Thursday, 25 June 2009

No, Albert

Albert replied to my previous post with a determined refutation of the proposition that the purpose of a business is to make money. It should, he says, be concerned with the welfare of all those around it.

Albert is so wrong that it hurts; he has made the classic mistake of the left, one based on both a misunderstanding of the purpose of a corporate entity and a failure to distinguish between the company and the people within it. I have therefore decided to devote an entire post to his comment and my response to it.

Let us start with a seemingly irrelevant example, that of a kitchen knife. To make a good kitchen knife, we want something that is very good at cutting through food, including both meat and vegetables. This will obviously create something that could also be used for harm, if the user so decides; that which makes the knife efficient at cutting lamb chops also makes it efficient at cutting throats. But the solution is not to make the knife less good at cutting throats, because that also impinges on its ability to cut lamb chops and is detrimental to all of us - because we cannot cook our dinner. The correct solution is to require appropriate moral choices of those who wield the knife, i.e. to use it for good not for bad. We do not design the knife with a view to making it unable to cut throats, nor do we criticise the designer for making a knife that is good at cutting lamb chops.

The same applies to a corporation or business (I shall use the two interchangeably). The purpose of a business is to make money, and it should be good at doing that; it should be designed to do that. If it is used in an inappropriate manner, then that reflects on the morality of those who choose to use it in that way. The correct response is to censure them, not hobble the nature of businesses in general so that can never happen again.

Albert quotes no less than a previous Pope to say that I am wrong. Sadly, he mis-applies the quote. His Holiness refers to a “community of persons” within the business who must endeavour to satisfy their needs taking into account moral questions. Thus, the quote in fact affirms my view that the moral choices apply to the people, but does not imply that we should blunt the knife in order to remove the need for those people to think about the choices facing them. Anyway, I can see Albert’s quote and raise him with one by Milton Friedman:
The business of business is business
and, of course, the famous comment by the only decent economic mind ever to come from Kirkaldy, the moral philosopher Adam Smith:
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.
This, then, is the fundamental reason why Albert’s approach is wrong; he seeks to impose moral duties on an amoral thing, viz the corporation. Moral codes apply to people, and are the subject of valid differences of opinion between different people. Albert might think it immoral to deny maternity leave to some employees, for example; I might think it positively immoral to ask for maternity leave so soon after arriving in a new job that the pregnancy must have existed before the employment commenced. In that regard we disagree, although I suspect that Albert’s world view does not allow for disagreement with the authorities on moral matters.

But the point is deeper than a mere lack of clarity as to where moral boundaries lie; it is that businesses are (in a stable economy) subject to a different and entirely self-policing, self-correcting form of control over their actions. Put simply, there are two reasons why I am not rude to my PA. The first is that I (personally) consider that it would be wrong to do so. This is a moral choice of my own; others may disagree. The second reason, the more important reason of the two, is that if I do not treat her politely then she will probably leave. That would harm my business. Indeed, if I were to carry on doing that, I would have no staff & hence no business. Note that this reason applies to all businesses, regardless of the moral preferences of its directors.

(Before you query whether this actually works, I can confirm that it indeed does; I have seen a firm slowly die as a result of the rudeness of its owner, as staff and suppliers slowly walked away)

This works because those involved in the game are all free agents. My PA chooses freely to work for me. I choose to employ her. Both of us can change her mind; she can do so freely although there are monumental hurdles in place for me to clear should I do so. The reason why this form of restraint is better is rooted in this freedom, because it works at an individual level and therefore sets the moral boundary at precisely the level that is acceptable to the individual.

So, if a hypothetical boss found that he personally worked far better if he was in a permanent state of irritation, in which he was likely to be rude and difficult to those around him, then he (we could call him “Sirallen”, for example) would effectively limit his choice of staff to those willing to put up with it. The effect of a more limited supply is that the price will rise; thus those staff willing to put up with Sirallen would be paid accordingly. Those that did not like being treated in that way could choose to work for someone else. For Sirallen, the additional cost might be justified by his increased effectiveness; he would be free to decide whether it was or not. Of course, when the time comes and Sirallen reaches the pearly gates, he will still have to answer for the choices that he made, to whatever deity he finds waiting there for him.

But if you impose an externally decided morality on a business, as Albert wishes to, you either (i) blunt its efficiency as a business by asking it to do things other than those which are demanded by natural competition or (ii) achieve nothing but the imposition of compliance costs by asking it to do something it was going to do anyway. At the same time, you deny thick-skinned people the chance to choose to be paid more than would otherwise be the case.

This is, at heart, the difference between the right and the left. The right seeks to provide a stable and competitive economy in which people can protect themselves from unpleasant working conditions by simply leaving and finding a new job elsewhere. The left seeks to impose ever heavier and more detailed layers of regulation to make sure that people never need to do so, and thereby degrade that economy - eroding the freedom to leave, and creating conditions where still further regulations become necessary.

