The Island Problem and the You Get Paid What You're Worth Canard

Saturday, April 28th 2012

Imagine you are stranded on a desert island. It's just you, some palm trees, and not much else. There are some plants that you can eat. You can go fishing.

But that's about it.

You have to do everything. Gather firewood, repair the hut, make fishing rods, make a log raft to fish from ...

... you get the idea.

The Island

Introduce a few other people to the island and you can cooperate to make life easier. One person can go fishing. Others can gather firewood. The division of labour means you all get more and, in all likelihood, have to work less.

"Many hands make light work", as the old adage goes.

Add more co-operative folks and the better life becomes. Sure, you introduce social complexity - politics. But it's made up for by more advanced technology, more scope for specialisation, more individual free time, etc. The power of the division of labour is obvious.

Without cooperation on the island there is no wealth. There's just wandering across an island, solo, looking for a good stick to fashion into a fishing rod. And occasionally fighting with a competitor for a fish.

Where am I going with this?

There's a simple idea you hear muttered by some:

"People get paid what they're worth."

To use a simple example. A salesman makes $500k in sales a year. He demands $200k in pay, or in sales bonuses.

Good deal for the company. The guy makes $300k a year for them.

Pay is a negotiation. Middle class people accept what they get paid and grumble. Same with working class people, although contractors often negotiate prices.

But business folks just look at spreadsheets and do calculations like the one involving our sales guy.

The calculation is, in a simplistic form:

  • Am I paying this person enough to make them stay but not too much I'm losing money on the deal?
  • What will someone else do the same work for?
  • How much will it cost to replace the guy?

It's cold hearted. But, then again, spreadsheets aren't well known for their empathy and kindness. They're numbers in columns. It's not exactly a love-in!

And business guys work this stuff out using spreadsheets. It's not always easy to calculate the income a person generates, but they have a go.

But there's a problem with this.

That is - if that salesman had nothing to sell he would not make $500,000 a year in sales. He is reliant, on say, some engineers to produce the bodgets people want to buy. And those engineers depend on the bodget designer who designs products for people and ...

The bodget designer is dependent on the engineers and the engineers are dependent on the sales guy.

It's mutual dependency.

Essentially, each individual's wealth is socially generated.

Imagine if you started mapping social relations, trading relations, how ideas move through groups, etc. The picture of who did what would be muddied - it would look messy. The boundaries between individuals would be blurry. Large scale analysis would be massively hard to conceive and ascend into inaccurate abstraction more and more remote from the actuality.

Those spreadsheets are tiny little slices of a much bigger reality. A reality that it would be impossible to conceive of at any granularity. The slices are approximations, usually quite arbitrary ones over time.

Sure, to some degree, they influence, and reflect aspects of, the wider system. But they are so limited in scope, so reductionist, they end up being a very limited window on the reality of the system they are part of.

No, the whole idea of "you get paid what you're worth" is built on a lie: that those little windows actually have any real accuracy. On the idea that you can actually calculate the value of a given individual's contribution in a wide scale system with any accuracy. And, for the most part, you can't.

The truth is ...

People get paid what they can negotiate.

And negotiations are based on little slices in spreadsheets and other political factors. But they are not accurate pictures of overall contribution to anything. To claim that is to claim that some individuals have perfect knowledge of the entire system. And that would be silly.