Have the Swiss Gone Mad, or is it a Sign of Things to Come?

A few years ago, Switzerland proposed an ambitious way to limit the pay for CEOs and other executives. They suggested limiting executive pay to no more than 12 times the salary of the lowest paid person in an organization. Consider someone making $10/hr, they would have annual earnings of $20,800. That means executives couldn’t make more than $249,600. The average CEO compensation for a Fortune 500 company is $13.8 million. As you can see, this would cause massive disruption, with either executives quitting en masse or labor expenses spiraling out of control. Much of a CEO’s compensation is variable, because it is based on profitability. Salaried workers are often treated more like fixed expenses (even though labor needs are arguably variable), so dramatically raising their pay creates a much higher operating cost, and thus, more risk for these companies. This measure failed by 65%, which suggests nearly 1/3 of people supported the measure.

Now the same country that brought forth the idea of capping CEO pay has a new idea they are investigating: universal basic income. The way it works is based on everyone getting a check from the government to cover their basic needs. If the poverty level is $25,000 a year for a family of four, the government simply writes them a check for $25,000. Makes perfect sense right? I’m sure your head is about to explode. Take a deep breath! This measure too has just failed in Switzerland, with 77% voting opposed.

While eradicating poverty is a worthy pursuit, you are no doubt running through a long list in your head of what is wrong with this proposal. Inflation, will the funds be spent on basic needs, work disincentive, etc? To my surprise, the idea didn’t actually originate in Switzerland, but it came from here in the United States. And it had little to do with eradicating poverty, but was rather posed as a solution to deal with the increasing automation of jobs. I can’t find a direct reference for this, other than it is mentioned in the attached NY Times piece. In this circumstance, the proposal isn’t a suggested fix to those who need a hand up, but rather a consolation prize to many who are about to lose out.

The idea might resonate to those being forced out of the workforce, and we know this a problem which is continuing. Labor participation rate continues to lag, from roughly 67% at the turn of the century, to nearly 62.5%. It is widely believed part of the reason the unemployment rate has sharply declined since the last recession, is due to many disenchanted people having given up looking for jobs.

Once more, I desperately call for fiscal policy to provide a fix. The American worker is suffering because of high political uncertainty and lack of policy that can provide incentives for new businesses and job creation. Entrepreneurship has declined for decades, and existing companies are fearful of making long-term investments. With a dysfunctional relationship between Congress and the President, it is ordinary Americans who are bearing the brunt of increasingly stagnant economic conditions. Our elected leaders, on both sides of the aisle, are failing to adapt our economy and policies to the current reality, which will only make ideas like universal basic income seem more enticing to future generations.