The Bottom Line
Businesses care about making profits because if they don’t, they go bust. Not only that, they couldn’t pay themselves well, nor could they sell the business at some point and provide for a financially-worry-free life, or for their old age, whichever comes first. Nor would they be able to provide their customers with what they want. Nor would they reward their investors as they would like to be rewarded, nor attract new investment to enable them to grow. A business that doesn’t grow, declines.
But businesses have a greater responsibility than that. They are part of the local society in which they live and work and they are part of the world society struggling to find a way of living – soon for nine billion people – that doesn’t immediately destroy the planet. They are also employers who must look after the employees who devote part of their lives to making the business work. These ‘secondary’ responsibilities do not increase the returns to the investors nor do they increase the value of the business – well, not yet, anyway.
So how shall businesses be persuaded to do the right thing by their secondary requirements when all the analysts are making the case with purely profit and value-of-business analyses? And when most of the investors are making the same analysis, too? Persuasion is tried with, frankly, minimal success. Society and individuals, for a variety of reasons, want it now. Money, I mean.
Governments are elected to enforce behaviour that allows sustainable societies to exist. As the criteria for sustainability have changed so much in fifty years, so should government enforcement. But it hasn’t. In spite of knowing reasonably well which businesses are contributing to sustainability and which are not, the taxation of business profits remains largely unchanged. And the control of rewards to owners and managers is non-existent because most of us believe that a free, competitive economy produces the greatest wealth for the greatest number fastest.
But sustainability is not about fastest, it is about most sustainable. Business by itself will never sacrifice immediate profits for a sustainable planet. It is not motivated to. That doesn’t stop valiant efforts being made to redirect businesses where the unsustainable nature of what they do (oil, for example) is blatantly obvious. Nor does it in any way decry the intentions of many good people to change business habits as fast as they can to support being sustainable. For all that, business will not, indeed cannot, change while its purpose is so single minded.
What can governments do to change the motivation of businesses in favour of sustainability?
There is, of course, a limit to the speed with which industry can change. The infrastructure and investment in existing methods of production are there for some time and will be used one way or another. Taxing their profits out of existence is simply destructive; taxing them increasingly highly, however, may be a way to redirect investment to benefit sustainability. The trick is to get the speed of the increasing tax right.
By the same token, tax benefits for sustainable businesses will motivate investment and effort in them. These tax benefits should be on a decreasing scale so that the total revenue from industry taxation is maintained. Taxation planning should be over a considerable period thus allowing rational investment decisions to be made. No democratic government has a life expectancy of very long, especially today when all the consequences of Covid-19 are laid at every government’s door.
Industry taxation planning should therefore be taken out of the hands of government and put under the control of a body whose life can be maintained whatever wing of government is in place. Whether this is thought to be doable politically, it should be a government’s responsibility to see that it is done. It will have the effect of reducing short-term decisions that invariably are made against the interests of sustainability.
Trouble is, to be really effective you need all governments to agree to the plan at the same time.
That may be difficult.