I am not against all business, just big business

An anti-business, anti-capitalism, view is popular with the young people today, despite their good fortune to be born into such a wealthy society. It seems to be forgotten how our wealth developed by individuals with a dream. The business owners take out mortgages and risk everything, including their marraiges, to create something of value. They pay the salaries and taxes that then pay government officials and for government programs. This rise of Western capitalism, even embraced by China and India, has uplifted the living standards of so many yet the current US government labels all business owners as one category of business leadership. 
I agree that there are flaws that this recession has laid bare, but I disagree vehemently that business owners of private companies can be compared with public companies.
The media, school teachers, university professors, political experts and those denouncing business would gain credibility if they distinguished between corporations, which may be public and have professionally paid CEOs, and owner operated corporations, which are run by the original founder or family.  
My uncle was one of the leaders of The Royal Bank of Scotland back in the 90's, just as bankers stopped being bankers and became corporate finance experts, and he talks about one of his top issues with this distinction between big and middle business. 
The salaries and benefits of Directors in public companies are disgusting. This needs to be said a hundred times.
These corporate CEOs, paid to lead, do not take the same risk as owner operated business because they get obscene salaries and benefits even if (and when) they fail. Mid sized business owners often lose everything, their house, their wife. 
Here is my dear uncle:

I am not against all business, per se, but only big business. I noticed today in an article in the Independent that the average Pension Pot for FTSE 100 Directors had risen in less than a decade to £84 million, nearly 600 times the average retirement fund for five ordinary workers! These are the same people who have been closing down Final Salary Related Pension Schemes for their staff on the grounds that they are simply unaffordable! Small businesses, on the other hand, are finding it difficult to obtain necessary support from the Banks, who are amongst the worst culprits in the Obscene Rewards League.

What Big Government Does Not Reveal

The expansion of government is easy for politicians and means announcements of programs can be made to the media, like mother bird dropping bits of regurgitated worms into the mouths of eager baby birds. 

Another issue my uncle speaks about is the image of Scotland as a Quebec of Canada, keen for a dying culture while taking in more from London government than paying out in tax revenues. When there was North Sea oil, the revenues were taken to London and not saved for future generations in the form of a sovereign fund similar to Finland. 

Here is my uncle again:

As I said earlier, there is a great deal of comment in the press about the pros and cons of Scottish independence, with varying statistics being thrown around to "prove" opinions. Statistics can be invoked to prove almost anything, but one quoted last week was that, despite all the areas where Scotland seems to do better than England, Northern Ireland looks better off and Wales only slightly less well treated. Guess who gets most support from central government - the City of London!!! Furthermore, the Exchequer receives more in taxes from Scotland than it pays out under the Barnett Formula.

Should employers be forced to publish everyone’s pay?

That The Economist, the pillar of Capitalism (or it used to be) even posts such a question is alarming. Even more sickening is that half the readers who took the poll thought this was a jolly good idea. It reveals a appalling lack of understanding about how markets are structured. I found it even more surprising that from the comments, it seemed that the young generation liked the idea of revealing who is better and getting the rewards for their hard work.

Weren’t they the generation where marks in schools were hidden, where no one came first, everyone's a winner and gets a trophy and everyone’s artwork was put on the wall? I guess these young people do not understand how things work in the real world where if the art work is not that great, the customer will not select it:

No customer, no revenue, no business to pay salaries. 

Fini.

Here is a piece from The Economist article on the Government pushing into private business and forcing them to publish salaries:

 There may be an argument for requiring company owners to publish a list of who is paid what, so that if anyone is being discriminated against for any reason—not just sexism but other generic reasons such as race or religion, or maybe because of some individual vendetta—he or she can seek redress, or at least demand proper explanations as to why others are receiving more. Imposing such a rule on workplaces where pay varies widely is bound to cause ructions. It might cause more trouble than it is worth. Or maybe those ructions are necessary, to force those employers to be more rational in how they reward effort and talent.

Colin O’Neill from the heart of Socialist Capital of BC Canada writes:

The secrecy seems to be a form of short-term, rent-seeking behaviour; an inefficient game, where the employer incentives during wage negotiations is to exploit the asymmetrical information at the greater expense to the economy. A person's wage should reflect their productivity (their contribution; their value etc.): without transparency, the marginal cost of the worker won't equal the marginal benefit. Some workers are paid too much, some too little. A worker won't know where they are most productive (where an employer is willing to pay them more); therefore, factors of production (people) in the economy are not being used efficiently. 

