Gregory Sams
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20. The State of Business

Much of the structure of today's so-called "free economy" is distorted by the state's involvement. At the top of this distortion is that dictated by the state's need to extract taxation efficiently and regularly from anyone engaged in any sort of activity involving a medium of exchange. The core need of the state is to raise as much money every year as possible - regardless of how, where or from whom it is taken and how, where and on what it is spent. This short-term attitude pervades modern business ethics because of the penalty the tax man applies for taking a long term view of how you wish to manage the assets of your own or your shareholders' business. When profit is not spent quickly on new equipment, expansion or other growth of the business, a painfully large chunk of it seems somehow to end up with the taxman.

In the days of not that long ago (a hundred years) companies all over the world used to keep most of their profits, sometimes piles of profits. Even after paying for the big houses, jewellery and servants there was a lot left over. With it they made long-term investments in the original infrastructure of canals, railways, communication, underground transport systems, housing, power supply, bridges, and more. They spent their own money and if the project screwed up, it cost them. They also set up quite a few universities and social institutions. Today, most big projects in the private sector involve significant levels of bank financing, with the inherent priority being structured and rapid repayment, rather than long-term investment.

The real cost to our species of this short term thinking, engendered for the sake of the tax man's convenience, is possibly greater than the worth of the money that is raised each year. Many other areas of business are structured, not in the interests of the business or its customers, but because of government regulation.

LIMITED LIABILITY is a distortion of natural business which the state somehow thinks is a benefit to society. The concept did not exist at the beginning of the 19th century and came into legislation during the middle of it. Simply put, limited liability (indicated by "Ltd." or "plc" after the company name) makes it legal to break commitments and walk away from the mess you created. This is possible because, by government permission, you are allowed to be a "limited company" instead of a person or a group of people interacting with the rest of the world. Since time immemorial, governments have walked away from their messes and they figure it is all right for businesses to do so too, provided that they pay their taxes and play by the rules that the state has set. Society never developed any such mechanism on its own; notwithstanding occasional extenuating circumstances, we work as a society by honouring and being responsible for our debts and commitments.

Thus you might agree that, if I convince you my brand of shampoo is best for your hair, which in fact makes it all fall out, then I have a liability to do more than just give you back the money I took. However, with limited liability, I can be so incompetent that I accidentally sell thousands of bottles of this corrosive shampoo and end up with thousands of customers who want their money back plus an expensive wig. Well, that is just too much for the pockets of my Limited Liability Company, so I call in the liquidator, drive to my country house in the Rolls Royce, sit by the swimming pool and decide what to do next. You don't even get your money back. Of course, when this sort of abuse occurs we will need to have the government legislate precise new standards for hair shampoo to safeguard our scalps in the future. Luckily for us, most people making hair shampoo recognise that happily hirsute customers make them more money in the long term.

Ironically, the state further compounds the immoral protection of limited liability not just by making it available but by posing the greatest threat from which the individuals operating any company would wish to be protected. The vast majority of companies forced into receivership are pushed there because of unpaid taxes, often ones which they are commanded to collect on behalf of the government. And those taxes are collected from whatever is left of the company's assets before the remainder is allocated to banks, creditors, and unfulfilled customers.



TAXATION itself has other side effects apart from siphoning off wealth and encouraging short-term thinking. Many large companies and wealthy individuals expend considerable resources and set up complicated protection schemes, which lock up money in offshore havens that might otherwise have been reinvested in the local environment. This is an artificially stimulated loss to the community. Moreover, all that top brainpower devoted to this effort is a waste of human intellect, which should have nothing to do with the goals and objectives of any human enterprise, collective or otherwise.

Because we take it for granted, it is difficult to conceive the size of the impact that taxation has on the basic running of a business. Tax can often be the single greatest cost passed onto the consumer purchasing products or services. The tax accumulates with import duties, excise taxes, employee taxes, business rates, Value Added Tax, benefits-in-kind tax, and a whole host of money-grabbing mechanisms around the world. Then, if that business manages to take in more money than it spends (makes a profit), a further chunk is taken in corporation tax. That businesses spend a lot of time considering the tax-implications of their activities and means of reducing the overall impact on product cost is understandable. Even without this intent, the basic accounting for and tracking of taxes is a major brain drain on the management of any enterprise. The unfortunate effect of this is a diversion from the actual remit of a business, which is to serve its customers, and a substantial added on cost to almost every product we consume.

