Benjamin Studebaker

Frequently, we are told by the right that progressive taxation is bad policy, that it diminishes the motivation of entrepreneurs and “job creators”.  But what is the relationship between money and motivation? Does more income lead to higher productivity? It turns out, if you phrase the question correctly, the answer is already well known, and the implications of that answer comprise today’s topic.

The Telegraph is a British newspaper. Often nicknamed “The Torygraph”, it has a well-known rightward slant. Whenever the issue of high taxes come up in The Telegraph, it tends to meet with this sort of response, often with quotes like this one:

The 50p tax rate should be abolished immediately. Serious work suggests that it raises a trivial amount of money and the long-run effects may be such that no money is raised at all. The longer this measure stays in place, the less credible are the government’s assertions that this is a temporary tax and the harder it will be to keep entrepreneurial talent in Britain.

This would indicate that money is such an effective motivator that a great many people would rather leave the country than pay a higher tax rate. However, if you phrase the question a little differently, everything changes.

Let’s say that instead of talking about the tax rate, we talk about what individual businesses should do to best motivate their employees. All of the sudden in The Telegraph, the tune changes. Now we are reading quotes like this:

Far too many companies work on the basis that money motivates. But money is not a motivator. If you give people more money you might get a quick lift in productivity but the effect of that dies off incredibly quickly. By and large, that is not what employees are there for.

What does motivate people? Freedom and autonomy:

How tasks are structured has a big impact on employees’ commitment and motivation. Employees are motivated by having some involvement in decisions that affect them, and being given a degree of autonomy and freedom to think about how to do things within a given framework…I think money is important in that you need to pay market rates for great people, but beyond that there are far better ways of motivating people than simply giving them more of it…What people really want in the workplace more than anything is flexible working. So give them flexible working arrangements. Let them negotiate with you about arrangements that suit their family but which also suit the work they do. They will love you for that.

So, to summarise, people are motivated by:

• Ability to make their own decisions
• Ability to determine their own hours

Typically, these are two key things that employers and “job creators” always have, because they run the companies and are their own bosses. This isn’t just The Telegraph either; Forbes agrees too, as do many, many others.

So let’s look at the logic here:

• We should not raise taxes, because money motivates people
• At the same time, we should not raise wages, because money does not motivate people

This is a flat out logical contradiction. These two positions cannot simultaneously stand. One of them must fall, and therefore, from the perspective of productivity we should do one of two things:

• Raise taxes, as it will have no negative impact on productivity and the money raised can be used to raise the productive output of the poor
• Raise wages to increase productivity of existing workers now

If we are talking about macroeconomics and the right is taking the perspective of the entrepreneur against the state, it’s one way, but if  microeconomics is our subject and the right is taking the perspective of the entrepreneur against the employee, it’s the precise opposite. What do both the macroeconomic and microeconomic cases have in common? In both cases, the outcome of the right’s stance is the same–more wealth is retained by entrepreneurs and employers with less of it lost to the state or employees.

Through this we can see that the object of the argument for the right is not to find a socially advantageous position that maximises productivity at all, but to instead support whatever keeps the most wealth in the hands of its economic support base, even if there is evidence that these policies themselves damage entrepreneurs and employers by diminishing the productivity of the pool of potential employees. Indeed there is such evidence, because keeping taxes down to keep money in the hands of the rich minimises redistribution and consequently damages the potential economic demand of consumers as well as the amount of money available to engage in progressive social programmes that augment their level of education and consequently their potential economic output, while at the same time, paying the rich more is not substantially improving their job performance or motivating them. If the alternative is true, wages should rise dramatically for employees at the same rate that employers advocate that their own wages rise, and we know that has not been happening, because the income distribution has not been constant, as data from the US Census Bureau shows for the 60-year period 1947 to 2007:

Entrepreneurs and employers should know and understand this, and consequently support their own long-term interests by supporting lower wages and higher taxes on themselves.

Instead, the media on the right continues to feed entrepreneurs and employers both sides of the story in different contexts. Whether businessmen are being deliberately misled or the right as a whole is not even aware of or in denial of the contradiction is not for me to say, but it may be one of the myriad causes of the gradual decline in average annual growth rates seen in western economies, particularly the United States over a similar period:

A decline in growth rates is a decline in the productive improvement of the economy for everyone, rich and poor. It may very well be that the economic policies designed by the right to service entrepreneurs, employers, and “job creators” may in fact be the very policies that are diminishing our growth, innovation, and productivity in the long term. In other words, the rich are economically shooting themselves in collective foot, and we are all feeling the impact of their bad investment in themselves at the expense of the wider economy.