Corporations and the Speedway to Serfdom

The frantic chase after equity can only lead us to one place

Reading F.A. Hayek’s seminal work, The Road to Serfdom, can feel quite redundant at times, as many points raised seem excruciatingly obvious; with that stated, it is still an enlightening read.

I was mainly attracted by the intriguing title and premise (or, better yet, promise) to better understand how and why freedom is such a fleeting concept, even though it seems like most people are yearning for it, or at least more of it. Essentially, Hayek pits freedom in opposition to equality; it is true, and maybe slightly depressing, that total freedom is anathema to total equality – there can’t be one where the other reigns, and that’s taking into account whether you can actually get to such a unifocal scenario to begin with (some will bring up communist regimes as making everyone equally poor, but that’s not true, as there were still party members with access to resources and wealth no ordinary person had).

Equality in this sense, it’s important to emphasize, does not mean equal treatment under the law, but equality of economic status.

To further explain: on the one hand, the more one pushes towards equality, the more one has to control the huge variation in human traits and preferences – and the more one aims to control the variation of human traits and preferences, the more limitations should be placed on what people can choose versus what is chosen for them.

On the other hand, the more one pushes towards freedom, the more one has to be content with the aforementioned variation in human traits and preferences leading to some people being extraordinarily successful while others having barely anything.

In theory, you can find reasonable justifications to both approaches; however, one of the above requires active intervention – while the other does not. If both systems lead to a certain form of injustice, I’ll always take the one which isn’t man made.

Regardless of what I’m thinking, it seems the tension described above is more prevalent today than ever; indeed, after the terms liberty and equality, alongside fraternity, inspired a historical revolution in France, it seems as if the American political public has simply torn the banner, with Republicans taking the piece of cloth stating liberty and Democrats the one stating equality – though here we again discuss political and economic equality. It’s easy to see how the fraternity piece was just thrown aside as apparently nobody cares about that – perhaps for justified reasons?

While the tug of war rages on across the political sphere, the corporate sphere has been almost entirely won by the equality side. To further display the issue at hand, I’d like you to consider a hypothetical example of a multinational corporation. We can say that, for the sake of convenience, this corporation is essentially a microcosm of a planned society trying to achieve equity; that’s going further than offering equal treatment – that’s taking practical steps towards ensuring any gaps that may be (please note the very important may here) attributed to group bias are systematically addressed and remedied. How would it look like?

Let’s say HR leads in corporation ZZZ are under fire. Employees complain over their compensation, and many feel they are not being rewarded the same as their colleagues due to a certain uncontrolled trait – their green eye colour. Of course, no green-eyed employee has a full company view, but from conversations some of them had with other green-eyed colleagues, they came to reaffirm their belief there is some injustice going on against them.

Corp leadership, which looks to appease its employees promises to research and address the issue. After some statistical analysis of company compensation based on eye colour, HR does find that in *some* departments green-eyed employees are paid 2.6% less than their non-green eyed counterparts.

The HR analysts have two options – either to assume that gap is due to bias/discrimination and take action, or to just leave it be – it is certainly a possibility that in the specific departments in discussion green-eyed employees perform slightly worse than non green-eyed employees; as mentioned, there are departments where green-eyed employees are not payed less than their counterparts, and in some cases they’re paid even more. However, since HR would like to appease the angry workers, they apply a correction to all green-eyed employees in the affected departments, offsetting their compensation by a positive 2.6%.

The HR heads do not rest, however, they would like to address these types of issues before they can lead to further uproar and besides – they are big proponents of equity as well.

They move from eye-colour to hair colour.

In the hair colour segment, the analysts find it seems as if those who pass as blondes get 2.2% less than those who pass as brunettes in some departments. They immediately alert their bosses so corrective measures can be taken here as well.

Feeling content about themselves, the HR team takes a well deserved break, which probably was mistimed because they didn’t seal all the holes – they forgot about the freckles pay gap…

To make things a little more straight forward, what the above short example attempts to convey is that there is no way to reach equity, even if we agree it’s a worthy goal (which we obviously do not). There are endless categories to compare and as they are also inter-linked, to achieve parity would be a futile exercise. Think of an annoying bedsheet which always rolls of one corner while you’re trying to cover the other.

while people may be better or worse off due to uncontrolled circumstances (perception-wise, at least), they will become much more annoyed and significantly more demanding once ruling bodies attempt to control these circumstances.

To this end, I’ll let Hayek himself explain this in his own words; while he’s referring to a nation level planned economy, this is true to any body of people where a controlled distribution of resources is taking place:

“The social and political difficulties involved in deciding the shares of different people in the national income are so obvious that even the most inveterate planner may well hesitate before he charges any authority with this task (…) Although it is impossible to direct industry without exercising some influence on distribution, and although no planner will wish to leave distribution entirely to the forces of the market, they would probably all prefer to confine themselves to seeing that this distribution conforms to certain general rules of equity and fairness, that extreme inequalities are avoided, and that the relation between the remuneration of the major classes is just, without undertaking the responsibility for the position of particular people within their class or for the gradations and differentiations between smaller groups and individuals. We have already seen that the close interdependence of all economic phenomena makes it difficult to stop planning just where we wish and that, once the free working of the market is impeded beyond a certain degree, the planner will be forced to extend his controls until they become all-comprehensive (…) Once it becomes increasingly true, and is generally recognized, that the position of the individual is determined not by impersonal forces, not as a result of the competitive effort of many, but by the deliberate decision of authority, the attitude of the people toward their position in the social order necessarily changes. There will always exist inequalities which will appear unjust to those who suffer from them, disappointments which will appear unmerited, and strokes of misfortune which those hit have not deserved. But when these things occur in a society which is consciously directed, the way in which people will react will be very different from what it is when they are nobody’s conscious choice.” (The Road to Serfdom, chapter 8, Hayek, F.A.)

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