Wednesday, 28 September 2011

Can you tax bad business? And is social enterprise good business?

Ed Miliband proposed rewards for grafters in business and not 'predators'. Photograph: Jonathan Hordle / Rex Features

Whether you think the Labour Party leader Ed Miliband, did a good job in delivering his speech yesterday to conference or not, his comments about good and bad business have sparked serious debate.

In the past, I have been worried when I hear spokespeople in our movement talk about the revolution that social enterprise represents in business practices and how casino capitalism has heard its death knell because I think that is wishful thinking and shows a detachment from the real climate of British business.

We do not have all the answers but social enterprises do have inspirational models that challenge the idea that profit is greed. And while I don't think the bulk of business leaders in the UK are looking to change their ownership models to enter the slipstream of ethical business, I do think they feel the pressure to be more accountable for how they make money as well as how they spend company profits. Good businesses are those who are careful producers who don't pollute the environment or over-extend their borrowing, but who do employ as many people as they can and invest even a fraction of their profits in acts of charity. While those that borrow against inflated assets, cut staff in favour of quick profit and make no attempt to minimise their environmental impact are the bad ones. Trying to tease out how you could tax these differing approaches is a waste of time, because no-one is ever going to do it, but if you take a step back from some of today's noise around taxing unethical behaviour and look at these ideas, you start to see, I think, what Ed was getting at.

The eminent economist, Will Hutton has been saying some critical things lately and we ignore them at our peril. He has been defending the Euro and its role in what he believes is the front line protecting sterling. Hutton says that without the Euro, each European currency would have come under attack, like a fox in the hen coup, from the uncontrolled financial markets that would have picked off currencies one by one, and if the Euro falls, they may do so yet. Even though there would be little sense to this annihilation, just as foxes will kill every chicken in the coup, we must understand it is just what they do if we let them. Hutton says governments have to recognise this behaviour and act to prevent it. This is bad business and we need to protect ourselves against it before all growth drains from society.

Ed is saying the same thing: that trusting the markets has led us to a very dangerous place and if we are to return to safer ground, we must try a new path. There have to be regulated financial markets, separated banks and significant investment to get people working, producing, saving and spending. If banks are lending, business can afford to hire more people and those who do that will contribute to the public coffers in a way that bank bonuses never will. Hutton, in his Guardian article "Our financial system has become a madhouse we need radical change" quotes and agrees with George Magnus, a senior policy adviser to investment bank UBS, when he says "No major advanced economy is doing anything to promote growth and jobs." My members are dying for lack of cash and their closure means not only increased unemployment but importantly job losses in already deprived communities.

Social enterprises try to scale the north face of business, which makes them heroic. They do the impossible and with trail blazers like Divine chocolate causing a stir in the chocolate world, they can change behaviour in even the most established markets because ethical sells. Since Divine entered the chocolate market with its story of farmer co-operatives and fair trade, suddenly all the big companies are offering fair trade products, more producers in the developing world are getting a living wage than ever before, and I can start eating Maltesers again (Mars estimates that by going Fairtrade they will boost sales by 10%).

This is how social enterprise activity changes the way markets operate and frankly we could all do with more of that. We just need those lovely banks to start lending us the money to do it with, which they will if Government makes them carry more capital, lend more to SMEs and works with the rest of the world to sort out the Euro crisis so we can all start to sleep at night. Then and only then can good businesses get on with making work and wealth creation Britain's big story.

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