On the social responsibility of business

As countries get wealthier, the citizenry has more time to forget how economic well-being and rising living standards are actually created.   Prosperity is not a natural human condition. In fact, the reverse is true. But when too many people think wealth is a natural state, they believe exercising their political imperatives, for example agitating for entitlements, benefits, hand-outs, redistribution to favoured interests and cronies, constraints on the freedoms of others, has no opportunity cost. When business leaders indulge publicly in such idealism, it becomes even more dangerous. In many businesses today, we observe social responsibility objectives affecting business decisions. What is deemed to be socially responsible, of course, varies by political persuasion. These actions are not costless.

Milton Friedman explained the social responsibility of business in an article published in 1970 by the New York Times Magazine. It is worth every minute of reading time. It should be read and re-read by captains of industry and students alike.  I re-print it here in its entirety:

 

The Social Responsibility of Business is to Increase its Profits

by Milton Friedman

The New York Times Magazine, September 13, 1970. Copyright @ 1970 by The New York Times Company.

When I hear businessmen speak eloquently about the “social responsibilities of business in a free-enterprise system,” I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free en­terprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing em­ployment, eliminating discrimination, avoid­ing pollution and whatever else may be the catchwords of the contemporary crop of re­formers. In fact they are–or would be if they or anyone else took them seriously–preach­ing pure and unadulterated socialism. Busi­nessmen who talk this way are unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society these past decades.

The discussions of the “social responsibili­ties of business” are notable for their analytical looseness and lack of rigor. What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom. Continue reading

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Corporate tax rate

The topic of the month is the rate of corporate tax in Australia.  When it comes to discussing the rate, two points are worth concentrating on. Firstly, the rate of tax does not reflect the tax burden on the economy. The true tax burden is measured by Government expenditure. Tax rates determine how the incidence of that tax is shared around and over what time periods. Reducing the tax rate will not reduce the tax burden. Secondly, the rate of tax is very important to potential overseas investors who weigh up the marginal costs of a project against the marginal gains. If tax rates are reducing in other countries, then Australia will attract less foreign investment, and that is bad for the economy, bad for people and our living standards will fall.

So it is important than both the rate of tax is reduced and Government expenditure is reduced. Both are necessary.

The unfairness of superannuation?

Is it just me or have others noticed a plethora of voices claiming that superannuation is unfair? ‘We must make super fair’ is the typical tone of the claim. Usually, this is followed by some ideas for more regulation, compulsion, tax, affirmative action and so on. To date, I have not observed people complaining about lack of fairness coming to the obvious conclusion and easiest way of fixing a system they believe is broken: remove the compulsion to participate.

Continue reading

The exposure of the climate druids

If you look out the metaphorical window in 2017, you will see none of the catastrophes that have been forecast by the climate druids for the last 25 years. World agriculture production is at its highest ever. Poverty is at its lowest ever. Income inequality is at its lowest ever. The Australian great barrier reef has not died. Pacific islands have not drowned. The extent of Arctic sea ice remains stubbornly normal. Polar bear numbers are at their highest in over 50 years. Perth has not died. No Australian city has run out of water. Fifty million climate refugees are not roaming the world. Hurricane frequency has not increased, nor has hurricane severity. The sea level has not risen to swamp waterfront mansions.

food

The graph is sourced from the Food and Agriculture Organisation of the United Nations, showing, in constant dollars, the value of food production across three major regions.

What has happened? The climate scare has been exposed as a scam. The public perception of scientists has been dented. Some druids have become laughing stocks. The rise in atmospheric levels of CO2 (from a very low base) has resulted in a greening of the planet. The earth is now greener and forested more thickly than it was 30 years ago. The time to dump Renewable Energy Targets, Paris accords, Emissions Trading Schemes, Carbon Taxes etc is long overdue.

Coal would fix our looming energy crisis

There are over 600 coal-fired electricity generators being built in the world right now. Not one of those is in Australia. Our coal-fired generators are being decommissioned and demolished. Yet, Australian coal resources are huge.

AERA-5_02-800

For reasons that are hard to fathom, Australian politicians appear to be deliberately antagonistic to coal-fired electricity generation. The playing field is not level – it is deliberately structured to make coal kick up-hill into the wind, so to speak. Solar and wind powered generators have the down-hill with-the-wind advantage afforded by taxpayer funded subsidies.

Why? Solar and wind are both unreliable. Hence the need for battery storage. Solar and wind combined with battery storage is incredibly expensive. The coal supply in Australia is plentiful; enough to last hundreds of years. Coal is a low cost, efficient and reliable source of electricity. Why is Government policy skewed against it?

Without stable, reliable and low cost electricity Australia will crumble into a backward, poverty stricken future. Take a look at those third world countries without electricity to see what I mean. There is no prospect of renewable energy sources providing the equivalent level of power reliability and efficiency as does coal. The only viable alternative to coal is nuclear. I have no preference as to which we rely on – only that energy policy is amended such that no one source of energy is penalised, no one source is favoured, and the Government gets out of the mix. If renewables are the future, as the chant goes, then they do not need Government policy enforcement.

Peak-retirement

Retirement strategies. Saving for and spending during. The world is awash with writings on how to save and invest for retirement. The volume of material is vast and it is being added to daily, including by me. Why is it so? If ever there were a topic that should have been settled over 100 years ago, retirement savings is it. There is no need for continuously adding to the material. The fact that such material is ever growing hints that there is a problem. If the topic was settled, there would be no need for a constant barrage of new material.

There most definitely is a problem in retirement savings (in advanced economies): it is the futility of trying to save effectively on an individual basis without any risk sharing arrangements in the context of lengthening life-spans, higher costs of living and higher expectations of lifestyle. It is a cruel hoax foisted on the bulk of the population that insists they can do it, provided they have the right investment strategy, the right draw-down strategy, the right contribution strategy and so on. But the right combination does not exist. That is why people are always looking for new ways, new ideas, some development or technique that will allow them to save effectively and retire securely in a lifestyle that meets their expectations. Yet it cannot happen but for the small proportion of each country’s most wealthy. Continue reading

Turnbull achieves what Chifley could not

The Australian retail banks have effectively been nationalised. What Ben Chifley tried to do in 1947 but failed has been achieved in 2017. Chifley was a Labor PM. Turnbull is nominally Liberal.

The banks all operate with a government guarantee on deposits. In effect, the Government, ie the taxpayer, has assumed a fundamental risk of the banking business. They operate within a big 4 policy framework that shuts down the possibility of mergers and restricts competition from other parties. The Government is now going to impose an arbitrary tax on the banks outside normal company tax rules. The Government is going to regulate bank executives behaviour, keep a register of ‘acceptable’ vs ‘non-acceptable’ bank staff, control bankers’ pay and the gender make-up of the employees. There are very few aspects of banking business that are not under covert or overt Government control.

This is the path to socialism.

The end of conservative government in Australia

I am not a particular fan of the big Australian banks – they enjoy privileges granted by Government policy that makes the business of big banking too sheltered from competition, too easy to extract economic rents and protected by barriers that prevent new entrants to that sector. Yet in the wake of the Federal budget for 2017-18 announced last week, I find myself on the same side of the fence as the bankers. The proposed bank tax is disturbing. Continue reading