5 to 40

I believe in prosperity, I believe in technology, I believe in free economy, I believe in democracy. I believe that growing inequities are endangering them all.

I was born in 1973, the beginning of the crisis (the oil shock). It was actually like the “last round” bell sounding across the western world, marking the end of the “glorious thirty”. The unprecedented surge in prosperity that followed the rebuilt of European nations was coming to an end. Generation living at that time saw their world totally change after 1945. There was virtually no unemployment, and anyone without a degree but with some aspiration to work could make a decent living. On top of it innovation (boosted by the war industries redeployment) was providing more and more changes to the daily life of people across (primarily) North America and West Europe. Cars became ubiquitous, tap water came to every households, refrigerators changed the way people were shopping and living. TV became unavoidable. The perfection and simplicity of the American dream, that the whole western world embraced. There was a place and an opportunity for everyone.

But premises of the collapse and the tension were already surfacing in the late 60’s, with rebellions across Europe against the “consumer society”, and in the US against “proxy-wars” such as the one raging in Vietnam. In spite of these social tension, the world of the rich and the world of the poor continued to grow apart prodigiously, which has for a long time been discussed, assessed and theorized. And numbers have been put on the table.

5 to 40 is the range of income inequity assumed to enable a livable society. We are above a million now between low and high incomes.

During negotiations between workers unions and company leaders to end the “big strike” of May 1968, there was an arduous discussion around this very topic. Dissent was obvious between the workers (mostly caricatured as left wing idealists) claiming that a ratio of 5 was the maximum you should see between the basic worker and the CEO. The “business association” representing midsize and large companies in France wanted to push very hard their agenda of “allow for the CEO to be paid 8 times more than the base worker”. So at the time between capitalist and socialist, the range was between 5 and 8.

Even Henri Ford theorized around the subject of income span. As he was pushing his employees wages up, he said 40 times was a limit that seemed to be acceptable between least paid and best paid employees. And he was not raising wages for a philanthropic reason — he realized that if he wanted to keep his employees motivated to continue to work for him, and attach their competencies, he had to pay them more. That’s where “40” comes from.

Interestingly numbers from the past are to be taken with a grain of salt, when we try to compare them to the situation of today. Henri Ford at his time could see the whole value chain from his window in Dearborn. “Integration” was not a vain word in those times — and anyone working to build T-models was part of the Ford Motor Company (including desk cleaners and food providers). So to compare it today, we have to recognize that through functionalization and delocalization, the value chain is bigger — in some cases global. Some parts in cars assembled in the US might contain parts and subsystems coming from overseas, or at least support functions can be located in low-cost countries. Thailand has become a hub for support services for instance (from IT to Human resources back office). Average Thai salary for these kind of services is probably around 5k$. To make it to the top 50 of CEO compensation you would have made at least $17M. To make it simple 3000 times more.

So in 5 to 40, I want to explore these notions. Again, I believe in free enterprise (that I would want to even see much freed of some of the pernicious controls that sometimes do more harm than good). I don’t want to ostracize the rich people either, I want this discussion to increase inclusion, from top to bottom. I want to have a conversation, to understand how to make it better. “Equal pay” for anyone does not work, it is important to recognize people abilities and willingness, and income can be a motivator. I don't want an answer to the question “how much is too much”, I would like to find out “how much is sustainable and fair”.

It is a long journey to “sustainable stakeholder capitalism”. Will you ride it with me?

Hemka, Singapore, October 28th 2020.