Thursday, November 29, 2007

'Liberals' conspire against the Public Sector Rich List

This post by Gracchi on the Liberal Conspiracy website attacking the Public Sector Rich List has plenty of phoney 'gotcha' moments. Fortunately, none of them remotely stack up:

"Firstly its noticeable that on their website, they claim the need for this survey because these public sector workers are paid so much more than teachers, soldiers and policemen. The politics of envy resurfaces and is evident in many of the comments! Such an argument presupposes a commitment of some kind to equality- and acknowledges the injustice of directors of the Royal Mail sitting in plush offices earning millions whilst soldiers sit in Basra risking their lives earning thousands. I’m not sure how that sits with the reductions in taxation that the TPA advocates elsewhere- nor am I sure that the only inequalities are within the public sector."

Let's look at the actual reasons why we said the Rich List was needed:



  • "Transparency. People and organisations that receive large amounts of taxpayers’ money should be accountable to the public they serve. Taxpayers should be able to judge for themselves whether the remuneration of senior officials represents good value for money.


  • Rewards for failure. People in the public sector should be paid well for good performance. But in far too many cases senior public sector officials are being paid over the odds for dreadfully poor performance, which in some cases would warrant a sacking in the private sector (see Table A1.2 for 10 examples)."

We did include the wages of soldiers, nurses and policemen in our report but as a comparison. Some of the bigger salaries are so high that the numbers can almost become meaningless. Just like the £101 billion of waste figure in the Bumper Book of Government Waste they need to be compared to something so that people can get their heads around them.

"Secondly they argue that the salaries of public officials should be justified- and they are right. Lets take Adam Crozier, chief executive of Royal Mail. He is paid a ridiculously vast amount of money, but he was recruited from being Chairman of the FA- and before that was a leading advertiser. If the TPA believe in the efficacy of private markets setting wages then Adam Crozier is probably being paid at about the market rate for a chief executive- and so are many others amongst these fat cats in the public sector. Ultimately the cause of the pay of the public sector fat cats is the pay of the private sector fat cats. If you want to get your hands on these types of people you have to pay these types of salaries. So if you want to take a look at public sector people being paid too much for these jobs, perhaps you have to either settle for rubbish directors (of which more in my third point) or you have to think about private sector pay scales."

Firstly, private sector Chief Executives often make far less than even the average in the Public Sector Rich List never mind Adam Crozier. This was pointed out by Chris Dillow in his response to a Comment is Free piece making a similar point to Gracchi's:

"The Institute of Directors reports (pdf) that the average managing director of a firm with turnover below £5m gets a basic salary of just £65,000. One with a turnover of £50-500m gets £141,440. These are decent professional salaries, but not a fortune. And the survey also finds that public sector bosses are already paid more than private ones, at least outside financial companies (which are managed so much better, of course)."

Of course, the Royal Mail is a big company and Crozier doesn't, necessarily, represent bad value. However, the Royal Mail's performance this year has been far from brilliant. Gracchi doesn't have the slightest clue whether he is being paid the right amount and the idea we should just trust the judgement of the Royal Mail's Remuneration Committee to get it 'right' is palpably ludicrous.



In the private sector when a senior manager is paid too much shareholders should be up in arms. The revolt over Jean Pierre Garnier's deal at GSK is a classic example that should be emulated more often. In the public sector the public need to fulfil that role. They need to fight the temptation for public sector organisations to be run for the benefit of management instead of the public. Our rich list allows them to do that.

"Thirdly, ah says my Taxpayers’ alliance friend- but the question is whether they have any impact on their organisations. But again that presents him with an ideological problem. Generally researchers for the TPA believe in hierarchy and hence in differentiated pay. There is lots of evidence, just have a look at Chris Dillow’s blog, that company directors don’t necessarily have an impact on their company stock’s performance- and its quite possible that the same thing applies in the public sector but again all the arguments in favour of or against hierarchy apply similarly in both sectors and hence all the arguments for and against large pay differentials and packets!"

The idea that because you believe some managers are good value you should believe all managers are good value is idiotic.

"The ultimate problem with this kind of Daily Mail politics is that in order to establish that well paid bosses don’t make the public sector any better off, the Taxpayers’ alliance would have to accept that well paid bosses don’t have any positive impact on any organisation. Otherwise they are arguing for poorer public services! (Or perhaps that equality is a moral good which trumps efficiency, but again is that a unique truth for the public sector!) All these arguments seem to me to rebound upon their owners."

This is full of non-sequiturs. Just because we think some public sector bosses offer poor value we don't have to be opposed to well-paid bosses in general. Equally, just because we find big pay packets in the public sector alarming doesn't mean we have to in the private sector. If a firm in the private sector pays its senior management way too much then they will be hurting their ability to compete in the market. Public sector organisations, by contrast, are often monopolies and are paid for by money taken from a taxpayer who has little say in the matter. They don't face the threat of creative destruction if they prove inefficient.

"In a sense this isn’t important- the list they did didn’t really make the national media."

This is utter leftie hubris. I'm afraid a little boasting will be necessary to refute it.


The report got excellent coverage in the national media. It was initially an exclusive for the Sunday Times who put it on the front-page, gave it two pages inside the paper and wrote a leader on the subject. It was then covered by Sky News, BBC News 24, the Mirror, the Express, the Scotsman, the Times, the Telegraph, the Financial Times and the Sun - in many cases quite prominently. It's hard to think of a recent thinktank publication that has had better national media coverage.


Finally, we had this in the comments:

"Of the top ten on the list, six cost the tax payer nothing at all.


Network Rail, Royal Mail, BNFL, and Channel 4 are not parts of the civil service. They are public owned market bodies. They earn their revenues from business activities, and they pay their from those revenues.


So what do they have to do with the tax payer’s alliance?"

These are organisations either owned or heavily subsidised and guaranteed by the taxpayer. If they go belly up we will wind up with a hefty bill to pay. Every penny the Royal Mail pays to Adam Crozier is a penny that will not contribute to the Royal Mail's return on the taxpayers' big investment in owning Royal Mail.


Gracchi's article is a mish-mash of simplistic assumptions and clumsy logic that can't stand up to the slighest scrutiny.


Cross-posted from the TaxPayers' Alliance blog

2 comments:

Devil's Kitchen said...

"Of course, the Royal Mail is a big company and Crozier doesn't, necessarily, represent bad value. However, the Royal Mail's performance this year has been far from brilliant."

True: the Royal Mail lost about £78 million this year, I believe.

However, when Crozier took over a few years ago, it was losing -- IIRC -- a million quid a day. So you could say that he is having some effect.

DK

Lord James-River said...

Taxpayers' money must always be accounted for.