It is up to consumers and voters to change the lousy behaviour of big banks, energy giants and internet multinationals. They will not change by themselves
Last week, I was waiting in the queue at the butcher while an elderly lady was being served.
Last week, I was waiting in the queue at the butcher while an elderly lady was being served. Clearly, she was not that well-off and chose the cheapest cuts of meat. When she was done, the butcher asked the assistant serving her how much the bill came to. Told that it was £11, he whispered: “Make it £8.”
It was a small example of generosity made all the better by the butcher taking care that his customer was unaware of what he was doing. It was also a far cry from the world of big business in a week that saw dawn raids on Shell and BP for alleged price-fixing and Google accused by the Labour MP Margaret Hodge of doing evil.
Stung by the attack from the chairwoman of the Commons public accounts committee, Eric Schmidt, the executive chairman of Google, mounted a defence in the Observer. Tax is a mightily complex matter for multinational companies, he said. The global system could do with reform. It was up to politicians to set the rules, but they had to recognise the dangers if profit became a dirty word.
All credit to Hodge for flushing Schmidt out. He likes to portray himself as the new sort of boss of a new sort of company, the ones that boast of their non-hierarchical structures, their dress-down policies and their chill-out zones. But the row about tax has shown that the people running these new-wave behemoths are not hippy capitalists, they are robber barons in chinos.
Nor should we expect otherwise. The dominant form of corporate organisation in the west is the joint stock company, the purpose of which is to deliver profits for its shareholders. Almost all these companies pay lip-service to corporate social responsibility. The companies selling booze say they are firmly committed to tackling problem drinking. The betting shop chains say they want to see responsible gambling. The fast food companies and the soft drinks industry sponsor sporting events in the hope that nobody notices how they are contributing to obesity. But they are in business to maximise profits for their shareholders. Period.
The intellectual justification for the profit-maximising company can be traced all the way back to Adam Smith, who famously said in the Wealth of Nations: “It is not from the benevolence of the butcher, the baker or the brewer that we expect our dinner, but from their regard to their own interest.” The pursuit of profit, in other words, creates wealth from which we all benefit.
The Theory of Moral Sentiments, an earlier work by Smith, contained a rather different message, namely that there are good human qualities such as generosity and the desire to be seen worthy of the approval of others. Many problems, Smith thought, would be solved if only people could hold up a mirror and see themselves “in the light in which others see us”.
Corporate social responsibility is supposed to address this point. Businesses like to be held in high esteem by their customers, but many of them have missed the crucial part of Smith’s message: curbing the instinct to behave badly was not seen as being driven by commercial ends but by natural instincts. The real world is somewhat different. More than 30 clothing retailers have signed the Bangladesh Safety Accord for regular independent safety inspections of garment factories, but only after the deaths of 1,127 workers in the collapse of the Rana Plaza works exposed them to reputational risk.
Smith, at a guess, would have been horrified – if not entirely surprised – to find that the European commission had launched dawn raids on Shell and BP amid allegations of price-fixing; that the European head of Google was being accused of doing evil by Hodge; and that Britain’s big banks had been fingered for a string of offences from the mis-selling of protection payment insurance to money laundering.
Nor would Smith have expected Google, Amazon or Starbucks to voluntarily pay more tax than they were legally obliged to for the simple reason that he distrusted enterprises which wielded monopoly or oligopoly power. His objection to a company such as Amazon would have been that it is using its market power to eliminate competition and would be in a position, once all the other booksellers had been driven out of business, to charge higher prices.
The fact is, of course, that the world has moved on since Smith wrote the Wealth of Nations. There are examples of businesses that operate “in the light in which others see us”, but as a general rule of thumb they tend to be small, local, non-transnational, non-PLC and open to the full blast of competition.
But perfect competition does not exist. The corporate world is not dominated by small shopkeepers who worry what their customers might think about them, but by large corporations generating revenues that get channelled upwards to executives and shareholders.
Companies will only change for one of three reasons: they are forced to do so legally; they are forced to do so by their customers; or because they spontaneously decide that they want to operate in accord with Smith’s moral sentiments.
Changes to the international tax system will be on the agenda when the G8 meets in Northern Ireland for its annual summit next month, and there has probably never been a better time to crack down on tax havens, aggressive tax planning and transfer-pricing schemes. In part this is because of the egregious nature of the corporate scandals and in part because governments are badly in need of tax receipts in a time of weak growth. Tax threatens to become to the 2010s what debt relief was to the 1990s: the focus of a global campaign for reform.
In the end, though, the success of any campaign will depend on how the public behaves. If we don’t like the current state of affairs, we can do one of two things. We can put pressure on governments to break up monopolies and inject more competition. We can call for a new business model, based on “for benefit” organisations, to challenge the domination of the joint stock company. We can force them to introduce sales taxes to avoid profits migrating offshore. Alternatively, we can vote with our feet, and stop patronising the companies that exploit loopholes in the tax system, even though that might mean higher prices and less choice. If we are not prepared to do one of these two things, we will have to lump it.
After the events of the past few years, it would be naive to expect the initiative to come from the boardroom. Corporate social responsibility has been a smokescreen behind which companies can screw their customers while pretending they are putting something back. The activities of the banks and the energy companies illustrate the point. Capitalism is not about being cuddly or sponsoring exhibitions at the Tate Modern; it is about making profits, the higher the better.