Prescription to attract a better class of politician

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Hoe krijgen we meer entrepeneurs in de politieke arena?

Groet / Cees

Prescription to attract a better class of politician
http://www.ft.com/
Published: May 27 2010 03:00 | Last updated: May 27 2010 03:00

 From Prof Theo Vermaelen.

Sir, Your editorial, “How to cure the euro’s ills” (May 25) argues for
“sovereigns’ responsibility for their sovereign mistakes”. The problem
is that a sovereign state is not a person and only people can be induced
to be responsible, not states. No responsible behaviour can be expected
from the politicians unless they have some “skin in the game”.

Having attacked bankers’ compensation during the financial crisis,
perhaps it is time we fundamentally rethink how European politicians are
compensated. Most politicians are paid a salary regardless of
performance and his/her main objective is to be re-elected. In order to
get re-elected the trick is to buy votes by handing out social and other
benefits with borrowed money. Why this is called “democracy” is
puzzling; it is not really democratic as the people who have to repay
this debt (our children) are not voting. As a result we are saddled with
the biggest Ponzi scheme in history: the European social model.

I propose that every politician who gets elected should put up half his
wealth plus half of any other income earned as collateral against
borrowing initiated during their tenure. As government debt has a
maturity of 10 years and more, this would make sure that revenues from
book sales after leaving office would also be a source of collateral
against government debt. At the same time, compensation for politicians
would be increased dramatically, but contingent on performance measures.
These measures could be targets in debt/gross domestic product ratios or
other measures of economic responsibility. In order to avoid short-term
gaming any bonuses earned would be subject to claw-back provisions and
would be stored in a bonus bank to be paid out long after the politician
leaves office.

As a result we would attract a different type of politician all
together: no more power hungry lawyers who are largely ignorant about
economics and finance, but the type of people who run private equity
firms. Managers who are risk takers and are comfortable working in
highly levered companies have a solid understanding of business
decisions. The public will become less cynical about the current
political class, which seems to bear no financial consequences for the
mess they have made.

Theo Vermaelen,

Professor of Finance,

Insead,

Fontainebleau, France

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