The state depends upon big business to implement its relentless TAXATION OF THE INDIVIDUAL, something that has been instinctively resisted by many generations of individuals before us. If you were relying upon other people's earnings to support yourself, wouldn't you prefer to tax 20,000 people's income through a single employer, rather than have to deal with that many hairdressers, market traders, greengrocers, builders, gardeners and wandering musicians? I think so, and it is no accident, nor in the interests of the general public, that government policy over the past twenty years has encouraged the growth of large corporate culture. Simultaneously, business rates, parking restrictions, developments and many other measures make today's retailing environment increasingly hostile to anyone other than the chain stores. The vast reams of regulations, and the requirements of accounting for taxation, place such burdens upon anyone seeking to "do business" as an individual that effectively, most are weeded out. Many people could run a small venture by the "seat of their pants," if freed from the need to understand double-entry bookkeeping, VAT accounting, P.A.Y.E. and the intricacies of employer/employee regulations. It should not be made so difficult to find a way of fitting into our society and providing a useful service or product to others.
"The art of taxation consists in so plucking the goose to obtain the largest amount of feathers, with the least possible amount of hissing."

Jean-Baptiste Colbert,
treasurer to Louis XIV.
Another major distortion of the natural evolution of business in society is created by giant GOVERNMENT SCHEMES designed to protect and promote certain industries - even when they are outdated and delivering overpriced product. Nuclear power could never have developed in a state-free world - it does not make any economic sense and is uninsurable. Not even the most notorious industrialist of the 19th century would have jeopardized his entire wealth on such an uninsurable risk. Who could cover the possible loss of the entire UK, an area the size of that made toxic by Chernobyl? Well, we do because our state thinks nuclear power is a good thing and that, if the entire country has to be evacuated, we'll somehow all muck together to foot the bill; with what, the handouts at the refugee camps?

Independent on Sunday - May 1995


Billions are still squandered by the Common Agricultural Policy because the thought of dismantling it is too shocking for the bureaucrats who make a living perpetuating its depredations. Environmentally damaging and economically questionable dam projects are pursued in developing nations, because the money has been donated by Western states eager to secure lucrative contracts for their friends in business. Roads are often built for the sake of budget fulfilment, using the handy state mechanism of compulsory purchase to overcome any natural opposition by homeowners refusing to sell what they rightfully own. Objectors are arrested or hauled out by bailiffs. England's Department of Trade and Industry's budget in 1993/1994 was "3,600,000,000 to be spent helping British industry be more competitive at home and abroad. Imagine how much more competitive these businesses would have been had that " 3.6 billion not been removed from their earnings, and their customer's pockets in the first place.

We frequently hear businesses bemoaning the costs of unnecessary government REGULATION. They are often justified since much government regulation of business is out of date or inappropriate to the situation. It is confrontational and not co-operative. Very few businesses would actually survive if they did comply with all the regulation directed at them. Despite all the regulations, when negligent errors are made the state imposed consequences are usually inappropriate and focused more on fines than compensation for the victims. A very simple example of this regulation gone mad will be familiar to anyone who has ever operated a business involving plant and equipment. When you consider the safety regulations associated with this equipment, you will rapidly appreciate that the hazardous activity of sticking a four-pointed object in and out of our mouth dozens of times every day breaks every rule in the book. Will the day ever come when all forks require cheek guards and eye protectors?

Safety standards, codes of practice and responsibility need to be an integral part of the natural government of the business world, and in today's climate this is sometimes lacking in businesses, whether at multi-national level or that of a market stall. But most of the time it is there and this is apparent every time you buy a product that does not make you want to write a complaint letter to the manufacturers.