Albert, running a business is not like choosing a pleasant sunny meadow to stroll through. It is like running through the meadow knowing that anytime you stop running, the bull will catch up with you. You can look at a sleek, fit runner making his way across the field and be impressed by the profitable distance he is maintaining in front of the bull. But that is no reason to say “Those nice running shoes he has; we could put them to good use. Make him wear some old hobnailed boots instead – he’ll be fine”.


  1. "running a like running through the meadow knowing that anytime you stop running, the bull will catch up with you."

    Don't stop!!

    I totally agree businesses must be allowed to operate competitively. Sadly, you are going to be accused of waving a red rag to those that fly the red flag. Just explain why the rich get richer as the poor (the unemployed) get poorer?

    I agree it is fundamentally misguided to think it will be cheaper to burden firms with welfare costs rather than encourage in wealth creation. However, as a job is an increasingly valuable asset, isn't it right to ensure it can only be lost justifiably? Has regulation really gone too far? Your way will stop an employee asking for a pay rise, whistle blowing, showing any common sense or doing anything that might upset their manager. That could be useful for some.

    A brilliant blog.

  2. People are afraid to rock the boat when they are afraid of the consequences of doing so. If they are confident that the economy is stable and that they will therefore find another job, they have the confidence to speak up.

    This is why it is a prime duty of a Government to run a stable economy. For the last year or so, all my staff have shut up and started to keep their heads down as Gordon's mismanagement has hit home, which is a great shame. What many employees don't realise is that I actually prefer to hear the niggles, because then I can do something about them (sometimes).

    And from my perspective as an employer, I am frankly scared witless of saying anything critical to staff. If they take umbrage, walk off, and sue then I'm £60k down best case.

    So both my staff and I are scared to speak critically to each other, for different reasons. Is that really a good thing? I don't think so.

    Does it indicate that regulation has gone to far? Yes, I would say it does.

    Do it indicate that there should be no regulation whatsoever? No, certainly not.

  3. We do appear to be making an economy out of administering ourselves. You point out there is too much regulation, but who regulates the regulators? I do not think we want more regulators.

    Where do you get your £60k figure from? I did not think the air was so thin.

    Employment tribunals only compensate for loss of opportunity. There are also caps. Rewards are low, except in discrimination cases when no reasonable excuse is put forward for what took place. Claims have to lodged by a former employee promptly and witness statement can be prepared very easily by either party.

    My advice is to follow the correct procedure to avoid adding aggravating features to a claim. Your firm should produce a policy document that can be waved around. I am told that it is relatively easy to rationalise in the UK compared to other countries. I think you may benefit from reading an explanatory booklet to allay your fears. ;-)

    I am surprised Albert has not responded to your post. I hope he is okay.

  4. Hello Measured,

    Thanks for asking after me, I am quite well and hope you are too!

    When I read Patently's post, I thought he had so seriously misrepresented me and raised so many logical problems that I decided to tackle him by email. There was too much to be said for a mere comment.

    For example, I couldn't understand how a business could be separated from the people running it, so that it, and not they, could be characterised as "amoral". On the other hand, if the business was outside the moral sphere, then I couldn't understand what seems to me to be Patently's moral indignation at what he apparently thinks are immoral restrictions on businesses.

    Anyway, 15 emails later (!) we decided to call it a day as we both thought the other wasn't really engaging. I thought Patently wasn't clarifying the problems of logic/intelligibility in his position, and Patently thought I wasn't answering his economic questions!

    It was fun while it lasted!

    Incidentally, I don't think that someone who defends the just rights of the individual against an oppressor (be it big Soviet style Government, or an immoral businessman) is necessarily left-wing!

  5. Hi Albert

    So Patently HAS been waving a rad rag to a bull, even if it might not have been to a left wing one. I am pleased you talked.

    I suspect, as ever, a balancing of interests is required. It does seem unfair that those who create wealth for this country are so restricted in their ability to manage their businesses when the operating environment has become increasingly hostile. In my belief it ends up being the detriment of all of us, but there again it does safeguard us from the immoral/amoral managers. I thought Patently expressed himself rather well.

    I am pleased you are back in town.

  6. Hello Measured,

    I quite agree with you and with Patently about unfair regulation being put on the people who try to make the money. That's why in my original comment I explicitly said I wasn't commenting on the present industrial action.

    What I wanted to say was really summed up in the quote from Pope John Paul II: "the purpose of a business firm is not simply to make a profit." So it was a philosophical point I wanted to make: businesses cannot only be concerned with profit or they become tyrannical and undermine the very goods they are supposed to provide.

    I am not competent to comment on how one gets the balance right, but as everything else is over regulated these days, I see no reason to suppose business is any exception.