One of the fallacies of liberal economics, and that is the illusion that if people can earn more, they will also be motivated to work more, and ultimately the whole national economy will benefit. This applies to bricklayers, car mechanics and carpenters. But it is certainly not true that if a CEO takes 50 times a worker’s salary, he or she will be at work more hours and make better decisions than if he or she took “only” five times that amount. The reality is that egregiously overpaid CEOs start to feel like supermen, behave arrogantly towards employees and customers, arrange their lives according to “lifestyle balance consultants” instead of working hard, and take unnecessarily excessive risks.
But it is certainly not true that if a CEO takes 50 times a worker’s salary, he or she will be at work more hours and make better decisions than if he or she took “only” five times that amount.
We in the former Soviet bloc countries have made the experience that price regulation does not usually work. The only consequence is to shift some transactions to the black market. But it is hard to imagine that there could be, for example, a black market in the work of bank directors. In fact, they would be making do with a fraction of their current income.
There is nothing to prevent the introduction of executive pay regulation, at least in the state-owned enterprise sector. The national economy would become not only fairer but also more efficient.
