Why Politicians Should Be Paid Millions by the Public – Lessons from Singapore (and the World)

Why Politicians Should Be Paid Millions by the Public – Lessons from Singapore (and the World)

Underpaying the most important people in the country is a bad policy.

Why Politicians Should Be Paid Millions by the Public – Lessons from Singapore (and the World)

2400 1596 Michael Petraeus

F

ew topics are as delicate as the subject of how much politicians should be compensated for their services. It appears that vast majority of people all over the world reject the notion that their political leaders are underpaid. Converse is often true – many think that the political class is useless, untrustworthy and paid far too much. One notable exception to that has always been Singapore, with million dollar salaries of its cabinet members and the prime minister earning US$1.6 million – or four times more than the president of the United States, the world’s reigning superpower.

So, what’s so special about it? And why should other countries pay so much more to people who are already working for so much less?

Politicians are Already Making Millions

Let’s start by dispelling a certain myth – if you think great power and great responsibility can go without a proper pay, you’re wrong. Just because the law mandates specific levels of remuneration doesn’t mean – and certainly doesn’t guarantee – that people who wield enormous power are not going to use their position to make themselves rich.

Barack Obama has just bought a mansion worth $15 million and yet he only earned $400,000 annually as president. So how can he afford it? Thanks to lucrative book deals and numerous speeches at corporate events (each one earning him a few hundred thousand dollars).

Image result for barack obama martha's vineyard house 15 million

You may ask – “Well, so what’s wrong with that? Isn’t he just benefiting from his personal popularity as a likable president?”

There are two issues to address here. First of all, knowing full well that the private corporate sector pays well, politicians (especially if they serve for a limited time) may be inclined to get cozy with business in exchange for lucrative future deals.

Secondly, knowing that a personal brand is worth a lot – and stays with you beyond your term in office – it incentivizes politicians to take care of themselves more than of the country. Making unpopular – even if good and necessary – decisions becomes bad for your personal standing and certainly limits your future earning potential.

There’s plenty of evidence that Obama was – and remains – concerned about his “legacy”. He pursued the “deal” with Iran, even though he did not have the support of the Congress to make it a legal commitment of the US. Drug Enforcement Administration was forced to drop its pursuit of Hezbollah’s drug and weapons trade, which yields the terror organization est. $1 billion every year, because Obama’s administration did not want to upset the Iranians. At the end of the day he did get his meaningless paper (JCPOA was merely a political declaration, not a legally binding treaty) and considers it a milestone achievement, despite the fact that it only enriched a theocratic, terrorism-supporting regime just as it was starting to support the Houthi insurgency in Yemen, opening yet another front in his proxy wars in the Middle East.

But Obama was more concerned about how his name going to go down in the history books than making right – even if difficult – decisions.

He was certainly a popular and likable president – but he was also weak, incompetent  and many of his moves had really rather bad consequences. Yet, thanks to his pleasant demeanor, he remains a major figure who can now enjoy a millionaire life regardless of how badly he had mismanaged many of the national affairs.

Related image

You may still think that occasional speeches and a book every now and then are quite harmless but you might be surprised how much money they may yield – surely more than enough to purchase loyalty – or, at the very least, sympathy. Let’s take a look at the power couple of American politics – the Clintons:

Between 2001 and 2015, Bill and Hillary Clinton made a combined $153 million from speaking engagements.

Yes, it’s not a typo – $150 million dollars in 15 years – or about $10 million per year. “In total, the two gave 729 speeches from February 2001 until May [2015], receiving an average payday of $210,795 for each address. The two also reported at least $7.7 million for at least 39 speeches to big banks, including Goldman Sachs and UBS, with Hillary Clinton, the Democratic 2016 front-runner, collecting at least $1.8 million for at least eight speeches to big banks.” – Source: CNN

Besides great on-stage skills, the Clintons run a foundation employing 2,000 people and managing assets of half a billion dollars – which is known to have received funds from rather controversial donors like the Saudi Royal Family, Qatar or the notorious private mercenary agency Blackwater. Considering that Hillary Clinton was a Secretary of State and later a presidential candidate in 2016, it is clear that accepting multi-million dollar donations – alongside generous corporate speaking fees (whether by her or her husband) – could have influenced her stance (and decisions) towards other nations or big business.

