At a business breakfast last week, I was struck by how soon those attending began to talk about how their government could support them.
I was there to encourage a global approach to entrepreneurship for Scots; trying to show that, in today’s manufacturing and technical services, business in a small peripheral nation has to go and build its own pan-market critical mass – and that we stand at the edge of an era where digitisation can make this happen at much lower cash and capital cost than hitherto.
In my talk, I re-proposed a long held view that Scottish Enterprise be closed and there was a palpable frisson around the room. I then added that our local councils should be banned from taking part in economic development – an equally palpable silence could almost be heard among the sharp intakes of breath.
For a political economist like me, mindful of the interests and incentives of economic behaviour, such reactions tell a clear story about Scottish businesses. They have chosen to lose all real political influence. Let me explain.
Anyone in business has one clear duty; to make things happen in a way that increases in revenues are faster than the increase in overheads. You can make losses temporarily, you can borrow to invest, you can buy licences, create partnerships and issue stock but in the end all will come to naught if the first condition does not apply. It’s a very clear focus … the accounting matters.
The moment a business departs from this central focus and seeks the help of the state, the game changes. It has entered a cabal of interests and opinion where what is due to each economic player is politically determined. Meanwhile, the business itself has to start factoring in actions of the state to its accounting, and so confuses its purpose.
Now consider incentives. A business is governed, only and inevitably, by its profit and loss; it cannot exist otherwise. A government is incentivised by winning elections; politicians are not governed by some grand altruistic design; they operate in support of outcomes that win votes. They always use other people’s money to achieve this; and they are supported by a much larger cabal of opinion that just loves to use our money and doesn’t care a fig about profit and loss.
In the resulting balance of opinion, business inevitably loses. Spending of our taxes is by definition more politically valuable if used for populist rather than business purposes. Business ends up having to defend itself for its share of the pie; and always fails.
Of course, business has to do things that impinge on others. It builds offices, factories, loading yards and staff car parks, it runs logistics, it uses energy and it pollutes. In this, it bumps into the collective of the state; local councils, the state central planners, the regulating quangos and the taxman.
But should business try to find some middle road to ameliorate the wake created by progress through negotiation? Well, to the extent of being polite, yes, but businesses need to be as tough as they can and deny the right of the collective parties to re-design their core focus. We need to make sure our voice is separated from all other influences. We then need to use that freedom in turn to make the bureaucracy work hard to justify the costs and benefits of their rules and regulations.
As the wealth creator that makes us all more comfortable, happier and, yes, more equal, business should steer well clear of government – tell them to keep out of the way and never ever accept any support from them. If you need support it means the accounting does not work and you should abandon your idea or find the critical mass you need elsewhere.
A stubborn insistence on keeping government at arm’s length offers great gains for Scotland. Every time a business takes a bung from the state we give a reason for a “me too” grievance to the egalitarian and socialist tendencies who feed from the same public purse. History tells us that these collectivists offer the fastest route to penury for all of us.
In this, business has a trump card; through our disdain we induce the state to work harder to benefit from our imagination and productivity. There is nothing that politicians desire more than economic success. They need us not only for our taxes, but as examples of how clever they are at economic management. We certainly don’t need them to design our creativity.
Eben Wilson is Director of Taxpayer Scotland (www.taxpayerscotland.com) and also owns a telematics business.