What is “Social Justice”?

Published on 2013/03/18

Barely an evening passes without the issue of “social justice” being discussed on German television in the talk shows of Günther Jauch, Maybritt Illner, Sandra Maischberger, Markus Lanz and their ilk.

I watched most of the “debates” in recent weeks that revolved around the question of how high the salary of a senior executive may be without becoming “indecent” or, to put it differently, what salary is still considered “socially fair.”

These panels have actually ceased to be discussions in the original sense of the word, because the dispute among the panel members boils down to topping each other with the best ideas on how to limit executive salaries most effectively. Whether or not there is an actual need to limit them is no longer subject to discussion. And so the matter is no longer debated at all. Even Angela Merkel recently spoke of a pressing need to act in the matter of executive salaries.

It obviously suffices to pick two or three “excesses” from hundreds of thousands of cases, to cite their compensation and bonus payments and what not, in order to generate a general sense of outrage and the strong feeling that corrective action is badly required.

The Social Democrat youth organisation in Switzerland is preparing a popular initiative with the objective to cap the salary of senior employees to twelve times the lowest income of any employees working in the same company. Under this arrangement, the CEO of Deutsche Bank or Volkswagen would earn about 260,000 euros per year. It is easy to imagine how many of the international top managers would apply for the jobs, given such an attractive salary.

Sahra Wagenknecht, who in her role of Rosa Luxembourg reincarnate and as head of the “Communist “Platform” of the German leftists (“Die Linke”) is an always welcome guest on the talk show circuit, seems to be slightly “more generous” as she demands that a manager should earn a maximum of 20 times the lowest salary paid in a given company. If this was the case – or so the compelling logic goes – executives would substantially raise the entry level salaries in their own best interest, and “social justice” would be achieved. What a gifted economist she is!

One of the few good questions that the host, Günther Jauch, posed was this: How much would Frank Ribery earn if he only got 20 times the pay that the groundskeeper gets? Ribery makes an estimated ten million euros per year with FC Bayern at the moment. This, by the way, is roughly the same amount that Günther Jauch is paid as talk show host, who gets 10.5 million euros annually. Strange to say, no one mentioned the fact in Jauch’s talk show. Seriously, why did not someone raise the question how “socially fair” it is that someone who hosts these nightly rounds of TV gibberish earns as much as the best football player working in Germany today?

Germany’s national team would have to recruit its players from the county league in the future, if the demands raised for corporate executives were applied to sports. But the same would be true for the corporate world, too.

So what does “social justice” mean? Is there something like “unsocial justice” or “asocial justice”? Frankly, I fail to understand the term. Even a Nobel Prize winner in economics, namely Friedrich August von Hayek, found himself at a loss to answer this question. “To discover the meaning of what is called ‘social justice’ has been one of my chief preoccupations for more than 10 years. I have failed in this endeavour – or rather, have reached the conclusion that, with reference to a society of free men, the phrase has no meaning whatever,” said Hayek.

Fairness would imply equal pay for equal labour. If Martin Winterkorn of Volkswagen worked as mailman or front desk clerk, he would draw the regular wage paid to mailmen or front desk clerks by the company. If Winterkorn played for FC Bayern as brilliantly as Frank Ribery (assuming he could), he would get paid the same money as Ribery. Conversely, if Frank Ribery served as CEO of Volkswagen (assuming he could), he would draw the same salary as Winterkorn.

An argument often heard is that salaries as high as those paid some CEOs of DAX-listed companies is “no longer justifiable.” What is that supposed to mean: “no longer justifiable”? Here is what it is trying to say: People start an envy-motivated debate to pillory corporate executives and “the rich” in order to maintain innocuously later on that the salaries of senior executives are “no longer justifiable” in the eyes of the broad majority. But how high a salary is still “justifiable”? 20 million? 10 million? 1 million? 100,000? Depending on who you ask, you will get a different answer.

In a market economy, however, salaries are not defined according to the standards set in talk shows or in the local pub, where the idea of “socially fair” is inspired by envy. Instead, it is subject to supply and demand. If there were a hundred thousand qualified candidates for the job of Volkswagen CEO Winterkorn, the fact would certainly be negatively reflected in his paycheck. Prices, including those on the labour market, reflect a shortage ratio. If a certain skill (e.g. to compose music like Madonna, or to play football like Ribery) is in short supply, its price will go up.

To some extent, though, corporate executives, high-income earners, and “the rich” have only themselves to blame for the way the debate is being conducted. They argue as if they had to defend themselves. “Of his own free will,” Martin Winterkorn chose not to accept several millions he was entitled to under his employment contract. He seriously believes that this will silence his detractors. It is a naive thing to assume. The pressure of public opinion is so overwhelming that hardly anyone dares to call the whole debate what it truly is: entirely unnecessary.

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