Profit is not a dirty word

May 18 2006 by Nic Paton Print This Article

The concept and pursuit of profit is coming under increasing threat in the West, one of Britain's leading industrialists has warned.

Confederation of British Industry president John Sutherland told guests, including Prime Minister Tony Blair, at the organisation's annual dinner that the pursuit of profit by business benefits everyone in society and must not be demonised by special interest groups or governments.

The profits businesses make provided the nation with its livelihood but, Sutherland worried, the concept of profit is becoming increasingly taboo.

The pursuit of profit drove innovation and change and should be used unashamedly by government to raise the standards of public services, he added.

"The very concept of profit is under threat. The word is becoming a taboo almost an expletive," he told guests.

"But if we abandon the pursuit of profit we destroy not only the motor of business but the engine of every modern, dynamic society.

"Why, then, have Western societies become so uncomfortable about profit the very foundation of their greatness? Put simply because special interest groups dominate the debate," Sutherland said.

Why have Western societies become so uncomfortable about profit the very foundation of their greatness?

He continued: "From a mixture of motives, they have created a false opposition between the pursuit of profit and objectives in our society that we all cherish...including the environment, social justice, public services, protection of the weak and vulnerable, shared values and a sense of community."

The pursuit of profit enabled business to pay the Treasury 125 billion in direct taxes in 2005/6 the cost of building and equipping 600 general hospitals or 6,000 secondary schools.

Adding the receipts business makes possible from the taxes on income and spending of its employees and shareholders, the Chancellor obtained around 425 billion from the private sector last year, not counting its contribution to the 35 billion he had to borrow.

"So, to paraphrase Monty Python, apart from 23 million jobs, pensions, new schools, more hospitals and better roads, what has business ever done for the country?

"I could also mention the pride, fulfilment, social mobility and the sense of being needed which it offers to people," he said.

"Through profit, competitively earned, businesses can offer better products, lower prices, more jobs, higher wages, higher income or capital growth to investors.

"Through profit, and only through profit, businesses can do more for their local community or for global society.

"The involvement of profitable business is essential for meeting every challenge now facing Britain and the world," he warned.

The Government had encouraged private business into public services but the sector continued to propagate "self-seeking myths" that only it could be trusted to behave ethically and give value to the taxpayer, to care for the poor or the disadvantaged, to understand the needs of public provision."

But, Sunderland said, "from prisons to schools to swimming pools, the private sector has shown that it can procure, design and build, improve services and reduce cost to the taxpayer better than the public sector".

He warned: "There is a simple choice before this country between recognising the importance of profit or stagnation.

"We need to make that choice now. With intensifying global competition, political volatility and rising energy prices, UK business has its work cut out to survive and maintain its existing commitments to its workforces and shareholders and to the Exchequer.

"If Government and special interest groups together continue to treat business with suspicion, and profit as a dirty word, if they continue to pile regulation and pressures on profit-makers, more and more UK businesses will disappear.

"A shrinking working population will pay higher and higher taxes for worse and worse public services. Fewer and fewer people will take any kind of risk or embrace any kind of change. This country has been there before and some of our neighbours are going there now.

"Alternatively, we can recapture our faith in profit, the faith which made us a world economic power. We can apply that faith and the faith in innovation which goes with it to every area of our national life, including those from which profit is now artificially excluded.

"With that faith we can achieve living standards for the many of which today even the enlightened few can only dream of," Sutherland concluded.


Older Comments

It seems to me that a straw man is being given a good kicking here. The key question is do we accept the premise that Government and pressure groups are inherently hostile to the profit motive? In my view the premise is flawed. Meanwhile, the address by CBI president, John Sutherland, fails to concentrate on the very real issues that face British businesses in particular and western business in general.

First the flawed premise. Even the dimmest Government Minister understands the basic proposition: no profit = no tax. No tax = no opportunity to deliver services to the needy. No delivery of services to the needy = rising poverty levels. Rising poverty levels = poverty sticken underclass. Poverty stricken underclass = societal disengagement, increased crime and fear of crime. Societal disengagement = massively increased costs, both to protect society from the depredations of the increasingly angry and alienated underclass, and to prevent the further decline in health of the poverty stricken. Increased costs of service delivery eventually have to be paid for out of increased taxes, since the alternative - economic growth - is already being undermined by the loss of confidence which is typical of a market in decline and flows from a society which is scared of its own shadow. Society has become inward looking and insular, rather than outward looking and inclusive.

The ability to deal with society's ills is in large part dependent upon the drive to create the profit on which tax will be paid. Does anyone in the western economies seriously doubt this proposition? I think not.

It might be argued that so much money is taken out of businesses in tax that this has a negative effect on both investment and on the recruitment of local manpower, but this does not appear to be the argument advanced by Sutherland.

Who does Sutherland represent? Answer - the big battalions. The CBI's membership does not consist for the most part of small businessess, unlike the Institute of Directors, for example. At this point, we should remind ourselves that the real engine of the economy is supplied by the SMEs. However, we might concede that the cost to the CBI's members arising from increased red tape should be a matter of concern to those who make their living in the UK economy, since it represents an evil which afflicts western economies generally. But the ever greater destruction wrought by red tape is not of itself an attack on profit. The resulting decline in profitability is a consequence of out of control regulation, rather than its purpose.

Let's turn to the greater evil - the intention behind ever increasing regulation and government interference in every minor aspect of our lives, both personal and corporate. Quite simply, the aim is to illiminate risk. The aim behind this drive for the risk free society is not only wrong-headed, it is daft, for it seeks to stand human nature on its head.

The problem is that this drive is not necessarily coming from Government. It could be argued that Government is responding to the demands of the general public and particularly of the press. Indeed we are all complicit. Every time some terrible tragedy occurs, journlists call for action (usually by Government) to ensure that no such thing can happen again. Our representatives in Parliament take up the call and suddenly the tragedy is perceived to have resulted from some failure of Government and, hey presto, another series of regulations is generated to thicken up the soft matress onto which we might fall in the event of our own stupidity, failure of forethought or lack of caution. If you have doubts about this argument, ask how much more you are paying in insurance on every front - home and business. Previously, only the professions required professional indemnity insurance - now most large business won't contract with smaller businesses unless they have such cover. These larger businesses, having the economic power to insist on such a clause, are just trying to limit their own risk by devolving it to their economically weaker contractors. This is the true cost of the litigious society.

The result is that the costs of doing business are growing ever greater, while the readiness of those living in such a feather bedded society to take a risk and say, start up a business, is diminished.

So let's do away with this nonsense about a risk-free existance. Let's embrace risk and lighten our otherwise dull lives. The bottom line is that if you are not taking a risk, you are not really alive. That is the issue that the CBI needs to consider and which it should be pressing Government to address. Let's recognise the key equation - no risk = no profit. No profit = no incentive for progress. No progress = a stagnant society. Is that how we really want to live? No thanks!

Charles Cockburn

Charles Cockburn Portcullis Public Affairs