Mandatory disclosure of CEO salary ratios to typical employees will drive down wages

Capitalism, for what it's worth, is not naturally competitive.

It's like a knife in the hand of a chef, or a lathe worked by an artisan. It can create beautiful things. It can cut off your arm. It depends on your concentration and skill.

Capitalism will follow the path of least resistance. If companies can get away without competing, they will. If politicians offer bailouts, subsidies and protective trade tariffs, businesses will take them. Only when these paths are assiduously blocked will Capitalism expose its dynamism, violence, creativity and power.

Sure, there are entrepreneurs and innovators who are driven to disrupt and transform. Their experiences of frustration and rejection are so common as to be cliché.

The reason is simple. Businesses are run by people and most people want the maximum return for the least effort. Think of a business as a six-year-old with an untidy room.

The first act of business self-protection is to seek a monopoly over its products so that it can set prices as it wishes. Next, it may negotiate with its major competitors to keep prices high. If that feels morally wrong, or the regulators are particularly watchful, then - to survive - it will turn to competing.

Strategies for competition require technical- or labour-optimisation and innovation.

Again, companies take the path of least resistance. The fastest way to reduce costs is to cut wages. Next is to optimise processes. Only as a last resort will companies invest in expensive research and development.

Inventing new products is the last thing companies wish to do. It's expensive, time-consuming and returns are far from guaranteed. Far easier to keep milking existing product lines - refreshing with a new colour-scheme, shape or logo - for as long as possible.

The fact that dynamism and new product innovation exists in so many different industries speaks to the difficulty of maintaining monopolies despite all the forces directed towards it.

Competition brings down prices, improves quality and variety, and stimulates further competition.

There are trade-offs. A company seeking a competitive edge may replace their more expensive workers with cheaper ones. Local jobs will be lost or wages reduced. Politicians who fear being held responsible may try to twist the arms of business leaders.

One such bit of elbowing is a new provision - buried in section 953(b) of the Dodd-Frank US financial reform act - requiring companies to disclose the ratio between their chief executive's pay package and that of a typical employee.

Legislators assume this will either hold down executive pay or increase workers' incomes. It will do neither.

In a competitive economy all companies are under continual pressure to reduce costs first and innovate second. The CEO is hired to achieve increased sales or decreased costs.

Either an employee must produce more this year for the same money, or they must get paid less to produce the same amount. All employees, including the CEO, are under this yoke.

Faced with pressure to increase average wages, the CEO's strategy is clear. Their first choice will be to close down all the lowest-wage units of company production. Instead they will buy in licensed or contract-manufactured products from low-cost producers in emerging markets like India or China.

If that is not possible for regulatory reasons or fears of intellectual property theft then companies will invest in modern plant and processes. Expensive robotics or automated systems will displace the repetitive low-paid work that used to be performed by people.

One way or another, those low wage jobs will be gone.

Mandatory disclosure may simply accelerate a trend. Businesses are breaking up into ever more focused and efficient units to increase their optimisation as well as their ability to collaborate and adapt to competition.

There is a reason that in nature the most successful and adaptable creatures are also the smallest.