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Deconstructing Laissez-Faire

Guest Column Philippe Larochelle

At the end of the article entitled “Rewarding Genius and Ambition” published in The Tech on January 19, Sourav K. Mandal states: “If the free market leads to impoverishment for some, so be it -- its principles are perfect by me.” This statement in itself seems to epitomize exactly what the growing laissez-faire/free market/pro-individualist movement on campus seems to stress: as long as I reap the benefits of such a system; the system is working marvelously. I’m sure Louis XVI would have offered a similar defense of monarchy.

It quickly becomes apparent why such a viewpoint can come to prominence with many people here at MIT. This being one of the foremost technical institutes in the world, we are undoubtedly among the people who would profit the most from a system in which the higher echelon of corporations pocket the vast majority of the money. This, however, does not mean that the system is right, just, or even sustainable. For one to adopt such a philosophy while turning a blind eye to the flagrant injustices that our system imposes on a large percentage on the population of the world is definitely irresponsible, and from the viewpoint of an arbitrary outside observer, nearly borders on the criminal.

What I would like to offer in this article is a response to the recent wave of individualist, pro-free market sentiment that has been surfacing throughout the campus in publications and articles like the one mentioned above. At the same time I would like to issue a defense of the very legitimate concerns expressed in Michael Borucke’s article “Searching for a Better System” [January 12] that initially provoked Mandal’s column.

Mandal proudly boasts that we live in the “golden age of genius and ambition” where in vibrant companies the “bosses work longer and harder than any of their subordinates” and claims “to value a person simply because of his or her low station is to devalue the accomplishments of the courageous and able.” What Mandal seems to be advocating here is a meritocracy where the people who work the hardest and accomplish the most should receive the largest compensation. However, this principle and providing a decent and equitable wage for workers and other people of “low station” are not mutually exclusive, but rather they are facets that should be universally adopted in appropriate measure. Having a wage gap in a society is necessary only so far as to create an incentive for people to seek out the knowledge and education necessary for higher level managerial or technical positions and is justified only if it benefits society as a whole. Centuries of philosophical thought and popular struggle have led to the strong backing of this principle. The relative salaries and job security of executives and employees are not something that should be left to a laissez-faire economy but rather should be held firmly to a legitimate scale.

What Mandal (and everyone else) should realize is that in our system the scales have been entirely tipped towards the compensation of people of “high station” (as I guess we should call them). In 2000 it is now the case in the United States that CEOs earn on average 691 times as much as the average worker of a company. The average CEO’s salary has climbed 443 percent since 1990, while the worker’s salary has gone up 28 percent (barely enough to compensate for the inflation of 22.5 percent) and the change in after-tax family income for the bottom 20 percent of the population has actually gone down 9 percent since 1977. So even if you accept Mandal’s premise that the bosses of this world work harder and longer than the workers of the world [which you shouldn’t necessarily do], do they really work 691 times as long and hard? And are they somehow 5 and a half times as valuable as they were ten years ago? Have they taken on five times as many responsibilities? No. The answer to these questions is a resounding no. The salaries and perks of people of high station are what they are because they are the ones who determine what the salaries are, and if they can jumpstart their own salaries while keeping those of their subordinates down, that is precisely what they will (and have) done. If refraining from unnecessary layoffs or passing a reasonable amount of the profits of a company down to the large number of employees who have been essential to generating those profits makes a CEO feel “devalued” (whatever that means) so be it. It is better that one CEO feel devalued than to have thousands of workers who feel like slaves.

Mandal and others of similar views might turn to the so-called “chain of accountability” that Mandal mentioned in saying that a CEO’s salary is dependent on the decisions of the shareholders, and that if the shareholders decide that the CEO deserved that salary then clearly he merits it. What is important to note is that shareholder’s say in the affairs of a company is not democratic. It is one share one vote and not one person one vote. So chances are it is not the janitors in the company to whom the CEO would be responsible (their limited income affords little room for large market investing), but rather other people of his own caste who themselves have a vested interest in seeing a raised standard for executive compensation. The richest one percent of the population own more than half the stock in this country and the wealthiest tenth own more than 90 percent.

In its somewhat vague answer to the ills of our society Mandal’s essay departs from the realm of simply being morally devoid unto the area of being factually inept. It claims “the answer is not government entanglement in the economy, but a clear detachment from it.” Mandal presents this in the same article in which he lauds the miracle of the Internet (somehow implying that is was a product of the laissez-faire free market he is so fond of). The Internet, like many of the high technologies we enjoy today, was a product of a huge governmental research program and was mostly promoted through the actions of institutions like DARPA (Defense Advanced Research Projects Agency).

If the objectivists are so concerned by the “nuisance” of the government and its involvement in tarnishing the wonderful vision of laissez-faire capitalism, perhaps they should spend less time attacking the system of social spending and legislation that is commonly referred to as welfare for the poor and start attacking the huge system of welfare for the rich in this country (commonly known as corporate welfare). An extensive study of transnational corporations conducted by Winfried Ruigrock and Rob Van Tulder found that “virtually all of the world’s core firms have experienced a decisive influence from government policies and/or trade barriers on their strategy and competitive position” and “at least twenty companies in the 1993 Fortune 100 would not have survived at all as independent companies, if they had not been saved by their respective governments,” by socializing losses or by simple state takeover when they were in trouble. In one form or another over $450 billion is spent on corporate welfare every year. You will find few examples of departures away from laissez-faire as extreme as that.

Philippe Larochelle is a member of the Class of 2003.