J P Floru: Governments are too ignorant to decide pay

The idea that government are competent enough to decide who deserves to be well-paid, and who doesn’t, is a prime example of statist hubris. It should be condemned to the dustbin of claptrap ideas, where it belongs. Sweeping, generalising laws are inept to cope with the millions of decisions involved in determining pay. Believing that politicians know what a director should be paid is not very different from believing that the state knows how many potatoes are needed, or what next year’s fashion will look like.

Like all other things in the market, pay is not “decided” by a rational decision. It is determined by that market, that is, millions of individual decisions by all of us. When you buy an apple in a corner shop, that has an impact on the pay of the grocer, his accountant, his cleaner, his staff, the fruit van driver, all those working at the fruit auction, the middle man, the farmer, all the farmer’s employees, and many others. Does anyone really believe that the government has the information to decide whether their pay cheques are too small or too large for what they are doing? The whole debate on “excessive pay for poor performance” is a prime example of FA Hayek’s Knowledge Problem: the fact that state planning fails because central decision makers simply lack the information to take such decisions.

A state diktat as to what people should be paid is therefore not a rational decision (as that is impossible because of the lack of knowledge), but a political one. It is the imposition of a specific political view on all of us. The millions of decisions we make, which decide pay, are overridden by politicians who believe they know best. We are basically being coerced into subjecting to politicians’ views as to what pay should be. It shows a disdain for all of us; it is nannying and patronising.

Excessive pay is only relevant with regards to state employees. If there is unequal pay in the private sector, the taxpayer does not bear the costs – the shareholders or investors do. A government which believes in individual responsibility should preserve it. A government is responsible for the taxpayer, not shareholders or investors.