Angels not demons  Yes, business is a force for good

Yet since the great financial crash, wider society is less convinced of its virtues. We reached a nadir when a recent prime minister told his colleagues: “F**k business.”

Boris Johnson’s profane catchphrase, uttered in 2018, captured a political shift. Suddenly, parties – both left and right – advocated higher levels of taxation to fund government services. The focus on growth dissolved. The political choices would have been different if business was seen as a force for good, unequivocally, rather than something worthy of contempt.

The reality is that successful entrepreneurship and profitable business are angels, not demons. They create the fuel that drives a happy and successful UK. This occurs directly, through higher tax revenues as businesses grow; and indirectly, via the many ways well-run companies contribute to society through innovation, lower prices, improved services, training, job satisfaction and healthier communities.

First, the economics

We must run the public realm well. Efficient and effective government services are central to a successful economy and nation. Debates over how much a country should provide for its citizens will remain. Yet caring for the vulnerable, providing healthcare, defence, infrastructure, education and a decent retirement are the preserve of the state. Economies of scale – and common decency – mean that, for most countries, it is wise that such services are run, or at least funded, by government. This is – or should be – true even in countries that are instinctively nervous of state provision, such as the US.

Yet taxation funds all these activities. And tax revenue can only be generated by the private sector. The more successful businesses are, the more money is available for the public realm.

Some countries have experimented with higher taxation or borrowing to fund more government services. But there are natural limits to these approaches, which can stifle the private sector. For example, New Zealand in the 1980s, Sweden in the 1990s, and Spain, Portugal, Greece and Italy in the late 2000s all had to rebalance their economies.

In each case, the size of public spending outgrew the capability of the private sector to fund it. The adjustment was painful. But it was ultimately successful.

This is not a political point. Every nation must gauge the right balance of taxation – there are different models out there. Yet it is in the interest of all political creeds to have a vibrant private sector. It provides the money for successful government. Sweden and Denmark have high tax-takes as a percentage of GDP. Yet they have also fostered a good business environment.

More than money

The private sector is more than just a source of revenues for government. It provides manifold benefits to society beyond cold, hard cash.

Enhanced innovation

Business success is driven by innovation. These innovations frequently enhance people’s lives. It is true that funding for R&D is initially from government activity, especially defence spending. But ultimately, the choice and scale of successful investment are made by the private sector. Think of any recent major innovation. It was likely driven by the competitive edge of private business. Electric vehicles, smartphones, Covid vaccines: these are all products of private-sector ingenuity.

Lower prices

The affordability and quality of most durable goods improve over time. Consider how the price of a computer has fallen since the introduction of the IBM PC. It was the power of competition that drove prices down. And the family laptop of today is exponentially more powerful than the mainframes used by multinationals in the 1960s.

Sometimes, prices appear to rise. Today’s smartphones are more expensive than Apple’s iPhone 2007 debut model, which retailed for under US$500. Yet the first iPhone was puny compared to its modern incarnation. The latest smartphones boast greater power and dramatically better features. Early models are incomparable.

Consumers capture the benefits of innovation as businesses compete on price or specification – or both.

Improved services

In the UK, we love to complain – particularly about services. Yet let us rise above our annoyance at bank charges, customer service bots and airport queues. Consider instead the improvement of services over the last 40 years. For example, mobile telephony, internet banking, streaming TV, social media and networks, video calling… all provided by the private sector at lower costs over time. Some of these presented social challenges, but in general, progress has benefited most people.

Better skills

Education is – rightly – led by government. Good state provision is an essential facet of equal opportunity. Yet schools and universities have no monopoly on human development. Many of us earn our living from the training and skills learnt while working for a company. Perhaps we still do too little of this as a country. But ongoing training – providing lifelong learning – is what successful businesses do.

Greater satisfaction

We all struggle with trying times at work. But, at least sometimes, we can glean satisfaction from a job well done. It is striking that in successful companies, employees mostly enjoy working there. Usually, there is a sense of purpose that energises the workforce. We need resilience for when our jobs are difficult. But there are many good days in most businesses, too.

Nicer places

The difference between towns and cities with vibrant private sectors versus those with depressed enterprise is remarkable. A successful private sector in a local area provides more employment, higher wages and busier high streets. The whole community feels it.

The downsides

This is no Panglossian essay. Businesses can harm. They can create monopolies, damage the environment, ringfence wealth, stifle competition, mistreat workers. We must weed out bad actors and unscrupulous firms. That is why we have laws and regulations.

Ultimately, most of these problems are manageable – or will be solved by better business and innovation. For example, CO₂ could be contained through large-scale adoption of renewable and nuclear power. For wind and solar, cost and deployment improvements by the private sector were dramatically underestimated.

Major challenges for society loom large. Well-run companies are the solution – not the problem.