Rob Campbell chairs three of New Zealand’s largest corporates – yet finds the current narrative around falling business confidence baseless. Here he explains why there should be no second winter of discontent.
I have business interests ranging from tourism, to aged care, to commercial property, to electricity, to investment management to accommodation. If the economy was in real trouble or investment and business operation was becoming more difficult you would think I might notice it.
I don’t.
Business is seldom easy. It is not meant to be. In business we’re always assessing risk, anticipating change and reacting as skilfully as we can. Most business faces competition – there are substitutes everywhere for pretty much everything we do. This is the challenge which is one of reasons for the financial rewards we hope to add.
One of the less attractive aspects of business activity is that while we espouse competition and market forces as a mantra, in our hearts we wish there was less competition – or none. Often, just like unionists, businesses seek to combine together for greater strength. This was noted as long ago as the days of Adam Smith who truly did revere competition (Amongst others! He was no market participant himself).
He observed: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.
This is why I am sceptical when people purport to talk on behalf of industry interests or gather to lobby governments on that basis. I just can’t shake the thought that Smith was right – and someone is trying to leverage advantage against the rest of us. We all like to have such windfalls – my casino interests would hardly prosper if that desire was unknown – but we have no reason to expect that our business can win on every spin of the wheel.
There is no value in me naming names, you’ll recognise the practice when you see it. It’s endemic in our economic and political systems.
Is business really getting a bad run at present in New Zealand? Our economic and political system in fact rates highly for integrity, innovation and legal structures. You might not think so if you’re an Auckland motorway commuter or a tourist looking for a toilet, but our infrastructure is relatively strong. Our social systems are relatively cohesive and our environment and climate relatively benign. We have good resources and energy. Tax rates are relatively low. Education levels are relatively strong.
You might almost think it was a good place to do business. Certainly, people in other countries think so. Few would not like our version of the important factors I have noted.
This is not to say that everything is perfect. We have many social and environmental issues which need urgent attention. But we face a generally supportive and benign environment. The various frustrations which we all feel about bureaucratic compliance and other regulations are well below the rest of the world. When the business sector starts whingeing or politicians start point scoring often our best response is to tell them to “get real” and get on with the tasks in front of us.
The media do have an inclination to look for negatives and to extrapolate those they find into crises. I was very struck by the Herald just this weekend making a big issue about a “toilet tax” – or, in less emotive terms, a levy which would be used to fund wastewater infrastructure to make up for decades of neglect and rapid current population growth.
No one actually wants another levy. But the work is necessary – unless pollution of the harbour is to explode above the current level, itself often un-swimmable. The task must be done, regardless of whether past councils have failed in their duty. The cost is high, which it always is when you delay the necessary. The opportunity cost of not acting is higher still. There is simply no one else who can or should pay but those of us who live in Auckland.
These events are repeated around the country in large or small form. As Joe Louis put it in the boxing ring “you can run but you can’t hide”. Agitating against the cost is futile and our media would be more usefully engaged in explaining why the costs are as they are and ensuring equity in how, not if, they are met.
I use this example because it seems to me symptomatic of another narrative currently echoing through our media. There is almost a glee with which they pronounce another survey has shown an adverse outcome in business confidence.
I have looked at the various reasons which have been given for these survey outcomes. Broadly they may be grouped as follows:
- climate change motivated initiatives
- a reaction to Government moves on industrial relations
- tax impositions
I want to make some points about each of these:
Climate change
There can be little surprise that a coalition with the current composition has made moves in this area. That is simply an outcome of the electoral process – and the moves to date have been neither radical nor do they impose higher costs on society than anyone might expect. There will be costs in the response to climate change and other environmental and sustainability issues – yet there are also opportunities. There are costs in not responding too, and the challenges facing business in many other places in the world are a great deal higher.
