Businesses and SMEs - Motion to Take Note

Part of the debate – in the House of Lords at 12:56 pm on 6th July 2017.

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Photo of Lord Fraser of Corriegarth Lord Fraser of Corriegarth Conservative 12:56 pm, 6th July 2017

My Lords, I thank my noble friend Lord Leigh of Hurley for the opportunity to discuss his carefully worded Motion. I feel that recent political events—in particular the wit and wisdom of the sage of Glastonbury, otherwise known as Jeremy Corbyn—have rather blindsided people like me, who not only believe in capitalism and democracy but who thought that the wars of the 20th century between open society and command economies had long since been won by the former, and the arguments put to bed. Any child of the 1960s will have vivid memories of the narrow escape we had from, on the one hand, rampant populism and, on the other hand, communism. It is therefore with a considerable feeling of surprise that I find myself having to propagate the advantages of a system whose benefits I had thought were self-evident.

I am taking the terms of reference of the debate as alluding to the private sector. The primary issue that arises in defending the private sector is the question of profit. Private or non-state companies were originally set up to make profits. To some extent, the goods produced for public consumption were seen as incidental to the overriding need to make a profit. State organisations, on the other hand, were set up to provide a specific benefit: for example, the National Health Service, the legal system and a free education. It was then up to government, local or national, to provide the money to pay for this good. Normally, one would not go back to first principles in describing all this, but recent events make it worthwhile reminding oneself of the basis of the distinction.

So we need money to pay for the National Health Service, education, the legal structure, the Armed Forces and, increasingly, the benefit system. Where does this money come from? Taxation. Of course employees of the state also pay tax, but the main funding of tax comes, directly and indirectly, from business. Business, therefore, is the sector that makes the cake, the division of which is the source of so much argument and friction. Without profits and dividends there would eventually be no cake.

By virtue of its requirement to make profits, business is the best method of allocating resources. Many mistakes are made in this allocation process, but it is difficult to see where innovation is going to arise if not through business investment. There are exceptions—military invention is one—but the uses to which business innovation is put tend to be benign, while internet hacking, malware and interference with computer programmes bear all the hallmarks of state or military activity.

Closely allied with investment is research and development. Without money or profits, it is not feasible to engage in R&D. The vast majority of this activity occurs in private business and is geared to the convenience of, or better services for, consumers. In terms of benefits to mankind, new drugs and biotechnology—in short, medical innovation—contribute the most.

Business also provides an important social function. People like to get out of the house, to mingle, sometimes to go abroad, and certainly to meet others of widely differing social and intellectual interests. That is what Dr Johnson was referring to when he said:

“A man is seldom more innocently employed than when he is making money”.

The social benefits of the existence of a business culture are legion.

Commerce, when properly regulated, brings enormous benefits to particular geographical areas. The advent of Nokia, for example, transformed Finland. Where would Australia be but for the exploitation of its mineral assets? This may be compared to Bangladesh, whose minerals, particularly oil assets, are regarded as national treasures and never to be touched. On a more humdrum level, commercial activity—be it merely the village pub—fulfils an important social function.

The next benefit I wish to mention is the spreading of wealth. Between 1939 and 1979, tax rates were confiscatory. This suited both the far left, for obvious reasons, and the far right because it became impossible by legal means to improve your social status, thus certain people who owned land or good property or yachts were in an unassailable position. The lowering of tax rates by the Thatcher Government of the 1980s spread wealth both by freeing so-called animal spirits, allowing people to take risks with a reasonable chance of reward, and by allowing business to invest with a decent chance of success. The result was not only a huge rise in prosperity but a major spreading of wealth, at the top—as catalogued by the Sunday Times rich list—but, much more importantly, all the way down the financial scale, allowing, for example, the purchase of labour-saving devices, TVs, cars, holidays and so on.

As I said at the beginning, I thought that all the foregoing was effectively self-evident, but it seems timely to ram home the arguments for a free capitalist society, dependent on business activity as opposed either to the North Korean dictatorship model, the Cuban command economy model or even the Venezuelan chaos and shambles model so favoured by the Leader of the Opposition.

I hope the House will forgive me for restating what many would regard as obvious but it seems that in this country there is an internal threat to our way of life and that we need to restate—at least for the benefit of those under 30 years of age—the advantages of the system that we hold dear.