It has been more than 25 years since a British Prime Minister or a Chancellor felt the need to make the vigorous, moral case for the profit motive. Faced with public anger over the role banking excesses played in the financial crash, even Conservative leaders have abandoned the P-word and replaced it with nebulous phrases such as “incentives for entrepreneurs” or “motivating the entrepreneurial spirit.” The Chancellor, George Osborne, mentioned profit three times in his final budget speech – and only then to announce a sharp increase in the Bank Levy and a new Diverted Profit Tax.
Yet, strong profits are fundamental to a growing economy, for generating fresh private sector investment, for stimulating new supplies of risk capital, for paying higher wages, for contributing dividends to pension funds and – as Cameron has only latterly started saying – for providing tax revenues to finance essential public services. It took a small businessman from Leeds to point out to the Labour leader in the BBC Question Time late in the campaign that the only reason Labour was able to spend so much when it was last in power was that the banks were making super-profits and boy, wasn’t Gordon Brown grateful for it at the time.
Faced with a similar economic turn-around challenge to Cameron, Mrs Thatcher did not shirk from the responsibility. Her speeches were full of references to the profit motive. Before her election in 1975 she said: “The trouble is that for years the Labour Party have made people feel that profits are guilty-unless proved innocent.” A year later she mocked the then Labour Prime Minister Jim Callaghan for mentioning profits – in a Labour conference speech.
Nine years later she was still at it. “Efficiency is not the enemy but the ally of compassion,” she argued. Enterprise leads to “profits and the wider distribution of property among all people.” A student of Adam Smith, she believed that profits were good not just for incentivising risk-takers but because they benefited wider society.
Business has been far from blameless in the slow death of the P-word. It started in 1994, when the bosses of the recently privatised industries started filling their boots. Cedric Brown, the CEO of British Gas, gave himself a chunk pay rise and the unions took a 30-stone pig named Cedric to the company’s AGM. The Labour party called it ‘sheer unbridled greed’ – emotive language that is still part of their lexicon.
Tony Blair prided himself on being pro-business and Peter Mandelson famously claimed to be intensely relaxed about people getting filthy rich (note the word filthy) but Gordon Brown rarely referred to profit unless he was taxing it. This approach was a nice segue into his repeated attacks on privilege, Old Etonians, hedge funds and Tory donors, which has also been a depressing theme of Miliband’s leadership.
The P-word is now spat out with venom in the context of the NHS, yet when Labour introduced private providers to conduct elective surgery, waiting lists plummeted and the competition helped improve hospital theatre efficiency. Such was the nervousness about the P-word among the in-coming Cameron modernisers in 2010 that they spent two years trying to encourage social businesses to bid for NHS contracts believing that ‘not-for-profit’ was a superior model for delivering public services.
Good businesses now understand that, in the absence of cheerleaders, they have to make their own case for the wider benefits of the profit-making model. Expensive Corporate Social Responsibility programmes and environmental and developing world commitments abound. Rightly so. Companies need to demonstrate that they have a democratic licence to operate. Regulators, and politicians are right to challenge excess profits where there is a lack of competition. Arguably the US technology giants, with their highly efficient corporate tax structures, are doing as much damage to the cause of capitalism as Cedric did 20 years ago.
Let us hope that 20 years hence, we are not debating the origins of the collapse of the moral case for capitalism. But politicians frequently reap what they sow. If Ed Miliband succeeds in persuading British voters this week that profit is indeed a dirty word, politicians who failed to make the case for the defence will only have themselves to blame.
