Not All Businesses are the Same

We need a more sophisticated debate about business and how it impacts on wider society, writes Mark Braund.

Many reasons were offered for the calamitous defeat of the opposition Labour Party in the recent UK general election, but high on the list was the perception that the party was anti-business. Whatever the truth, Labour made such a poor job of explaining their position that the media can hardly be blamed for spinning the story, nor the electorate for taking their suspicions into the voting booth.

Politicians of the left have long failed to recognise the crucial role played by the private sector. To hear many of them speak, you’d think private enterprise was inherently evil, something so unattractive that nobody would choose to involve themselves in it unless they had absolutely no choice.

To discuss the economy as some kind of contest between public and private sector as if everything could be done by either is equally absurd. Most of the wealth created in every society today is a result of private sector efforts. Those efforts can certainly be helped by well-directed public investment in infrastructure, but without a thriving private sector no society can progress.

In politician speak, all businesses are the same. In reality, the private sector is far from homogenous: businesses vary enormously not only in terms of their size, the way they are managed and governed, and the motivations of their owners, but also in terms of their impact on society. They can be divided into three broad categories: the good, the bad and the ugly.

Good businesses create new wealth. They produce goods and services for which people are prepared to pay. To be successful in ‘good business’ you need to be innovative and entrepreneurial. You need to come up with new ideas to solve problems, or to fill a gap in the market, or even to create new markets which didn’t previously exist. Good businesses do this as efficiently as possible, but they realise that success requires them to invest in people and to reward their staff in proportion to their contribution to the process of wealth creation.

Bad businesses create little or no new wealth. They are often highly creative in the schemes they devise to appropriate wealth created by good businesses. This appropriated wealth is usually distributed disproportionately, with owners and senior staff being favoured at the expense of people lower down the scale. Such businesses are overly-hierarchical, they tend not to value people as people, and are short-termist in outlook. They generally operate within the law, but they are oblivious to the idea that ethics has a role to play in business.

Ugly businesses operate outside the law, or at its very margins. Much organised crime is business-based, and while it has no place in a civilised society, it is hardly surprising that so much of it exists given our reluctance to distinguish between good and bad business: If it’s legitimate for a small number of individuals working in financial services to become obscenely rich by manipulating markets and inventing devices which have the cumulative effect of bringing the entire global economy to its knees, then it’s hardly surprising that the criminally-minded feel unconstrained in their own immoral business activities.

It doesn’t require an exceptional intellect to recognise the difference between these three categories of private enterprise, nor to work out what kind of policies are likely to encourage more good businesses and to make things harder for bad businesses. But successive governments have allowed ‘big business’ to turn the economy into a vehicle for furthering minority wealth and privilege at the expense of full participation in the economy by everyone who wants to work.

In his speech to the 2011 Labour Party Conference, Ed Miliband gave an indication that he understood this crucial difference when he contrasted producers (those who create real wealth and value) with predators (those who extract wealth without making much of a contribution to its creation). But he failed to develop this narrative and ended up being pilloried in the media for sounding wonkish and unclear. By the time of this year’s election, he was unable to prevent his attacks on dubious practices in the financial sector being translated into the message that Labour was against all kinds of business.

Entrepreneurship is key to creating a dynamic and inclusive economy. Not the kind of entrepreneurship devoted to devising ever more convoluted financial products, but the kind that finds new and better ways of doing things and enables the creation of more interesting and stimulating ways to live our lives. That kind of entrepreneurship is only going to emerge from a thriving private sector.

Of course there are important questions about how private firms are constituted; size and ownership are key: Huge global mega-corporations lead to a concentration of capital and tend to channel to much wealth (even when it’s real wealth that they’ve created) into too few hands. Traditional forms of business ownership were established deliberately to finesse an inequitable distribution of wealth. Far too little is said by politicians about new forms of business ownership like B Corps, already well-established in the United States and soon to launch in the UK, whereby firms choose to operate under a stakeholder model in which the interests of employees, the wider community and the environment rank equally with those of shareholders.

Until more people become aware of the distinction between all the good stuff that happens in the private sector and all the bad stuff, and until politicians are prepared to discuss the differences, and the media to accurately report their words, a more dynamic and inclusive economy will remain beyond our grasp.

Mark is a Renegade Inc. contributor
Follow him at @markbraund
His website is at www.markbraund.com

Image courtesy www.bcorporation.net

Suggested content

The Finance Curse