Thank you, Trevor P. Harvey, who is older and wiser than Colin and probably remembers life before Socialism, and replied:

But Colin, what does this mean? "A person's wage should reflect their productivity (their contribution; their value etc.)" Who is to decide such relative values? Imagine comparison of Mozart, Pele, Shakespeare, Isaac Newton and Marie Curie. All had either employers or patrons. All were productive, but not one directly compares to another. Surely the only real arbiter of what value the world puts on us is the market. As R. L. Stevenson so rightly remarked, "Every man lives by selling something." Or at least, they did before the welfare state made fecund idleness a good little earner.

My favourite comment was from Japan, by Shintaro Tominaga

Socialists are all over the world.

But here is the real secret that young Colin does not get: employees in privately owned companies do not reveal their true salary to their co-workers, nor to peers working at a competitive business, not even at an industry cocktail party to strangers. 

Why not?

Privately owned business is very different from Public employees who get their salaries paid for by tax revenues. Salary scales are not simple and Government regulations mess up the free market and suck up time that should be spent on keeping a business strong. 
In Private Equity, I am observing how Canadian business owners are finding out it is not so hard to do business in other countries with more attractive environments for business owners.

 So, what do you think? Ought employers to be made to reveal everyone’s pay? 

How Business is under attack by Government

Have you a local bakery which puts out samples, enticing you to actually try Rosemary Olive Flatbread or that strangely coloured spinach pasta? Do you see the same, cheerful staff ringing up your purchases over the years? Can you stroll around, discovering new food while picking up your usual frozen shepherd’s pie and French bread? Is your experience one of welcome and comfort, so different from the larger supermarkets? What is the value of small store, neighbourly stores that offer a taste of Paris style shopping?

I have spent money for over a decade at this pleasant collection of cramped stores, voting with my money that they deserve their spot on Yonge Street I am sure that Longos and Lablaws (both family owned big stores) must covet.

It made it particularly distressing to see the plump, dimpled bakery lady’s face crumple as she told me about the bakery’s plastic bag debacle. 

Turns out the Toronto’s mayor, Rob Ford, wants the plastic bag 25c charge to discontinue, and this was reported in the media. The result is confusion as many shoppers and store owners believe that it has been dropped, but turns out that laws quickly put in place are not so easily repealed. This bakery does not have a compliance officer or lawyer on staff; checking out legislation is expensive. How many loaves of bread does a  bakery need to sell to ask a lawyer 's counsel on whether they must continue to charge 25c, particularly when the media reports the mayor saying no more charges?

This is where the true horror story begins – a customer of the bakery snitched on them to City Hall for not charging 25c. 

Worse than Agent Smith, a government bureaucrat posed as a customer in order to entrap this store. Then a fine was charged, a significant amount of money compared to the bakery's profits.

Is this Russia where neighbours snitched on each other? 

Is this Zimbabwe where the government imposed bread prices and government thugs terrorized store owners?

No. This is Toronto the Bland, Toronto the Good.

Was this snitching and government interference over 25c bags a matter of concern for a global warming, Al Gore lover wanting store owners to snap into line over being green? Was it the City of Toronto Rob Ford haters just in for a dig to make him look bad? Or is it just a do-gooder making sure everyone follows the rules?

Whatever the reason, this snitching is terrible. Our our risk taking, hard working merchants do not need to be frightened. 

This bakery lady was more upset that a customer had snitched. Imagine the feeling of knowing a customer has snitched on your business, that government bureaucrats pretended to be a customer in order to levy a fine, that not charging 25c cost you thousands of dollars. 

When you have a bad business day, will you be able to carry on in business, or will you be just that bit more to close down? Snitching casts a terrible pall over a store and reduces the "animal spirits" required to run a business - that optimism. 

Finally, will the bakery owner continue to be generous to the customers and put out a new cheese for them to sample – meh - not this week.

And there goes the neighbourhood.

Steve Jobs - First Day at Home

Hilarious screen shot of Steve's activities - wonder how they hacked that? I particularly like the person being used as a dartboard. Very subtle!
Read the diary...

