Editor's note: AIG focus misses the mark

The bonus mess feeds the insidious notion that there's something rotten in the state of all business.

Overpaid execs at failing companies have never exactly been media darlings, but now they’re the villains du jour. In the U.S., multimillion-dollar bonuses at insurer AIG, which is on the dole, sparked howls of outrage. Close to home, more howls greeted a March 19 court ruling that will allow a few execs at Nortel to get bonuses, despite the fact it’s in CCAA and has laid off thousands.

In a time of economic crisis, all this howling makes everybody feel better. But there’s a problem: it doesn’t do anything about the crisis itself. In fact, it might result in making the crisis worse.

Look at AIG. Taxing back its executive bonuses, as the U.S. government is poised to do as I write, will achieve nothing to save the beleaguered insurance behemoth — a salvage job Washington must think worthwhile, since it has sunk tens of billions of dollars into bailing AIG out already. In fact, the special tax might hurt AIG’s chances of recovery, by dissuading good executives from working there. There’s also the principle of the matter: it’s an abuse of the power of taxation to apply it selectively, punitively and after-the-fact.

But the real problem with the compensation scandal is this: it feeds the insidious notion that there’s something rotten in the state of all business, and that the cure lies in government taking more control of the economy.

That is simple-minded and dangerous. What if the economy doesn’t get moving soon? Governments will be asked to do more, even though they’re already running up record deficits. What more can they do, especially as borrowing power shrinks? The options are limited, and some of them are really bad for business — nationalization, wage and price controls, higher taxes, more regulation. And when the spirit of the times is against business, such moves will more likely be political winners.

We might think our enlightened legislators would never go there, but history suggests otherwise. Trudeau opposed wage-and-price controls in the 1974 federal campaign, which he won; he adopted wage-and-price controls in 1975. Franklin Delano Roosevelt tripled taxes and raised the cost of hiring, which prolonged the unemployment and underinvestment that characterized the Depression; he was elected U.S. president four times.

Government doesn’t grow a healthy economy. Businesses do, if helped by sound policy. Arguing for that might not feel as good as screaming to make the bastards pay. But it might work.