It’s the system, stupid

While executive salaries are an obscenity, they are a symptom, not the cause, of the financial crisis.

Across the world, political leaders are stepping forward, down in mouth, wringing hands, brows furrowed, serious of intent, declaring the end of extreme capitalism. Laissez-faire is finished, proclaimed French president Nicolas Sarkozy. Newspaper cartoonists are raising the spectre of socialism. Ratbag Republican politicians in the US are waving the white flag, declaring defeat in the face of a resurrected socialism.

Some racist and right-populist pundits and politicians in the US are pointing to the very victims of this crisis as its cause. It’s because former president Jimmy Carter let in so many Latinos in the 1970s and because African-Americans developed the illusion they could be home owners that the banks were tricked into providing high-risk, low-doc loans in a subprime orgy. I mean, the Latinos, the blacks, the poor ... they were asking for it.

In Australia prime minister Kevin Rudd has laid the blame for the financial meltdown on exorbitant executive salaries. While this is a lot better than the blame-the-victim nonsense of some US populist politicians, it still misses the point.

It’s true that the executives of many capitalist firms pull in obscene amounts of money in a world where millions of people daily can’t eat properly, where children die of preventable diseases. But the corporate filthy lucre is the outcome of a system, not the cause of its degeneracy.

The size of the world economy can be measured in many ways. Global trade, world GDP, the combined profits of the world’s largest companies. The daily, weekly, yearly product of the collective labour of humanity is nothing short of gargantuan. The executives, managers, entrepreneurs and large shareholders of big business are rewarded with riches even the pharaohs of ancient Egypt dared not dream. Yet as a proportion of the wealth produced by human endeavour it pales.


These Masters of the Universe are as alienated from the process of production as the mass of the working class. The skimming of the capitalist till, which puts millions of dollars into the pockets of the idle rich, is ultimately peripheral to the running of capitalism itself. While understandable, Kevin Rudd is barking up the wrong tree by calling for any sort of cap on executive wages.

This point is well argued by Britain’s Mike McNair: “In reality this capitalist thieving is marginal to the outcome. The underlying reason for boom-and-bust business cycles is the fact that everyone is taking individual decisions about productive activity, saving and lending, on the basis of predicted money outcomes. Thus for each individual or firm it is the most rational choice to invest in productive activity at the bottom of the downswing of the cycle; to invest in the most profitable industries or sectors in the upswing; to replace labour by machinery in mid-cycle; to move savings into the financial sector in the late boom phase; and to sell up as quickly as possible, refuse to lend and move into primary commodities or cash in the crash phase.

“Hence, even if we capped [executive] salaries down to a ‘fair’ level and imposed punitive taxes on speculative gains (which is actually impossible under the current global political-legal regime), as long as we continued to organise our productive activities through private property decisions co-ordinated by markets, money and credit, the business cycle would reassert itself. Blaming the spivs for their gains from speculation is understandable, but wholly futile. We can properly blame the capitalists both for thieving from the collective product and for holding on to the continued existence of capitalism, from which they gain by skimming the collective till. But blaming them for running capitalism badly, leading to crisis, is to tackle the superficial symptoms, while leaving the underlying disease untouched.”

And here is the crunch really. Kevin Rudd, Nicolas Sarkozy, Gordon Brown and the whole range of worried leaders are trying to divert people’s eyes from the real game. While executive salaries are obscene, they are not the cause of the current meltdown. That lies in the belly of the system itself; in the world of private property, speculative gain and the semi-organised anarchy of the market. As Bill Clinton would never have said, it’s the system, stupid.

October 17, 2008