Bernanke vs Jobs - Who created more jobs?

With Steve Jobs announcing his withdrawal from Apple, a rush of Apple nostalgia took over Twitter and the blogsphere. Looking back over the past 40 years, it is dazzling to review how much Jobs contributed to the big dream of business with products, marketing and sheer design, never mind the unique style of his turtle neck and jeans. For those who never knew the IBM suit, they do not get the extreme irony and ballsy marketing genius of how Jobs signalled that Apple was not a faceless, uncaring corporation. 

Jobs is the epitome of Capitalism, the Ford of our day.

Steve Jobs managed to achieve irony with his retirement coming a few days before Ben Bernanke’s speech on US jobs, which many supporters of big government continue to believe creates the wealth of a nation. 

Here is a superb column by Peter Foster talking about this very contrast – Jobs, the Capitalist and Bernanke, the Government.

U.S. Federal Reserve chairman Ben Bernanke invited a fundamental question: where do jobs come from: Macworld or Macro management? Are both necessary, or does the latter in fact hinder the former?

Mr. Jobs retires having created a company that vies with ExxonMobil for the position of most valuable corporation in American history, with a market value of more than US$300-billion and 50,000 employees. It is indirectly responsible for hundreds of thousands of jobs elsewhere, from Korean computer chip manufacturers through high-street retailers to app developers. It also supports many unproductive — if arguably necessary — jobs in the public sector, from regulators through revenue collectors to, well, the chairman of the Federal Reserve.

The great French economist Jean-Baptiste Say coined “Say’s Law,” which points out that what brings forth production can only be the production of other items. It was the wages Mr. Jobs paid directly and indirectly as part of his productive activity that created — and continues to create — demand. However, if you believe the claims of Keynesian policymakers, although Mr. Jobs and his ilk might be useful “animal spirits,” when times are rough, jobs have to be created from above. Apple will then thrive, or at least continue to exist, not because of Mr. Jobs and his sensational products, but because the government will send people down to the Apple store “with money in their pockets.” The implications of the fact that this money must be either taxed, borrowed or printed tends to be ignored or glossed over. After all, in the long run, we are all dead.

In fact, Mr. Jobs’ amazing concrete achievements contrast markedly with Mr. Bernanke’s vague hopespeak at Jackson Hole on Friday. The one genuinely bright note in the Fed chairman’s speech was that price stability remained a top priority. That is likely why North American markets responded positively. Then again, the fact that gold also rose suggested that gold bugs were concentrating on his suggestion that he still had inflationary “tools” at his disposal, although these had to be boxed for the moment.

Mr. Bernanke’s claim that “long-run prospects for the U.S. are undiminished” made little sense, because those prospects depend entirely on the outcome of the political battles now taking place in Washington, which will culminate in next year’s presidential election.

Mr. Bernanke invoked the vague notion of “putting people back to work,” as if work was some undifferentiated lump of stuff that arose out of employment statistics rather than the result of specific jobs created by entrepreneurs in pursuit of profit. He suggested that policymakers shouldn’t leave productive resources “fallow,” as if those resources were, again, macroeconomic blobs that merely needed the application of government electrodes to jump to useful life. Housing? What was needed was “good, proactive” policies. He also projected adjectival success for European policymakers, who would take the “necessary and appropriate steps.” 

This is all wishful thinking and macromancy. 

If you want to know where jobs come from, look at the record of Mr. Jobs. Apple’s success is based on his relentless drive to produce new and/or superior products, from the first Apple computer, which he developed in the proverbial garage with his partner Steve Wozniak, through the Mac, the iPhone, the iPad and offshoots such as iTunes and Apple stores. During a period away from Apple, Mr. Jobs built animation wunderkind Pixar and sold it to Disney, of which he is now the largest shareholder.

I particularly appreciated Peter Foster's ability to try and show people why there are business leaders - they just keep trying. Jobs got fired from his first company, Apple, in a public manner. He was like the Phoenix rising from the ashes and he succeeded in returning to his first company and taking it far beyond anything its finest engineers' dreams. 

I do believe being a business founder and operator draws a great deal from health and long term survival of leading business people. So many of the best people seem to go early.