Business needs to make the case for capitalism; ‘Profit’ is popularly understood as being taken from consumers

June 23, 2014 6:48 pm

Business needs to make the case for capitalism

By John McTernan

‘Profit’ is popularly understood as being taken from consumers, writes John McTernan

British businesses urgently need to become actively involved in politics. There are serious short and long-term political threats to them and their profitability. This should worry them but it should worry the country even more.

The short-term threats are easily described and understood.

If Scotland were to leave the UK it would badly damage a range of companies, particularly in the banking and financial services sector. But the social, economic and trade links between Scotland and the rest of the UK would mean the crisis caused by independence would spread quickly and widely. The silence of almost all businesses on the September referendum is a scandal. The few interventions made to date were driven by stringent financial reporting requirements rather than a desire to play a public role. But corporations are actors and they should not be afraid to speak.

In the end, Scotland will be fine; the public are sane and the union is safe. Much more dangerous is the studied silence of most business and business leaders on the question of the EU. This is real madness.

There is no significant British-based company for which withdrawal from the EU would not be a disaster. They are clear about this in private, particularly to visiting politicians from the continent. Yet, despite the existential nature of the threat, they have stood aside while a debate driven by an extreme minority renders the European project toxic. Even here they are probably right; it will be all right on the night.

What is damning is the way of thinking and working this reveals. It is not that businesses do not want to get involved in politics; they are deeply and daily engaged in it. It is the way they want to work – which is by lobbying behind the scenes. In pure business terms this has worked since the 1980s, and it has broadly served both companies and country. Markets at home and in the EU have liberalised and wealth has increased.

The danger is that this way of working leaves business fatally exposed to populism. The lobbying route means politicians first agree privately on change with companies and then make the case to the public. This leaves the reputation of capitalism almost entirely in the hands of politicians. It is a strategy that depends on strong, charismatic political leadership, so it was fine in the era of prime ministers Margaret Thatcher and Tony Blair. No longer, however. Politicians of the current generation are unable even to defend the reputation of their own trade, let alone that of anyone else.

When you are as unpopular as MPs, it makes sense to find someone less popular with the voters than you are and then victimise them

The fundamental problem for business is that, while Thatcher achieved many things, when she reformed the UK she failed in one crucial area. She did not manage to teach the country to understand, let alone love, capitalism. Just take the concept of “profit”. It is widely understood by consumers as something taken from them rather than a return on risk or a reward for efficiency. MPs are under the same illusion: watch them on a select committee quizzing private providers of public services. Labour and Conservative alike, they tear into companies for the money they make.

The danger of leaving your reputation entirely in someone else’s hands has crystallised. According to a Populus survey in May, 49 per cent of voters think big business is a bigger threat to the public than trade unions, with only 12 per cent dissenting. The poll was conducted at about the time of public sector strikes on the London Underground and in education, so it is not a view taken in the abstract.

When numbers reach that size, politicians start to shift. Attacks by Ed Miliband, leader of the opposition Labour party, on banks and energy companies are not simply a populism of the left. They are a populism of the middle – a considered response to the reputation both those sectors have among mainstream voters for being cartels. It does not matter whether or not that reputation is true; it is true enough. Labour’s move is part of a broader and entirely rational shift by politicians. When you are as unpopular as MPs, it makes sense to find someone less popular with the voters than you are and then victimise them.

There is no point in business being outraged. On the one hand, this is a market – albeit one in public opinion – operating as it should. Politicians are looking to profit from someone else’s weakness. On the other, good and bad businesses have let themselves be brigaded together. It is like watching the police in the 1970s and 1980s making the “one bad apple” defence when corruption or malpractice was identified. In the end, the reputation of the whole force suffered. So it is with business.

There is an answer. Taxi-hailing app Uber showed it this month. A disruptive newcomer took on the vested interest of London’s black cabs and won – because it both competes and provides a service. Consumers distrust Big Food but trust supermarkets because the latter have to compete every single day.

Capitalism is good, greed is bad. If business will not make that case it will find the decade an increasingly cold one.

The writer, previously political secretary toTonyBlair, former UK prime minister, is a political strategist



About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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