23 Things they Don't Tell You About CapitalismBy: Chang Ha-Joon
Major Topic: Economics
Minor Topic: Politics
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Thing 14: US Managers Are Over Priced
We are told that the market should determine the cost of labor; that wages are set by the market based on supply and demand of the labor involved. US managers are the best in the world (obviously since the US is the richest and most developed country in the world) so they should be paid the most. Furthermore, within the class of US managers are an elite that are much better than the rest. These elite of the elite make better decisions than the rest and can make the company much more money than they cost so it is a win-win situation. If ever there is a manager that is not up to the task he or she will be gotten rid of quickly through the market mechanism.
The truth is less flattering: US mangers are massively over paid in two ways. 1) Compared to earlier generations of US managers: this despite the fact that earlier managers ran better and more profitable companies in real terms. 2) Compared to the managers of other rich and developed countries. Additionally US managers seem to be more likely to be paid well even for failure.
This last point, that managers are often not punished for failure, is evidence of the high amount of power this class has in our modern society. In fact it is this managerial class that is most associated with the 'revolving door' problem in American government. Often times it is managers in this class that take on the role of government watch dog over their industry. Their associates and friends benefit and then when they retire from government they go back into their industry in similar positions to their former positions.
The free-market only works well at eliminating bad management when no one in the market has enough influence to manipulate the market. However that is not the case with the managerial class in the US. In the US the managerial class makes the rules that they will follow and then runs the enforcement mechanism. This is a highly advantageous position for this class.
The author suggests that the power of this class is bad for the everyone. For the company itself it means that the managers will run the company into the ground as they look for ways to cut costs (which usually involves cutting workers) with ramifications as far in the future as possible (reduced workforce means reduced service capacity – which will not be noticed for a while).
It is also bad for the country as the high pay of the managers makes less funds available for investment. Thereby making US companies less competitive in the future than companies in other countries.
Added on: 2012-10-05 12:21:28
Text Crawl by: James McLaren
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