Stiglitz: pay up rich people

Enjoyed this piece from Joseph Stiglitz at CNN.com

At session after session at Davos, executives have been grappling with the question: Is there anything that the world’s corporations can do about this scourge that threatens the political, social, and economic sustainability of our democratic market economies? The answer is yes.

It begins with a simple idea: pay your taxes. This is the first element of corporate responsibility. Don’t resort to shifting taxes to lower tax jurisdictions. Apple may feel that it has been unfairly singled out on this score; it only did a slightly better job at tax avoidance than others.

Don’t make use of the secrecy and tax havens, onshore or offshore, whether it’s Panama or the Cayman Islands in the Western hemisphere or Ireland or Luxembourg in Europe. Don’t encourage the countries in which you operate to engage in tax competition, a vicious race to the bottom where the real losers are the poor people and ordinary citizens around the world.
It’s shameful when the president-elect of a country appears to boast that he hasn’t paid certain taxes for nearly two decades — suggesting that smart people don’t — or when a company pays .005% of its profits in taxes, as Apple did. It’s not smart: it’s immoral…
A second idea is equally simple: Treat your workers decently. A full-time worker shouldn’t be living in poverty. In Scotland, 31% of households where one adult works full time are still in poverty.
Top executives in large US corporations now take home around 300 times what the same corporation’s median worker receives. That’s far more than in other countries or at other times — and the disparity can’t be explained simply by productivity differentials. In many cases, corporate CEOs take home so much simply because they can — doing so at the expense not only of their workers but of the long-term growth of the company. Henry Ford understood the idea about good pay, but his wisdom seems to have been lost on some of today’s corporate executives.
A third idea is equally simple but seems increasingly radical: Invest in the future of the company, in your employees, in your technology and in capital. Without such investment, there won’t be jobs in the future and inequality will only grow. Yet today, rather than investing profits back into the company, an ever-greater proportion is siphoned off to shareholders. In the UK, for example, 10% of profits were returned to shareholders in 1970; this figure is now 70%…
Around the world, there are many corporations, led by enlightened leaders, who have long understood these maxims. They have understood that it is in their enlightened self-interest for there to be shared prosperity.
Rather than lobbying for policies that increase rent seeking — with their corporate gains coming at the expense of others — they have realized that the only sustainable prosperity is shared prosperity, and that in those countries afflicted with ever growing inequality, the rules will have to be rewritten to encourage long-term investment, faster growth and shared prosperity.
That sounds good to me.  Alas, re-writing the rules means changing the laws in the direction Stiglitz smartly advocates for.  Not exactly going to happen under Trump and the Republican Congress.
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About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

One Response to Stiglitz: pay up rich people

  1. ohwilleke says:

    “A third idea is equally simple but seems increasingly radical: Invest in the future of the company, in your employees, in your technology and in capital. Without such investment, there won’t be jobs in the future and inequality will only grow. Yet today, rather than investing profits back into the company, an ever-greater proportion is siphoned off to shareholders. In the UK, for example, 10% of profits were returned to shareholders in 1970; this figure is now 70%…”

    Bad idea.

    If profits are returned to the shareholders, the company has to compete on an equal footing with other potential investments for new funds. If not, the shareholders are forced to reinvest profits in a company despite the fact that other superior investments are available. And, simply selling and getting out is not a viable option for many institutional investors that have no choice but to invest in a large subset of the total market for publicly held shares.

    The U.S. corporate tax system is biased towards retaining income and this is one of the reasons for huge CEO pay, because it promotes empire building and makes the conflict between CEO money and dividend payments less direct.

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