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Maximum wage can support the economy has a whole

Adam Hill explains why maximum wage doesn't have to be so problematic for growth after all.

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Credit: Democracy Chronicles

The maximum income is not a new idea, having notably been floated by Bernie Sanders and Franklin D Roosevelt. Aristotle himself wrote that no citizen's wealth should exceed five times that of the poorest citizen. The idea is not complex: proponents advocate a flat cap on income determined by government, or a ratio of lowest income to highest. Income above that level is either gathered by a 100 per cent tax rate for redistribution or maintained in holding accounts for citizens to top up their income when it falls below the cap. Whether or not the idea is politically viable is much more complex.

It has its advantages. Firstly, a ratio relationship between the bottom and the top would make economic growth a tide that lifts all boats. Secondly, it would ameliorate the ill-feeling between employees and bosses who earned 147 times their income in 2015. Thirdly, it would prevent cash that should be directed towards business development and shareholders being given to company directors with undue influence over remuneration committees. Finally, it would force businesses to innovate rather than spend to attract talent, spurring efficiency and technological improvements.

The Laffer curve, a piece of economic wizardry demonstrating that the state collects no revenue at income tax rates of zero or 100 per cent, was used by monetarists like Reagan and Thatcher to argue that high taxes are disincentives to work. On the other hand, income inequality demonstrably slows economic growth. These concerns can be balanced in favour of one or the other depending on the economic philosophy of whoever you speak to - the resolution must be political, as it was of the debate surrounding the minimum wage.

Regardless, its economic viability is not the point. The maximum income is not a statement of sound economic theory, logically arising out of traditional efficiency modelling: it is a side-effect of political theory. The maximum wage is an answer to falling living standards for the middle class and social stagnation for those trying to break through, as demonstrated by the wealth and income inequality endemic to the UK.

The modern political environment, of populism and antipathy towards "fat cats" makes ripe soil for radical tactics of income redistribution.

In a policy speech in Peterborough, Jeremy Corbyn promised that a Labour Government would reconfigure the process for awarding contracts to private firms, rejecting companies "whose owners and executives are creaming off profits to stuff their pockets at the expense of the workforce and the public purse." This was soon after suggesting a cap on incomes to prevent "telephone number" incomes, which evoked furious derision from sources unlikely to ever get the slightest whiff of much more than an area code income. Are people really bothered with protecting the average one percenter's £253,927?

You would be forgiven for thinking so in light of the media's jeering of Mr Corbyn on the 10th of this month, which might ameliorate business leaders' worries over maintaining a status quo that has been wobbling recently. Those jeers echoed the caustic reporting on Brexiteers and Trumpettes, groups vindicated by popular will.

The media's treatment of populist policies such as the maximum income belies the risk of not paying attention. The popular media consensus, that Mr Corbyn's ideas warrant the same scrutiny as do the declarations of a drunk holding court down the pub, might be the next to be proved wrong.

The status quo that market globalisation has established over the last 30 years is what populism aims to bring down. It is not unthinkable that into that vacuum might rush a man handed a massive mandate by Labour party members for a manifesto almost wholly at odds with the majority of the party's elected MPs. He is a rare example of a politician elected by popular support rather than popular apathy whose popular support could translate into results unpalatable to a comfortable business establishment.

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