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equity and equality

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As democracy gradually spread around the world, capitalism was favored over the more repressive feudal system. It meant that those who were not born of royalty, nor had genetic ties to nobles, could amass their own fortunes through innovation, hard work, perseverance and a bit of luck. It finally meant that peasants could elevate themselves from the depths of poverty to unfathomable heights of wealth.

Many would argue that there has never been an economic system in modern civilization that has liberated more people from poverty and created more millionaires and billionaires than capitalism. However, in some circles, particularly among the socialists and labor unions, there is an argument that this wealth has been accumulated through the exploitation of others. They argue that the bearers of capital offer workers lower than acceptable compensation and they in turn receiving preposterous amounts in profits.

We ought to bear in mind that no one is forced to work; every individual in the free world has the choice to be a part of the labor market and join an organization to work for in exchange for remuneration. A major proponent of capitalism is that it provides an environment for entrepreneurship. After all, all the colossal corporations of the past two centuries started small and over time grew. Today, they consistently post higher annual earnings than the entire GDP of smaller nations.

At the helm of capitalism lies the CEO, the captains who steer their companies. CEOs bring vast knowledge and experience to the party – many having studied in some of the most prestigious universities and business schools around the world.

The reality is that the CEO has one of the most challenging jobs. They are tasked with the laborious task of driving revenue for shareholders; representing the firm as its head; ensuring that all the divisions of the company function effectively, notwithstanding defining the corporate culture of the firm and instilling it in its employees.

Then there’s the socialist ideology that affirms that capitalism is a modern form of slavery masqueraded as the archetype economic system that was founded in principle on human liberty. Evidence has shown that socialist states have failed to address inequality and have compounded the issue by creating elitist factions who benefit at the expense of the majority.   It is almost paradoxical that CEOs are viewed as employees of the organization when there is a level of self-interest at play. CEOs are often granted equity in the firms they represent as a part of their remuneration packages. They then have the added incentive to protect their stake by enacting management policies and tactics that will drive profitability, sometimes at the expense of the ordinary worker. The mining sector is a prime example: when the price of commodities such as gold and platinum rises, the shareholders benefit from the increase in profits. However, when demand subsides and prices fall job cuts become the order of the day.

Several years ago, my management lecturer said the compensation that CEOs receive ought to be globally competitive.

“Great CEOs are in high demand and as such their remuneration should reflect this, but more importantly should perturb them from seeking better opportunities abroad.”

This is the world that the capitalist system has created. Instead of asking whether it is fair that CEOs earn vast amounts of money compared to others, the question should be whether this system of self-interest masqueraded as capitalism is one that is just and equitable, especially in South Africa, where there are skewed levels of income between low-income and high-income households.

Despite capitalism’s faults, there has never been a system that comes closer to benefitting all. Until such a system is conceptualized, we will continue to debate the exorbitant salaries of CEOs and why capitalism continues to fail us.

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