Theresa May has made responsible capitalism one of her key aims. She has suggested labour representation on company boards, reining in executive pay and making transparent the remuneration gap between senior management and the average worker. If she manages to push forward with such ideas – and that is not a given – business leaders will doubtless soon start labeling her the most anti-business Tory prime minister ever. But what does it mean to be pro-business or anti-business? It is a debate that has become sterile and shorn of new ideas for decades.
A hundred and fifty years ago, when people finally began organizing to eliminate child labor in American factories, they were called anti-business. Businesses would be unable to survive, they claimed, without cheap labour. Today, most businesses are looking for highly educated, skilled workers so they must be delighted that children now go to school rather than down the mines. In 1962, Rachel Carson published Silent Spring – the seminal work about industrial pollution of our environment. Business fought tooth and nail against the ensuing regulation calling it anti-business. Today most welcome the improved health and well being brought about by environmental regulation, the fact that London’s dense fogs have been eliminated and our ability to have access to clean water without the expense of having to extract all the pollutants emerging from an industrial complex. When Tony Blair proposed a minimum wage, business raged against it with predictions of the apocalypse to come. Yet last year John Cridland, then Director of the CBI, declared the minimum wage one of his proudest achievements when he served on the Low Wage Commission. The same predictions of doom followed George Osborne’s announcement of living wage regulation last year.
It is clear to many business leaders that making predictions of destruction and disinvestment whenever any government tries to improve business practices no longer carries much credibility. So what does it really mean to be pro-business as opposed to anti-business?
Businesses claim they would like to improve their productivity, Unfortunately, when business encourages government policies to help them improve productivity, they tend to be policies that encourage a race to the bottom – labour market flexibility, reducing social costs to lower expenditures, lower rates of corporate tax, subsidies, de-regulation that allows more environmental pollution, and so on. All this is a pointless race that more developed countries can never win. None of it encourages firms to increase productivity by engaging in a race to the top. None of it encourages innovation, efficiency and meaningful differentiation in tomorrow’s world.
It used to be said that countries that try to compete through lowering exchange rates are doing nothing but mollycoddling their firms rather than promoting management action to increase productivity. Such actions actually undermine rather than increase long-term competitiveness. The same can be said of any policies that create a soft business environment that does nothing but allow firms with lazy management teams to survive. It may seem paradoxical, but the best way for governments and policy makers to be ‘pro-business’ – to encourage increases in productivity and assure long term competitiveness – may be to create a progressively tougher business environment thereby encouraging firms to invest, innovate and look to participate in new market areas that are still to emerge. Wrapping firms in cotton wool is a sure way to slow but steady degeneration of the economy.
When politicians choose to describe themselves as ‘pro-business’ it would therefore be useful for them to clarify what they mean. Do they have a simplistic policy agenda that panders to the short-term profits of businesses run by lazy management? Do they mean that they are creating the conditions for socially and environmentally destructive businesses to survive and prosper no matter the extent of long-term damage that is being done? Is the focus solely on costs rather than quality? Or rather is the policy agenda more sophisticated and focused on the longer term? Is government creating a business environment that is tough enough to push businesses to innovate, become more productive and transform themselves into the best businesses in the world – businesses that will prosper for a long time yet to come?
Most businesses are laggards. They are comfortable with the status quo and happy to go on making money in the way they’ve always made money. Only the best businesses thrive on change and on being best in class. A truly pro-business government would formulate its agenda on the practices of the latter rather than the former. It would identify best in class companies and set the regulatory framework in such a way as to lift all other companies to that same level.
And neither does responsibility lie solely with governments. Business leaders themselves have a responsibility to help define a pro-business agenda that goes beyond the simplistic short-term perspective, constant calls for de-regulation and crying wolf every time government tries to improve the quality of business practices. There are an increasing number of businesses in the UK that are leaders in this field. They are truly focused on delivering more than just short-term shareholder returns and fat executive compensation packages. They take seriously their social and environmental responsibilities and integrate these into their routine business practices rather than hiving them off to marginal CSR departments many of which have become nothing more than a shield against more fundamental change. Sadly, such leading businesses are still a minority and tend to be drowned out by the noise of the majority – the laggards. This should not be allowed to continue. Government must give such forward-looking businesses a platform and a louder voice. They represent the opportunity for a prosperous future. The whining laggards should be relegated to oblivion.