A poll run on the BusinessTech website recently asked readers whether chief executive officer (CEO) salaries in South Africa should be ‘capped’. When I saw this poll (10 July), 57% of 1 931 had voted ‘yes’. This number is too high, and betrays a misapprehension of who should be blamed for South Africa’s problems and who should be praised for offering realisable solutions.

With government’s best efforts to destroy our economy and society in mind, to the extent that things function relatively well today, is exclusively due to private enterprise.

The theory, taught to every first-year law and political studies student at university, is that governments provide the ‘framework’ and ‘rules of the game’ wherein society and commerce should function and flourish. This does not apply in South Africa. The South African government is only effective insofar as the private sector – motivated by misguided sentimentality – voluntarily complies with political edicts.

We are thus in a quandary.

Head above water

The government’s destructive economic policies are only destructive because the private sector complies with them. If the private sector did not comply, we would likely have significantly more employment and better growth. On the other hand, it is the employment, growth, and services offered by the private sector, despite these policies, that make South Africa a place still worth living in.

Non-compliance is a big, perhaps impossible, ask for those nurtured in (and who have thus developed a sentimental attachment to) an essentially Western mode of thinking about government – effectively, that non-compliance, even with evil dictates, would somehow be anti-social. The private sector, therefore, still plays ball with a hostile government, while at the same time keeping our collective head above water.

In all of this, it is the private sector – commerce and community, enterprise and civil society – that offers realisable solutions to the collapse, and it is the political class – government and its crutches among the intelligentsia and trade unions – that deserves the blame for the collapse.

I am no stooge for big business. Many corporate ‘leaders’ are nothing more than appendages of the political class. Rather than competing in the open market, they seek favour and privileges from the government. But despite there being many of them, in the greater pool of business executives, these cronyists are a tiny minority. And it should not be forgotten that it is their membership of the political class, not their status as business leaders, that makes them dangerous.

If anyone is to have their remuneration capped, therefore, it should be career politicians.

Shareholders and CEO salaries

Shareholders are rational actors, and to the extent that it serves their self-interest, rational decisions are all but guaranteed. They would not give a CEO a salary they deem to be inimical to the profitability of their business.

And a high CEO salary cannot be inimical to anyone else’s interests other than that of the shareholders. Leftists will here feel a burning desire to claim that it is inimical to other employees’ interests, but basic economics disproves this. With no prior claim to the profit generated by a business, no harm is done to employees by their being paid exactly what they agreed to be paid. This rule also applies to those CEOs who do not receive huge bonuses.

No matter who you are, you are not entitled to money that was never yours, nor can you demand that other people spend their money according to your preferences.

If shareholders choose to reward a poorly performing CEO with a high salary, they are only cutting off their own noses to spite their faces. Only they suffer, and while one can be compassionate, one should not be too concerned with shareholders’ self-imposed suffering.

Political remuneration

This all changes when we turn our attention to career politicians, who are not paid with ‘someone else’s money’ but instead with the rands and cents the South African Revenue Service forcibly grabs out of our hands.

Paying people for ‘political’ work is a relatively new innovation. Politicians – ministers and members of Parliament, and their provincial and local counterparts – have ideological agendas, and it can become perverse to pay them from public coffers to push for these agendas.

Parliamentarians, whether at the national or provincial level, or a municipal councillor, should have a real job that provides for their sustenance. Their political activity should be performed out of a sense of duty, not for remuneration.

It was scarcely 200 years ago when members of the Cape Parliament received nothing but a small stipend that only covered their travel to and from Cape Town to attend parliamentary sittings. The most prominent member of that parliament, Saul Solomon, for example, had a day job as a printer and newspaper proprietor. 

Some might argue today that if political functionaries still worked privately, they would use their political power to benefit themselves and their business associates.

The problem with this line of criticism is that this is already happening. Being employed exclusively by government, or volunteering for government service would not make a significant difference in a society where political ethics in general has gone down the drain. If a reform is introduced that would require politicians today to find real work outside of politics, we would simply have to create and maintain institutions that try, as best they can, to guard against corruption and abuse – as  we already do.

But it might now be asking too much to completely revoke the salaries of career politicians. A cap would suffice. And it is here, on the flipside of criticism against a cap, that we can consider its benefits.

This cap should, perhaps, be linked to the national average income, which would incentivise politicians to pursue policies that would raise income levels for most South Africans. This policy would, of course, have to discount any minimum wage laws that Parliament might adopt to artificially increase incomes.

Political democracy vs the democracy of the market

Private enterprise succeeds only to the extent that we, as consumers, want it to succeed. We exercise real-time influence over what CEOs will be paid by rational shareholders. If we withdraw our custom from an unethical business, leading it down the path of bankruptcy, the CEO’s pay will dry up.

The democracy of the market economy is updated in real time, with every economic decision anyone makes, second by second. If we really want to cap CEO pay, we can make immediate work of that, as sovereign consumers, by taking our rands elsewhere.

We have no such power over the political class.

The inadequate five-yearly elections are detached from policy reforms like remuneration for politicians. The nature of modern political democracy does not allow us to ‘vote political remuneration down’, because we can only vote for a political party based on its entire policy programme.

Quite rationally, very few of us are or can afford to be single-issue voters.

Let us then retire any discussion about ‘capping CEO pay’ and liven up the call to cap the pay of career politicians. In our current economic malaise, it is simply unreasonable for the taxpayer to be grandly rewarding politicians for causing the collapse in the first place and maintaining it.

[Image: Adeolu Eletu on Unsplash]

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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Martin van Staden is the Head of Policy at the Free Market Foundation and former Deputy Head of Policy Research at the Institute of Race Relations (IRR). Martin also serves as the Editor of the IRR’s History Project and its Race Law Project, and is an advisor to the Free Speech Union SA. He is pursuing a doctorate in law at the University of Pretoria. For more information visit www.martinvanstaden.com.