The Financial Tsunami ( FT ) - The Way Forward ( 8 ) - COMFORTING CORPORATE CAP

The New York Times has just reported that the Obama administration is imposing a maximum limit of US$ 500,000 for all high ranking executives of corporations which receive government benefits under the FT rescue package. However, this policy does not apply to the 350 institutions already rescued prior to this announcement of new policies. It is the first piece of good news for the new administration after some embarrassing bungles. It is, indeed, a COMFORTING CORPORATE CAP.

It has been suggested that because of this new limitation on corporate executives' remuneration some corporations intending to apply for the government rescue package may think twice before submitting their applications. This is good news if proven to be true. In the worst scenarios these marginally functioning institutions may fail without government aid but it is an economically sensible thing to allow inefficient entities to pass on so that a new leaf can be turned to cut them loose from past blunders. Sometimes, the worry about the resultant unemployment created by failed enterprises is blown out of proportion. Please do not misunderstand my intention. I am not happy to see more people becoming unemployed. There are bound to be more efficient owners coming in to buy the existing corporate structure with the related market share in that particular line of trade. New owners must be required to make the best possible arrangement with the existing work force and reduce lay offs to the barest minimum. A new start may not be a bad thing for some industries like the US motor industry to rid them of cumbersome labour contracts and other investment decision bungles.

Obama seems to be a bit apologetic about this new policy by reassuring the business world that there is no intention on the part of the US Government to curb personal efforts or create disincentives for successful business persons within the US market framework. If the report on the reluctance of marginal corporations to apply for the rescue package on account of the new cap on corporate executive remuneration is true it will imply that the high ranking executives are still intoxicated by the corporate piggy bank tradition of excessive remuneration. Not to be allowed to rip off the corporation of which they are custodians will piss them off. It would also mean that the traditional capitalistic concept of " SKY IS THE LIMIT " is still very much alive and kicking. As I have advocated in The Way Forward ( 3 ) - And Justice for ALL ! - there is no such thing as without limits. Such a concept is against the very basic principle of economics. If there are no limits to our resources there would be no need to have the discipline of economics to carry out the most efficient allocation and utilization of our imaginary unlimited amount of resources. Since resources are scarce and have limits in terms of availability so must corporate executive remuneration which is a factor ( or cost ) of production.

More open discussions must be conducted by the public on how to set a cap on corporate executive remuneration beyond a certain maximum amount for all corporations. Not just for those benefited by the FT rescue package. Such a cap may vary from one industry to another depending on particular circumstances but the cap must meet at least two criteria. Firstly, it must not be too low to discourage capable hands from running key industries. On the other hand, a reasonable cap must be set to do away with the traditional capitalistic concept of encouraging endless greed. The ideal thing is to introduce such a cap sooner rather than later. Anyway, it is high time for the public discussion on such a cap to start to allow for adequate input and consultation. Using the right size for a COMFORTABLE CORPORATE CAP will make everyone look economically smart.

JKHC.