Sunday, May 9, 2010


Business people should stand up for themselves

HENRY HAZLITT, one of the great popularizes of free-market thinking,

once said that good ideas have to be relearned in every generation. This is

certainly true of good ideas about business. A generation ago Margaret

Thatcher and Ronald Reagan did an excellent job of making the case in

favour of business. Today it looks as though the case needs to be made all

over again.

It is hardly surprising that business has fallen from grace in recent years. The credit crunch almost plunged the world into depression. The new century began with the implosion of Enron and other prominent firms. Some bosses pay themselves like princes while preaching austerity to their workers. Business titans who once graced the covers of magazines have been hauled before congressional committees or carted off to prison.

Business people have been at pains to point out that it is unfair to judge

all of their kind by the misdeeds of a few. The credit crunch was the

handiwork of bankers (who lent too much money) and policymakers (who

fooled themselves into thinking that they had abolished boom and bust).

Corporate criminals like WorldCom's Bernie Ebbers and Tyco's Denis

Kozlowski were imprisoned for their crimes. Avaricious bosses like Angelo

Mozilo, who pocketed more than $550m during his inglorious reign at

Countrywide, are exceptions. The average American boss is actually paid

less today than he was in 2000.

This is all true enough but hardly sets the blood racing. More ambitious

defenders of business have advanced two arguments. The first is that

many firms are devoted to good works. They routinely trumpet their

passionate commitment not just to their various stakeholders (such as

workers and suppliers) but to the planet at large. Timberland puts "green

index" labels on all its shoes. GlaxoSmithKline makes HIV drugs available

at cost to millions of Africans. Starbucks buys lots of Fairtrade coffee.

The second argument is more hard-headed: those businesses have done

more than any other institutions to advance prosperity, turning the

luxuries of the rich, such as cars a century ago and computers today, into

goods for the masses. General Electric's aircraft engines transport 660m

people a year and its imaging machines scan 230m patients. Wal-Mart's

"everyday low prices" save Americans at least $50 billion a year.

The problem with the first argument is that it smacks of appeasement.

Advocates of corporate social responsibility suggest that business has

something to apologise for, and thus encourage its critics to find ever

more to complain about. Crocodiles never go away if you feed them. The

problem with the second argument is that it does not go far enough. It

focuses exclusively on material well-being, and so fails to engage with

people's moral qualms about business.

This is doubly regrettable. It is regrettable because it has allowed critics of

business to dominate the discussion of corporate morality. For all too

many people it is now taken as a given that companies promote greed,

crush creativity and monopolize power. And it is regrettable because it has

deprived the business world of three rather better arguments in its


The first is that business is a remarkable exercise in co-operation. For all

the talk of competition "red in tooth and claw", companies in fact depend

on persuading large numbers of people—workers and bosses, shareholders

and suppliers—to work together to a common end. This involves getting

lots of strangers to trust each other. It also increasingly involves stretching

that trust across borders and cultures. Apple's iPod is not just a miracle of

design. It is also a miracle of co-operation, teaming Californian designers

with Chinese manufacturers and salespeople in all corners of the earth. It

is worth remembering that the word "company" is derived from the Latin

words "cum" and "pane"—meaning "breaking bread together".

Another rejoinder is that business is an exercise in creativity. Business

people do not just invent clever products that solve nagging problems,

from phones that can link fishermen in India with nearby markets to

devices that can provide insulin to diabetics without painful injections.

They also create organizations that manufacture these products and then

distribute them about the world. Nandan Nilekani, one of the founders of

Infosys, put the case for business as well as anyone when he said that the

computer-services giant's greatest achievement was not its $2 billion in

annual revenue but the fact that it had taught his fellow Indians to

"redefine the possible".

Enfranchising, not enslaving

A third defence is that business helps maintain political pluralism. Anticapitalists

are fond of arguing that companies account for half of the

world's 100 biggest economies. But this argument not only depends on the

abuse of statistics—comparing corporate turnover with GDP (which

measures value added, not sales). It also rests on ignorance of the

pressures of business life.

Companies have a difficult enough job staying alive, let alone engaging in

a "silent takeover" of the state. Only 202 of the 500 biggest companies in

America in 1980 were still in existence 20 years later. Anti-capitalists

actually have it upside down. Companies actually prevent each other from

gaining too much power, and also act as a check on the power of

governments that would otherwise be running the economy. The

proportion of the world's governments that can reasonably be called

democratic has increased from 40% in 1980, when the pro-business

revolution began, to more than 60% today.

Most hard-headed business people are no doubt reluctant to make these

arguments. They are more concerned with balancing their books than with

engaging in worthy debates about freedom and democracy. But they

would do well to become a bit less reticent: the price of silence will be an

ever more hostile public and ever more overbearing government.

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