The public aims at the wrong bogeymen

ftpoll.gif What you see above you is the result of a Financial Times/Harris poll among various OECD countries about globalization (note, by the way, that the FT wierdly flip-flops the categories halfway through the graph). The associated story sums it up as follows: The depth of anti-globalisation feeling in the FT/Harris poll, which surveyed more ...

By , a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University.
590056_1459197141_ftpoll2.gif
590056_1459197141_ftpoll2.gif

What you see above you is the result of a Financial Times/Harris poll among various OECD countries about globalization (note, by the way, that the FT wierdly flip-flops the categories halfway through the graph). The associated story sums it up as follows: The depth of anti-globalisation feeling in the FT/Harris poll, which surveyed more than 1,000 people online in each of the six countries, will dismay policy-makers and corporate executives. Their view that opening economies to freer trade is beneficial to poor and rich countries alike is not shared by the citizens of rich countries, regardless of how liberal their economic traditions. Indeed, as the poll shows, there's either majority or plurality enthusiasm for "setting pay caps for the heads of companies." The breadth of support surprises Mark Thoma. For a pro-globalization type like me, there's not a lot that's funny about this kind of public sentiment. There is something ironic, however, about the extent to which publics believe that this kind of measure will reduce income inequality. On this point, I click over to Marginal Revolution and find the following: We consider how much of the top end of the income distribution can be attributed to four sectors -- top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%).... ...we do not find that the top brackets are dominated by CEOs and top executives who arguably have the greatest influence over their own pay. In fact, on an ex ante basis, we find that the representation of CEOs and top executives in the top brackets has remained constant since 1994. Our evidence, therefore, suggests that poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution. We also discuss the claim that CEOs and top executives are not paid for performance relative to other groups. Contrary to this claim, we find that realized CEO pay is highly related to firm industry-adjusted stock performance. Our evidence also is hard to reconcile with the arguments in Piketty and Saez (2006a) and Levy and Temin (2007) that the increase in pay at the top is driven by the recent removal of social norms regarding pay inequality. Levy and Temin (2007) emphasize the importance of Federal government policies towards unions, income taxation and the minimum wage. While top executive pay has increased, so has the pay of other groups, particularly Wall Street groups, who are and have been less subject to disclosure and social norms over a long period of time. In addition, the compensation arrangements at hedge funds, VC funds, and PE funds have not changed much, if at all, in the last twenty-five or thirty years (see Sahlman (1990) and Metrick and Yasuda (2007)). Furthermore, it is not clear how greater unionization would have suppressed the pay of those on Wall Street. In other words, there is no evidence of a change in social norms on Wall Street. What has changed is the amount of money managed and the concomitant amount of pay.Oh, and there's no apparent correlation between higher pay and the openness of a sector to international trade. To be fair, I suspect publics would support capping the income of Wall Street groups if they were asked. CEOs might simply be a proxy for "evil capitalist pg-dogs." That said, CEOs do tend to be the first target whenever this kind of sentiment is translated into political action. I can't dispute the rising resentment about rising inequality -- but that doesn't mean that the resentment has acquired the correct target (I don't think there is a clear target, but that's a topic for another day). There is support, clearly, for some really stupid policies.

ftpoll.gif

ftpoll.gif
What you see above you is the result of a Financial Times/Harris poll among various OECD countries about globalization (note, by the way, that the FT wierdly flip-flops the categories halfway through the graph). The associated story sums it up as follows:

The depth of anti-globalisation feeling in the FT/Harris poll, which surveyed more than 1,000 people online in each of the six countries, will dismay policy-makers and corporate executives. Their view that opening economies to freer trade is beneficial to poor and rich countries alike is not shared by the citizens of rich countries, regardless of how liberal their economic traditions.

Indeed, as the poll shows, there’s either majority or plurality enthusiasm for “setting pay caps for the heads of companies.” The breadth of support surprises Mark Thoma. For a pro-globalization type like me, there’s not a lot that’s funny about this kind of public sentiment. There is something ironic, however, about the extent to which publics believe that this kind of measure will reduce income inequality. On this point, I click over to Marginal Revolution and find the following:

We consider how much of the top end of the income distribution can be attributed to four sectors — top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%)…. …we do not find that the top brackets are dominated by CEOs and top executives who arguably have the greatest influence over their own pay. In fact, on an ex ante basis, we find that the representation of CEOs and top executives in the top brackets has remained constant since 1994. Our evidence, therefore, suggests that poor corporate governance or managerial power over shareholders cannot be more than a small part of the picture of increasing income inequality, even at the very upper end of the distribution. We also discuss the claim that CEOs and top executives are not paid for performance relative to other groups. Contrary to this claim, we find that realized CEO pay is highly related to firm industry-adjusted stock performance. Our evidence also is hard to reconcile with the arguments in Piketty and Saez (2006a) and Levy and Temin (2007) that the increase in pay at the top is driven by the recent removal of social norms regarding pay inequality. Levy and Temin (2007) emphasize the importance of Federal government policies towards unions, income taxation and the minimum wage. While top executive pay has increased, so has the pay of other groups, particularly Wall Street groups, who are and have been less subject to disclosure and social norms over a long period of time. In addition, the compensation arrangements at hedge funds, VC funds, and PE funds have not changed much, if at all, in the last twenty-five or thirty years (see Sahlman (1990) and Metrick and Yasuda (2007)). Furthermore, it is not clear how greater unionization would have suppressed the pay of those on Wall Street. In other words, there is no evidence of a change in social norms on Wall Street. What has changed is the amount of money managed and the concomitant amount of pay.

Oh, and there’s no apparent correlation between higher pay and the openness of a sector to international trade. To be fair, I suspect publics would support capping the income of Wall Street groups if they were asked. CEOs might simply be a proxy for “evil capitalist pg-dogs.” That said, CEOs do tend to be the first target whenever this kind of sentiment is translated into political action. I can’t dispute the rising resentment about rising inequality — but that doesn’t mean that the resentment has acquired the correct target (I don’t think there is a clear target, but that’s a topic for another day). There is support, clearly, for some really stupid policies.

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, where he is the co-director of the Russia and Eurasia Program. Twitter: @dandrezner

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