We do already rely on standards and regulations which are effective and flexible and so invisible that we can easily fail to appreciate them. On a simple level, it was Heinz who set the original standard for baked beans and Bic who did so for disposable cigarette lighters. Not an awful lot has changed since they did so - without state interference. Many trades form societies to set standards for registered members so that the consumer can avoid uninsured architects or untrained acupuncturists. State protection is a poor substitute for consumer awareness though it would be comforting to think that you didn't have to concern yourself with too much detailed monitoring when out roaming in the market. The commercial potential for a relevant service, or services, to maintain standards and monitor consumer products is raised in a later chapter.

The state often gives FALSE LEGITIMACY to businesses who would otherwise have no means to exist nor place in existence. As mentioned earlier, this is patently the case with nuclear power, which dangerous and uneconomic activity would never have merited any chance of existence in a free economy. Unless exonerated by the state, companies do have responsibility in common law for their activities. The nuclear power companies could never accept responsibility for their outdated plant* nor will any free insurance company insure for the risk of accident.

*The working life of a nuclear power plant is from 30-60 years. Its toxic lifetime lasts a further several thousand years, and some elements, such as spent fuel rods, can remain dangerous for 20,000 years.

The principle and practice of artificial fertilization of the soil with nitrogen and phosphates metaphorically exploded with Uncle Sam's efforts after World War II to find another use for the outputs of its giant munitions industry. It is the similarity between explosives and fertilizers that makes it so easy for terrorists to convert the one to the other. It now seems clear that the subsequent artificial boosting of crop yield with chemical fertilizers led to weaker food crops with less resistance to insects, fungi, and weeds. This weakened food crop now requires regular dosing with an ever-stronger arsenal of chemicals poisons to keep the competition at bay.
We are fighting a war against the land that feeds us, undermining the natural mechanisms with which it works its magic in our mechanistic attempt, not to feed the world, but to feed the world cheap meat, and supply cheap ingredients to the food processing industry. The enormous hidden costs of state-supported cheap food policy are gradually becoming apparent.

The vast bulk of the arms industry has but one end customer - the state or would-be state. Many poorly considered international projects with neither merit nor chance of profit are proceeded with at enormous cost, having arisen through the conditions attached to aid money by the donor state. These, and many other enterprises that waste rather than return our effort, or return a very short economic benefit at great long-term cost, are unnecessarily in existence due to the state's giving them a false legitimacy.

Finally,* the state's pervasive regulation and control of business has the effect of stifling the enterprise of our species. It makes it increasingly difficult for an individual with a bright idea to go into business, or even someone with any old idea for that matter. An early insight into this restrictive climate came some years ago at a cafe in Marrakesh, where I noticed a young man on the corner each evening with a packet of 20 cigarettes, selling them singly to passers-by. The customers were able to better manage their "habit" by buying the cigarettes singly. And the young man was able to set up his own business as a retailer for the cost of a packet of cigarettes. This is an almost inconceivable concept in our developed democracies. The bridge is great between what is required to manage our own enterprise, and what is required to do so to the requirements of the state. Many are unable to cross this bridge, despite having all the skills that nature demands to interact in this way with the society around them.

*This "finally" is for the purposes of this chapter. There are countless other general and specific ways in which the state distorts the nature of free enterprise between individuals and companies. In Great Britain, the state's legislation has led to some 85% of the UK's listed companies now being owned by giant pension funds; what a state to be in...

Companies and those engaged in business do need to take responsibility for their activities and for the wider costs of their operations and we, as a society including those businesses, need to evolve means for this to happen. I suggest that without the grotesque and massive interference by the state in the regular day-to-day transactions of mankind (which we call enterprise or business), the mechanisms to provide this wider responsibility would have evolved in the natural course of events.
We are not going to make business more responsible by giving up this responsibility to the state.

Indeed, one of the disturbing developments of modern times is the ongoing attempt by large multi-nationals corporations to manipulate and actually govern the mechanism of the state. Of course, this could be seen as the first stirring of the latest change in the long chain of command - as mentioned earlier (pharaoh, emperor, senate, church, king, president, parliament ... multi-national). Why not? Because coercion does not work as a stable means to govern our society, and thereby our society's evolution. Multi-national corporations are no more able to effectively dictate evolution than are democratically elected parliaments or the church.
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From the book "Uncommon Sense - The State is Out of Date"
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