Similar examples abound in Europe as well. Probably the most egregious one can be found in Germany, whose former chancellor Gerhard Schroeder has currently spent more than a decade as chairman of the board of Nord Stream AG and of Rosneft – companies controlling the gas pipe between Germany and Russia, that controversially goes along the bed of the Baltic Sea – a deal he himself closed mere weeks before leaving the office in 2005.

 

Image result for schroeder putin

As if that wasn’t enough he is also a Member of the European Advisory Council of Rothschild & Co. investment bank and served on more than 15 boards of various companies and other organizations after retiring from politics.

Another household name, Tony Blair, besides, much like the Clintons, being paid hundreds of thousands of dollars per speech, also landed a part-time advisory job (immediately after stepping down as prime minister) at JP Morgan Chase – reportedly paid over $3 million annually for his services. But that is still nothing compared to the revenues of his political consultancy – Tony Blair Associates – employed by nations (or rather their leaders) around the world for huge, usually undisclosed sums of money – like the deal with the long-term ruler of Kazakhstan, Nursultan Nazarbayev, which was reportedly worth over $6 million.

“Tony Blair Associates was demanding $2.65 million for providing ‘political advice’; $2.55 million for helping Nazarbayev uphold the rule of law; and a further $1.1 million for running the civil service academy.”

Ever since the popular prime minister left Downing Street no. 10, his company has landed a great number of similarly lucrative contracts with state and private companies from Saudi Arabia, UAE or South Korea (among others) and a number of governments around the world (besides Kazakhstan – Rwanda, Guinea, Malawi, Vietnam, Mongolia, Peru, Myanmar or Libya – as Blair met with Muammar Gaddafi several times, at the full expense of the latter). Regional government of Sao Paulo reportedly shelled out over 4 million GBP per year for his help, while UAE was quoted $35 million for a 5-year assistance in building up its brand.

Image result for tony blair gaddafi

The true extent of his empire of influence is hard to track – but it’s quite obvious that he continues to leverage his popularity and experience to make more money with a single project, than he had earned for a decade he spent leading the UK.

You may think these are just anecdotes, a few isolated examples of world’s celebrity politicians and the same does not extend onto the entire political class – but you’d be wrong.

According a report published by Transparency International in 2017, more than 50% of past EU Commissioners and over 30% of former Members of the European Parliament, have taken positions with companies lobbying in Brussels.

While it doesn’t seem that EU Commissioners are exactly underpaid – making 20,000 EUR per month – corporations which are lobbying for or against certain legal decisions at the European level can pay several times more to get access to their rolodexes – and buy their support for their causes. One of the most controversial transitions from public to private sector was Jose Manuel Barroso, who secured a lucrative job with Goldman Sachs almost immediately after stepping down from his post as the President of EC.

I think by now it becomes painfully clear that the real question is not whether politicians should be paid millions – it’s rather a question of how and when we should allow this to happen.

At the same time, however, this quick review led us to another alarming conclusion – that valuable skills, experience and networks of past leaders frequently no longer serve national interests and can even be employed by foreign actors, further complicating international affairs.

Does it seem reasonable (or safe) that former ministers, cabinet members, chancellors, prime ministers or presidents become guns for hire to advance the agenda of foreign dictators or lobby for interests of private corporations, making use of the experience and networks acquired during their time in public office?

So the issue is not only in paying politicians well but in retaining their talents even after they leave, so that they continue to aid the country. This is probably even harder to achieve, since it would require more level-headed, less emotional and more consensual politics.

That said, if the nation is not going to take care of them very well, they will, sooner or later, take care of themselves on their own. And it may turn out that those millions you’ve refused to pay them result in billions in lost opportunities or leverage gained by foreign or private actors, to the detriment of public interest.

You Get What You Pay For

Elite performers in any discipline of life that affects millions of people are multi-millionaires themselves. Footballers, musicians, racing drivers, company CEOs – they are admired by millions or provide products or services to millions – and receive a share of the value they create.

And yet politicians – even in a country like USA – are paid about as much as a mid-level employee in private sector.

Median internship salary at Facebook is $96,000 – or up to $190,000 for a production engineer. This is more than the salaries of Congressmen who get paid $174,000 and on par with cabinet members, earning about $200,000.

