Getting behind the Madoff Curve?

James Wickham24/11/2009

James Wickham: One convenient justification for high pay is that the more people are paid, the harder they work and the greater their output will be. Ok but only up to a point...

The banking crisis is sometimes said to have been caused by bankers having the wrong incentive structure: they were rewarded for short term gains and encouraged to take excessive risks. Arguably something more fundamental was involved. After a certain point, the gain from higher pay may actually be negative. We could call this relationship the Madoff curve after a well-known American entrepreneur. Consider for example doctors: after a certain point paying doctors (and especially surgeons) more money probably attracts people into the profession who simply want to make more money rather than having any commitment to healing people.

Mrs Thatcher claimed that 'Greed is good'. By contrast, Max Weber, the German sociologist, wrote that it should be taught 'in the kindergarten of cultural history' that modern rational capitalism has nothing to do with greed. Maybe part of our problems is that in the last twenty years capitalism has increasingly become equated with greed, in other words, with immediate short term gains? Clearly we have become accustomed to thinking that the only possible reward is monetary reward, denigrating the rewards of public esteem. Hence the absurdity of government ministers and very senior civil servants demanding parity with the private sector. Traditionally in democracies such people have been rewarded with a modest salary and public respect for public service. Pay them more, and you get less (or people who behave like bankers, which probably is the same thing).

Professor James Wickham

James Wickham

James Wickham was Jean Monnet Professor of European Labour Market Studies and Professor in Sociology at Trinity College Dublin. He has published widely on employment, transport and migration in Ireland and Europe; he is the author of Gridlock: Dublin’s Transport Crisis and the Future of the City and co-author of New Mobilities in Europe: Polish Migration to Ireland post-2004.  His book Unequal Europe: Social divisions and social cohesion in an old continent analysed the collapse of the European Social Model; his new text book European Societies (Routledge 2020) examines the structures of inequality in contemporary Europe.  He is a former director of TASC. 



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