Trusting Business

Business is one of areas that provokes binary responses. It seems that we either have to fall into the Donald Trump camp, where all bets are off and somehow it is considered a good thing if business is given as free a rein as possible, or the Guardian camp, where business is some sort of necessary evil, relentlessly pursuing that terrible sin of “short term profits”. As usual, the reality is more nuanced, and we would be better served by recognising that.

Recent headlines have given the Guardian tendency plenty of ammunition. The list of shame is horrifying. Start with Boeing, who seem to have persuaded the authorities that checking plans for safety could be left to them, but then allowed two planes to crash killing hundreds of people when risks were apparent. Volkswagen were caught falsifying emissions tests, and perhaps most of the industry were at it, conning all of us that their cars did less environmental damage than reality and warping the system in favour of diesel. The tobacco industry hid science for years, and the soft drinks industry stole their playbook and still largely get away with it, with Purdue Pharma are just the most egregious example of the same thing with drugs, leading to the opioid epidemic. Takata made faulty airbags for years before reluctantly owning up. Poor Bayer is left to pay the bill for the evils of Monsanto with Roundup. Luckily Theranos was exposed before damage was done to anyone who wasn’t a careless investor.

All of these caused actual early deaths. Financial crimes are lesser in that sense, but certainly harmed many lives. Wells Fargo carried on the proud tradition of financial firms for criminal misspelling to vulnerable people, while Barclays and others fiddled obscure indices with the sole intent of robbing humanity. Kraft Heinz is the most recent example of a firm suspending reality by falsifying data to boost stated results once an (inhuman) strategy had failed. GE has suffered for years for something similar. Goldman has its fingers all over a theft of large chunks of Malaysia’s meagre assets. Enron blazed a trail of greedy irresponsibility, taken up gleefully by Bernie Madoff.

Then there is abuse of workers and customers. Uber set a high bar in this regard. Walmart have fought unions for years, while wilfully paying women less than their value. Amazon gets away with what it can. Facebook takes our data and does not look after it well, enabling crooks like Cambridge Analytica and Vladimir Putin to take advantage. The NFL condemns its players to early deaths while college athletic businesses look on as kids are sexually abused.

I have probably forgotten some of the worst examples. But the list is enough for anybody to wonder how any business could ever deserve trust.

But the Guardian misses the main point in its hate for business. Business drives progress. Without it, the world would be like Russia, where business has been a corrupt state enterprise for 100 years. We would probably not have smartphones, MRI machines, mobile payments, abundant food choices, sneakers or even the internet, and we would all drive Ladas. These and other innovations have lifted billions from subsistence and will lead to continued progress for all humanity (even Russians). Business is good.

Business is also often in the forefront of social progress. Workplace safety first became a priority in the private sector. Technology firms often lead in creating better working conditions. Even Walmart helped to push up minimum wages.

One problem is that we tend to think of businesses as impersonal machines, or sometimes single-person fiefdoms. Businesses, like nations or families, are made from people, and people are complex. It was not that Enron was evil; rather it was a set of managers who showed flaws made mistakes under pressure.

I worked for Shell for 28 years. Many people think of Shell in terms of ruthless exploitation of African resources or of wilful damaging of the environment. It was not like that inside. In my experience, Shell people care more for those things than typical folk, even Guardian journalists.

True, we made mistakes. There were constant trade-offs, between hitting financial targets, serving customers, supporting internal teams and ethical considerations. Usually, ethical norms were not breached. Some situations were difficult. Making a return on investment meant working in places like Nigeria, and that required finding ways to navigate local corruption and business practices. We made mistakes, but we were not inhuman – usually we really did want to improve the lives of local residents there.

Another comparison can also help understand how to handle business, and that is sport. The driving force behind sports, for both entertainment and innovation and performance, is competition. Even in elite sports under extreme pressure, few cheat seriously – we don’t see opposing teams trying actively to break Messi’s leg, even if that would be the most effective strategy to win. So generally humanity wins out.

But cheating happens, and when it does it ruins the sport for everybody. So sports need clear and consistent rules, fairly applied. The rules require quality referees and governing bodies to be effective. These need to evolve, to use technology, and to balance the various priorities involved. If the sport is international, the governance has to be international as well.

Put all of this together and a common sense business policy emerges. It is noteworthy that on this there is a lot of common ground between The Economist and Elizabeth Warren, so there is probably some wisdom in there.

The key to a successful business policy is to foster competition. The implication is to reduce barriers to entry and exit and to minimise monopolies. This involves creativity, evolution, funding for referees and hard work. The EU is current best practice. The US is not. It is noteworthy that Peter Thiel and others have written that the only businesses worth investing in are those where competition is restricted.

Related is to recognise where markets do and don’t work. Deregulation is great when markets can work efficiently. But many markets have natural monopolies, or issues such as limited customer information, or priorities (such as environmental sustainability) that will not be adequately considered without regulation.

Health care is a great example. Markets should be used where they can be effective, such as in drug purchasing (including generics) or equipment supplies. But development of cures and much care provision cannot be effective markets, so regulation has to fill the gaps. The US health care system delivers double the costs and worse and worsening outcomes because of broken markets.

This also points to the biggest pitfall, which is that lobbyists become over-powerful. Just as the NFL has evolved more slowly than rugby because the owners have stifled innovation and competition (no relegation), lobbyists for business try to influence the referees. This is especially a scourge in the US, and I have few solutions to fix the problem. Certainly, don’t trust someone promising to drain the swamp but then expanding it as quickly as he can. And if the same person stifles innovation via nationalism, then that is an even better reason to beware.

The US has many advantages in business, including great scale, military investment and fantastic colleges. We can thank the US for a lot of the global progress achieved through business in the last fifty years. I think I’ll pace my bets on China for the next fifty though.

Business is good, we should never forget that, despite all the scandals. We should give business every chance to drive progress in our world. Our job is to foster competition and where markets are inefficient, fair regulation.