Bad Business

Simon Wren-Lewis:

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 realize 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 penalized 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 Labor party represented employees through their links to trade unions. In the 1980s the power of the trade unions was significantly reduced, and Labor leaders even thought they could gain votes by attacking some union actions. Since then, Labor have avoided ever siding with workers in industrial disputes. This continues under the current leadership... 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. ... 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. ...

An interesting question is why this should be seen as a problem for Labor. 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. ... But the media environment encourages a rather different view. ...

The result of all this may be that Labor wants to avoid appearing anti-business. ...Conservatives will throw the anti-business charge the moment Labor 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 Labor 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.