When it comes to discussion of high executive and City pay, we seem stuck in an ideological gridlock dating back to the 1970s, to the era of the Cold War and trade union leaders in brown suits. And while we indulge in outdated rhetoric, the great economic system of capitalism keeps getting battered.

Take last week's speech by Alistair Darling to the TUC and reaction to it. Sensing the need to pacify the conference after abandoning an energy windfall tax, the Chancellor said: “You are rightly concerned about excessive bonuses, especially when people seem to get money for failing, not succeeding. And that's got to change. A bonus should be for hard work, not big mistakes. Excessive bonuses, which encourage traders to take excessive risks, at a time of easy global credit [are] one of the major reasons for the global credit crunch.”

The response from trade unionists to this part of Mr Darling's speech was predictably enthusiastic. But in the predictability stakes, it was soon equalled by the musings of John Cridland, the deputy director-general of the Confederation of British Industry, who said: “You would anticipate the Chancellor at Brighton playing to the gallery. Clearly there is an issue about appropriate incentivisation. But that's a different thing to saying there's a fundamental problem with [City bonuses].”

But in their kneejerk reaction to criticism of high pay, Cridland and so many of his ilk do a disservice to those of us who strongly believe in the energising power of capitalism. Just because the Left is uncomfortable with high pay doesn't mean that the Right should not find other reasons for reaching the same conclusion. Those in the vanguard of capitalism should put aside their instinctive and rightful disdain for socialism, and their desire to protect the gains of their highly paid friends, and start facing their responsibility.

There is a fundamental problem with whopping City bonuses and high executive pay in the corporate sector. In fact, there are two. As Mr Darling correctly infers, the first is that the principal pillar of the capitalist system - the concept of risk and return - is gradually being chipped away. Traders and chief executives can pursue risky short-term strategies, knowing that they will become very wealthy in the event of success, and still be all right, Jack, in the event of failure.

The upshot is a highly volatile economic system, with the individuals responsible not suffering the slightest penalty. Many of their risks will pay off in a boom, hence huge wealth for them. Some won't, hence, well, nothing. They still have their huge wealth from before, and don't have to pay one penny back.

OK, they might lose their jobs, particularly when the economic climate cools and their folly reveals itself. But the loss of employment, a possibility always faced by all employees, does not represent downside risk, merely the end of upside reward. And when chief executives get a “golden handshake” pay-off, the reward doesn't even stop there. Contrast that with the experience of the real capitalist, the entrepreneurs. They are inclined to take only considered risks. Considered, because they know that if they fail badly they might lose the lot - house, car, the works. To avoid the hazard of dangerous recklessness, that's how capitalism has to be.

And beyond the dull ding-dong between TUC and CBI, the average person in the street knows this. In another speech in the year, Mr Darling urged companies to apply the “next-door test” in their remuneration policies. “Boards need to ask themselves ‘are we behaving reasonably?' If you're leaning over the fence talking to your next-door neighbour, can you justify what you've done?”

People react against City and executive pay not because of envy, as the Right so often lazily assumes. There is little envy, but great admiration for very wealthy entrepreneurs, as is borne out by the popularity of television programmes such as The Apprentice and Dragons Den. When people hear stories of the likes of Sir Alan Sugar and Sir Tom Hunter, who both started out selling goods out of the back of a van and have since created jobs and wealth galore, the popular response is “good luck to them”.

But people instinctively sense that there is something essentially rotten with City and executive pay. Not just because of the imbalance between risk and reward, but also because of the second fundamental problem - the imbalance of talent and reward. Rare, commercially valuable talent should be rewarded. But does being in the right place during a boom economy represent an uncommon ability? As Geraint Anderson, a former stockbroker and author of the bestseller Cityboy, has pointed out: “When you are in a bull market, you could be sitting on your hands and making a fortune.”

You don't even have to take risks; you just track the market. You can often rake in more than the average with a comparatively poor performance. This sets a terrible example to young people, offering them a vision of effortless wealth, and reinforces the highly damaging entitlement culture.

The cure for these two dangerous imbalances is complex. But those who purport to defend capitalism can start the ball rolling by simply admitting that we are paying far too high a price for high pay.

David Bolchover is the author of The Living Dead: The Truth About Office Life (Capstone)

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