Bad business

This post mainly uses examples from the UK, but I suspect much the same story could be told in many countries. The reaction to Obama's criticism of Wall Street was extraordinary, until perhaps you realise that in the US political support is sometimes a commodity that corporations and the wealthy can buy. I return to the US at the end of this post.

I am sure the employment regime that existed at 'Sports Direct' would horrify anyone. A system of discipline that penalised taking time off sick such that ambulances responding to emergency calls were regular visitors to the factory. Many of the staff were not paid the minimum wage. This is what can happen when the majority of workers are not represented by a union, and local jobs are scarce, or other employers are not much better. We know about it because of the work of investigative journalists, but there are few of them left so how many other cases do we not know about?

A long time ago the Conservative party represented business, and the Labour party represented employees through their links to trade unions. In the 1980s the power of the trade unions was significantly reduced, and Labour leaders even thought they could gain votes by attacking some union actions. Since then, Labour have avoided ever siding with workers in industrial disputes. This continues under the current leadership: Labour did not even endorse the junior doctors strike. As a result, we can ask who represents employees against exploitation by employers within the workplace, and who represents society against rent seeking by employers at the national level?

The Conservative party was and still is the party of business. As Aeron Davis notes, even in 1997 only 7% of the business community voted Labour and 69% voted Conservative, despite all of Blair's efforts to show Labour was business friendly. In the last election business leaders did all they could to support the Conservatives, both financially and with explicit support. When this tight link between a political party and business is combined with an ideological belief among many in the party that regulations such as those that support employees are 'red tape' that needs to be cast aside, we get a mix which is potentially dangerous for employees and society.

We have seen many examples of bad business behaviour since the 2015 election, such as the emission test scandals. In some cases governments, being ‘business friendly’, actively helped with that deceit. Other examples are here, or here, or here, or here, or here(FT)/here/here/here/here, and that is not even counting the financial sector. It is estimated that over 200,000 employees are paid less than the minimum wage they are entitled to (HT Jo Maugham).

The links between the party and business, and an instinctive dislike of regulations on business, does not of course necessarily mean a Conservative government will automatically create an environment where abuses of employees and customers can flourish. As George Osborne showed when he increased the minimum wage, politicians can act against type. But it would clearly help in avoiding business exploitation if the Conservatives faced an opposition that felt free to be critical of business.

That is what Ed Miliband tried to do when he was Labour leader. He put the issue of producers versus predators, or as an economist might put it wealth creating versus rent seeking, at centre stage. Labour also proposed some relatively mild measures to reduce inequality (e.g. the mansion tax). The latter in particular were unpopular with CEOs. Partly as a result, we saw near universal endorsement of the Conservatives from business leaders.

An interesting question is why this should be seen as a problem for Labour. The answer has to be that approval by business is seen by many voters as a mark of economic competence. Of course economists know that running a business is very different from running the economy. In addition, as I think Justin Wolfers said, when a businessman claims economic expertise, remember: business is about enriching yourself, economics is about making us all better off. But the media environment encourages a rather different view. Economic issues, unless they are of major importance, are typically discussed in business sections or segments.

I have personally never understood the prominence that business news has in all parts of the media. For example, are there really that many people who want to know the daily movement in stock markets around the world every hour on BBC 24 hour news? More worrying is how often business leaders and business representatives get media coverage compared to representatives of employees, particularly at the BBC. (Business leaders also seem to beat economists at the BBC, as Justin Lewis noted about the 2015 election. This has been repeated during the referendum campaign. This is despite the public trusting us more than business leaders. [1])

The result of all this may be that Labour wants to avoid appearing anti-business. The Blair/Brown regime went out of their way to cultivate business, and were famously relaxed about the large increase in inequality at the top that occurred before their time. It is not totally ludicrous to claim that the UK financial crisis, the biggest example of business mistakes adversely effecting society for many decades, might have been partly a result of this.

The current Labour leadership is unlikely to repeat that mistake. But the problem remains that the Conservatives will throw the anti-business charge the moment Labour adopts any measures that restrict business freedom or threatens the incomes of business executives, and business leaders – for reasons already explained – will back them up. If this leads to a significant number of voters concluding that Labour are not competent to run the economy, we are in danger of hard wiring bad business. As Luigi Zingales observes in this perceptive article, although there is a deep distrust of crony capitalism among many Republican supporters, they still elected a crony capitalist.

[1] In Justin Lewis's article, he notes that “newspaper partisanship directly influenced the broadcast news agenda”. Perhaps this is the most plausible explanation for many of the BBC's biases, together with – ironically – a fear of being too left wing, as Jack Seale reports with a great quote from Robert Peston.