One of the great positive characteristics of capitalism is its ability to shift resources in response to economic signals. Why anyone thinks we should be repressing those signals or preventing a flexible response being viable is beyond me – unless you either think the issues do not matter or you prefer a mid-twentieth century Albanian solution. Good luck with either.
A positive business investment response to the climate and environmental challenges we have is exciting and will be a mark of this generation shifting from the complacent and careless response of my own generation.
Taxation
Allow me to repeat that few people like more of these than less. We have costs which are met socially in our society which we can shift in time by debt or inaction; or shift in allocation by tax and spending policies.
But we will meet these costs. The business and high income tax burden in this country is not high and there are no imminent proposals that either should be so. We do need, and I’m confident we will get, some tax changes which are necessary to improve capital allocation. Most business will gain from such a change. We should see the current tax review as an opportunity to remove inappropriate incentives. This could be one of the better areas of reform if we can all stay focused on what is fair and what best serves lifting productivity.
Industrial relations
The final area driving negative survey outcomes is that of industrial relations reform. There is a concern within many businesses that we will begin to experience labour cost increases and that view is well founded. It will occur in three areas.
First we’re currently seeing shifts in the lowest rates of pay across the economy. Social policies will play a role, but pay rates which cannot sustain acceptable standards of living are socially destructive. There is no free lunch, and achieving a change at the bottom level will have costs in absolute terms for the owners of businesses currently paying such rates.
The change will also reduce demand for some jobs but, if well-managed, this will be less damaging than the social costs and disruption which will accompany our not acting. Higher paid workers will not necessarily shift simply in matching order. I would like to see business and employees accepting this as a mutual challenge with benefits to all. Where applicable the businesses with which I am engaged have begun this process.
Second, we are now at a point where the ineffective delivery of equal pay between men and women and pay equity will be consigned to the dustbin of history. This will involve additional costs for many businesses and will also lead to some reallocations between occupations over time. Again, this is a process most effectively carried out, because it simply should be carried out, by mutual process between business and employees. To not embrace this process is to condemn business to ongoing uncertainty on a far greater scale than rolling our sleeves up and getting on with the job. There is a role here for Government in setting the scene and assisting the many transitions involved in the wider social interest.
Third, there is a general shift evident towards enhancing the role of unions and collective activity in general. I was a union advocate for many years and still regret how little we were able to do about issues like low pay and equal pay. This was partly due to faults in foresight from the unions, partly due to lack of foresight on the part of the various employer unions (which needed no coaching from the worker unions on class solidarity) and partly due to largely unsympathetic governments.
In subsequent years labour market liberalisation has been tried. While it has lead to less industrial conflict, it’s hard to discern any benefit in terms of productivity growth, skill development or equity. It is not surprising that we are now reviewing where we sit. I’m pleased that Jim Bolger is leading this review and encouraged by the kaupapa he outlined to a recent directors meeting which was “think about this in terms of the kind of society you want to live in”. If we do that honestly and openly we can get great outcomes.
All three areas are great opportunities for business to do what it does best: allocate capital efficiently and respond to a changing society and technologies. There is far more good than bad for business in taking on challenges which have been left unmet for too long.
The worst thing that we can do as the business sector is to be drawn into the negativity of lobby groups or media outlets. This is a great place to open and operate a business. Negativity is for those who stand on the sidelines watching and commentating. We would not be in our current roles if we were not, as we are, making daily decisions designed to make our business, the prospects of our stakeholders and the future society better.
This is the challenge we face in the relationship between business and society. The “social license”, as it is sometimes called, does not occur as of right. It is earned. In recent years, as has happened recurrently in the history of capitalism, this license has been challenged. Not so much by anything which governments or wider society has done, but more because of failings within business itself.
When business is conducted with excessive greed or insensitivity it can lose its legitimacy in society. It is an individual responsibility of each of us engaged in business to make sure that does not happen.
The above is an edited and abridged version of a speech Rob Campbell made to the Institute of Directors and Chamber of Commerce in Palmerston North on July 10 2018
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