Sometimes, we surrender our common sense to keep in times with the fashion. After all these years of telling us that India had the
best deal in power projects with a capital cost of Rs 4 crore per megawatt, we are now being told that there are people out there
willing to do these projects for 50% of the cost negotiated by our team of experts!
Our biggest strength and contribution to the world is in terms of manpower and yet, our government threw away an opportunity to
capitalise on this by not linking the free movement of people with the free movement of goods and capital. We should have told the
world that for every cut in our duty rates and for every FII application approved, the developed world would grant tens of
thousands of working visas to our skilled professionals and software graduates. But, no, it was fashionable to liberalise and be
invited by the World Bank and the IMF to their annual dog shows and be presented as the cutest poodle at the show. Our
software companies and engineering consultants continue to beg for visas. Common sense was sacrificed at the altar of fashion.
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