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Inequality – Robert Wade and corporate governance

  • July 15th, 2013

Prof Robert Wade is here to tell his faithful what they want to hear about inequality. I've been following this issue with interest, since first reading the Spirit Level. But Q & A's Susan Woods gave him enough time to be exposed as an academic lightweight, despite the breathless compression of the television attention span.

After he ranted about Quantitive Easing as strategy to redistibute income upwards she skewered him by pointing out that New Zealand has not done any QE.

So he moved right along to rant about corporate law:

"you should look across the board at government laws, regulations, policies to see how they are impacting on income distribution – for example, corporate governance law. Corporate governance law has a very strong impact on income distribution. Why? Because the law allows senior executives of corporations to appoint the boards of directors, number one, and number two the boards of directors set the salaries of senior management. And so there is a “scratch my back, I’ll scratch your back” kind of ethic that evolves and the result is a spiralling upwards of the salaries of senior management. So you need to change corporate governance law."

Wrong Professor, on who appoints directors. That US pattern is not our law, it never has been, there is no suggestion from anyone that it should be, and no likelihood that we would agree if they did suggest it.

In New Zealand shareholders appoint directors. Executives have no role or even influence except perhaps in rare cases where they are also directors.  Incumbent directors may informally influence succession, especially in companies without a major shareholder, simply because someone has to do the shoulder tapping to construct competent company boards. Otherwise they would be as accidentally dopey as local councils.

I wonder what he'd say on law changes that might actually limit executive salaries. I've not yet seen anything to invalidate my thesis.

I do not blame Susan for not puncturing the poseur's pretensions on company law. He spoke so authoritatively she might have assumed his claim was not quite as irrelevant as the QE 'explanation'.

But he went on:

"You need to change trade union law so as to strengthen the rights of trade unions to bargain over matters of salary and other things. These are examples of laws that seem to be unrelated to income distribution that actually have a very big effect on income distribution."

Just what changes could the Prof have pointed to, if she'd had the time to ask? No law stops trade unions in this country from bargaining over matters of "salary and other things".

Contrast the Prof's ignorant mouthing with the care taken by the other Q & A guest on inequality – Nick Cater, Senior Editor at The Australian. The journalist showed the respect for local knowledge, and the care about facts, lacking in the academic.

SUSAN  Your book “The Lucky Culture” – it’s about the loss of that great egalitarian Australian society and, if you like, a ruling elite, isn’t it, who have a very strong voice. Are you seeing parallels in this country?

NICK  I think I detect them here. I should first say that when I talk about egalitarianism – because I just heard that discussion you had on equality – I mean something very specific here. I mean equality of manners, equality of respect. So egalitarian doesn’t mean to say that everybody’s got the same amount of wealth. What it means is that everybody deserves the same respect.

SUSAN   So we value each other equally as people to some extent?

NICK  Exactly, and in a democracy, everybody has one voice. Everybody— Nobody’s allowed to shout anybody else down.

SUSAN  So you’re seeing those parallels in New Zealand?

NICK   Look, I would hesitate, really, to comment on New Zealand, but, yes, you do see them, because this is common throughout much of the Western world."

I'm looking forward to hearing Nick Cater this evening at The NZ Initiative.

[Tuesday – Stuff reports that Bill English took the twit to task in the green room. How refreshing. English had every right to be contemptuous]


  • Jeremy Cooper
  • July 16th, 2013
  • 6:34 am

I agree with your sentiments. In addition Mr Wade commented on the elites making political decisions that benefit themselves. It may happen in the UK but NZ, Australia, and the USA all try to get away from the concept of a privileged elite…the USA having a revolution to do so. Mr Wade is out of touch with us.

  • John Dickson
  • July 16th, 2013
  • 2:46 pm

i wonder if by “salary and other things” he is suggesting that employees have the right to strike for issues not directly related to their workplace terms and conditions? for example, assets sales, welfare reform etc.

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