Is it prudent to pay people who write the laws of the country, who manage its economy, future pension system, defense, internal security, education, science… so little? It may sound like a lot to regular breadwinners but really isn’t much given the responsibility they have for the entire nation. It’s not a salary level that guarantees complete comfort.

Political leaders should be paid enough to afford a comfortable life, not bothered by mortgages or children’s education. In other words – the nation should sponsor their carefree existence in exchange for complete focus on the service they have to perform for it.

You really don’t want to have a minister who’s losing sleep over a loan payment that’s a little too big to handle. Not only because he is more prone to making mistakes under stress but because we’re wired for self-preservation and most people would take advantage of their political position to accumulate more resources (i.e. money) to protect their living standards.

Corruption is most likely to occur when there’s a significant discrepancy between the power wielded by the individual and his pay.

Imagine a minister sitting down for a dinner with a CEO of a major company. Let’s take the United States as an example – a federal cabinet member is paid $200,000 per year, while the median income of an S&P 500 CEO is $12.1 million.

In other words, half of the CEOs of the largest American companies make at least 60 times more than the top ministers of the federal government – or 30 times more than the US president himself.

In many cases that factor will exceed 100 times – with salaries of $20 million and more being really quite common among the largest companies.

Yet disproportion in responsibility is quite enormous – in the opposite direction. Each CEO has to, merely, take care of his own company. Yes, it may employ thousands and provide products or services to millions but it is nowhere near being responsible for the livelihoods of all citizens.

This responsibility – and power – is wielded by the ministers of the nation who are paid about as much as an engineer at Facebook. Does it seem fair? More importantly – does it seem reasonable?

Political leaders should meet business leaders on equal terms – but it’s not possible if they are paid 100 times less. Because of this huge discrepancy there’s a significant incentive to trade favors. Corruption.

Lessons from Singapore

Singaporean cabinet members are the best paid in the world. The policy of million dollar salaries was introduced in the early 1990s by pegging their pay to the private sector and setting it at “two-thirds of what the top four earners from six professions” made. The goal was to put their remuneration within the same ballpark as the top CEOs, so they could act and be treated as equals (what would limit the incentive for corrupt behavior) as well as to motivate young, ambitious, talented people to consider a career in politics.

Local MPs are paid about as much as their counterparts in other countries – and I think there’s space for improving their salaries but, quite like the rest of the world, Singapore has not escaped popular skepticism and even the ministers had to take a pay cut after an underwhelming electoral result in 2011 showed signs of dissatisfaction about perceived inequality.

Perhaps the most important example Singapore sets is not in the amounts paid to the country’s leadership but how stable, reasonable governance dominated by one party over many years, allowed to transform political positions into a lifelong mission.

Because of this stability – and because the financial reward for the service is nearly as high as it could be in the private sector – the incentive to abandon the career is small. Ministerial cadres are groomed over many years, often equipped with experience in other branches of the public service (like the military), government-linked corporations or other institutions.

For that reason their talent, experience, connections are protected and not for hire.

And that is probably the greatest challenge in adopting the Singaporean model worldwide – because it’s not only about the money. It is about preserving the experience which has been accumulated over decades the political leaders spent in various public posts, so it continues to work for the country.

Given that both governments and parliaments in America or Europe have a tendency to change every few years, how could past ministers be used by their political opponents who have taken over? It would require enormous capacity for compromise – which is usually absent in political victors. Why share power with the enemy or even employ him to serve national interests? It’s barely fathomable and happens only in extremely rare cases of accomplished, widely respected statesmen (Kissinger springs to mind).

Money is an important component in attracting talent and balancing the economic heft of the private sector, which is eager to use it to influence how laws are written and political decisions are made.

But it would yield far better results if reasonable, consensual, non-ideological, meritocratic governance prevailed over emotional, ideologically-driven agendas that define Western (mainly) politics today.

Because only then it can ensure that decades of experience in governance remain in service to the public – not abandoned or repackaged and privatized as product offered for sale to the highest bidder, regardless of who he is and what he represents.

mm

Michael Petraeus

Economist, marketer, designer and business strategist publishing about the past, present and the future.

All stories by:Michael Petraeus
Follow me online:
Like what you read? Follow me on Facebook.
I already do. Close the box.