The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [107]
What made this belief not just false but actively damaging was the way greed in finance spilled over as greed in other industries. Executives throughout business, and in the public sector too, came to believe that high pay and large bonuses were a reward for their talent. An industry of pay consultants came into being to dress up this contagious greed in terms of benchmarking against others—the argument was that it was essential to pay executives a salary and bonus comparable to what they could earn elsewhere. This was a self-fulfilling process, as jobs elsewhere were only paying so much because those other businesses had hired the same pay consultants, who told every client company that they should pay their executives enough to attract the best people, and therefore set off an ever-upward ratchet. All sense of due restraint seemed to vanish from the upper reaches of business, as executives came to misinterpret the rise in share prices due to a stock-market bubble as the result of their own talent, and worse, came to feel that extraordinarily high pay was their due because they saw so many other people among their social contacts and peer group making so much. Many bankers are still in this mindset, although executive pay outside the financial markets is gradually deflating.
The boom in the financial markets thus came to corrode social norms throughout the economy. In the countries where it went furthest—the United States and United Kingdom, the most promarket in terms of national political ideology and hosts of the world’s major financial markets—the consequence can be seen in the increased inequality described in chapter 4. That chapter discussed the further consequences for the sense of fairness in society and for social capital and trust.
There is wider scope for a clash between markets and morals—it goes beyond the impact of social norms in the financial markets, spreading into society at large. Recent evidence suggests that the structure of the economy has moved voting patterns over time—economies based more on free markets have shifted the political center of gravity to the right over the years, whereas economies based on collective institutions such as union-employer bargaining tend to move toward the left: what voters believe about political choices is affected by the economic structure in which they live.13 Danny Dorling of the University of Sheffield has argued that adherence to the view that markets are essential for an efficient economy leads people ultimately to believe that some aspects of markets such as the inequality described in chapter 4 are inevitable, and because “free” markets have brought about inequality in educational attainment and income, this must be the result of underlying differences in intelligence or effort.14
The issue of performativity is perhaps less significant than the existence of certain situations in which we believe a moral principle, often that of fairness, should trump the benefits of market outcomes. It should be said that economists tend to disagree with this proposition. Princeton economist Alan Blinder once surveyed users of a campus café where there were long queues at mealtimes to ask if there should be a separate till charging a higher price to people who didn’t want to stand in line. The economists tended to say yes and others disagreed strongly. However, there are situations in which virtually everyone would agree that markets should be overridden.
On the heels of the latest financial crisis, Michael