THE JUSTIFICATION for big business - and the management principles which govern it - is that it is the engine of economic development. There is no such thing as an advanced economy without large companies (a measure of India and China's progress is that they are quickly developing them). Roughly speaking, the greater the density of organisations above pounds 10m in size, the higher the standard of living.
However, for the West, this description no longer applies. One of the topics the global business elite discussed at Davos was the 'soggy middle' - the resentful perception that while the engine is steaming merrily ahead, it has quietly slipped its coupling and left the middle-class train in the station.
Thus, economist Paul Krugman notes that 'even households at the 95 percentile - that is, households richer than 19 out of 20 Americans - have seen their real income rise less than 1 per cent a year since the late 1970s'. In the UK the median disposable household income has progressed at the same leisurely pace. Meanwhile, those aboard the first-class coach - last stop, Davos - are travelling in ever more extravagant luxury. Over the same period the incomes of the top 1 per cent in the US have doubled those of the top 0.01 per cent have risen fivefold. Again, the story in the UK is similar.
One even more uncomfortable estimate was on offer in Switzerland: in the largest 1,500 US companies, the take of corporate profits appropriated by the top five executives has doubled to an astonishing 10 per cent in a decade. That's $40bn, which would make a sizeable dent in the pensions deficits that, in the US and UK at least, are in the process of ensuring that the now stationary middle-class coaches will in the future be shunted sharply, and permanently, backwards.
Let's ignore for a moment the complacency, incompetence and cowardice of the companies, the actuaries and, above all, the Chancellor, who have presided over this wholesale tearing-up of previously agreed contracts, and recall that no more than a decade ago ministers and City types routinely boasted of the UK's Rolls-Royce pensions system and castigated the Continental economies for not following its lead. Now we are asked to believe that the engines of progress in the third- or fourth-richest economy in the world, where the labour share of national income is at a historic low and the capital share at a historic high (another Davos insight), are suddenly enfeebled. Not only are they unable to improve the living standards of their employees, they can't even prevent them falling.
What, then, are big companies for? Increasingly, the answer seems to be: to keep the City and a tiny minority of top earners in the extravagant style in which they are cocooned. While 70 per cent of large UK firms with company-wide final salary schemes have abandoned them since 2003, an unchanged 80 per cent of directors are still so covered they still retire at 60 and they still build their pots twice as fast as the rest of us. Last year the average FTSE 100 director's pension was pounds 168,000.
Yet Davos man should be worried. If the engine argument falls, there is no earthly remaining justification for these inequalities, or the management principles that perpetuate them. Rather, they can be seen for what they are: the scaffolding that holds in place an upside-down world in which it has become the function of individuals to serve organisations, rather than the other way round. In this chilly, Orwellian universe, individuals dance to the tune of the organisation - faster! harder! longer!. And the organisation dances to the tune of the City's dealmakers and financial engineers, all under the Panglossian gaze of the government, which decrees that the pain is for our own good.
In fact, what was being experienced in Davos was a forewarning of economic and social global warming. The 'soggy middle' is nature's way of saying that our economic and management practices are as unsustainable (to use another favourite Davos word) as our environmental ones. The inequalities are already fracturing psychological and social contracts within organisations - witness the dire levels of engagement and trust measured in umpteen surveys, and in society as a whole. How long before they lead to open breakdown and conflict?
Sustainability is not just about green issues - without their social and economic equivalents, environmental initiatives are just greenwash. It's also about being fair, secure, in control of the job, and, unfashionable as it is, relatively equal. All these are proven contributors to job satisfaction and thence to productivity and, as Richard Layard and other economists are beginning to show, to overall happiness and welfare, which are the point of economic activity.
Runaway engines are dangerous as well as unproductive. It's time to re-attach this one to the train before the brakes fail - or it is blown up by disaffected passengers.
The Observer, 4 February 2007