Welfare to the rich

Small business owners must manage cash flow as if it was a river of gold. COLIN BENJAMIN

By Colin Benjamin

As we sit in front of the telly waiting for the US pollies to cave into the pressure from yet another ex-Goldman Sachs financial executive (Paulson) and yet another (Turnbull) telling the PM in Australia to interfere with the free market operations of the banks, it is interesting to note the views of Chicago Business School Professor Luigi Zingales.

“The financial industry is well represented at all the levels. It is enough to say that for six of the last 13 years, the Secretary of Treasury was a Goldman Sachs alumnus…. The decisions that will be made this weekend matter not just to the prospects of the US economy in the year to come. They will shape the type of capitalism we will live in for the next 50 years.

“Do we want to live in a system where profits are private, but losses are socialised? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behaviour is penalised and prudent behaviour rewarded?”

Small business owners must now prepare for a global slowdown and manage cashflow as if it were a river of gold. The consolidation of the greedy into the giant remaining capital intense banking structures ensures that the lenders are going to be reluctant to role over debt, finance new enterprise or cut their bonus payments. Consumer and business confidence (except recently in the US where hope springs eternal that Congress will come charging to the rescue of the big financial institutions) continues to plummet around the globe. 

All the attention of the media appears to be on saving the bonus (bogus?) contributions for managers of large scale financial institutions that created the current crisis rather than building a foundation for the true job creators that create market confidence.

As Nick Kristof has pointed out, the Institute for Policy Studies in Washington estimates that US taxpayers every year provide more than $20 billion in tax subsidies for executive pay. Among the strongest critics of inflated executive pay have been Warren Buffett and the late management guru Peter Drucker, who argued that CEO salaries should peak at no more than 20 or 25 times those of the average worker. (Last year, United States CEOs got an average of 344 times the wages of the typical worker.)

The policy of welfare to the rich and famous, cut backs in job creation and increases in casualised employment that leads to further reductions in home construction and the release of more funds to the large financial institutions will unfortunately be likely to continue in the next couple of years.

Populist calls for more money for single pensioners, cuts in bank profits and a return to the beggar-your-budget Senate porkies are no substitute for a considered statement on the future of innovation and entrepreneurship from both the Government and its ever loyal opposition.

A starting point would be a commitment to provide a substantial venture capital credit system that provides a measure of security to the superannuation funds that have large shares of our funds in hand and to the managers of the futures funds that have a similar lock on our budget surpluses.

The Ken Henry taxation review needs to put out a Green Paper that invites consideration of its blueprints for a more creative and outgoing approach to Australian enterprise and show that it is not afraid to carve into the subsidies for non-productive market manipulators.

Another step would be to fund some of our universities to develop Small Business Entrepreneurial Institutes to generate sustainable prosperity through environmental restoration projects and design of renewable energy solutions.

It is time to bring back the Australian diaspora of highly competent professionals and business operators who lack incentives to come home and share their knowledge, skills and experience. Then we might also see some genuine bipartisan concern with restoring the liquidity and growth prospects of medium scale manufacturing industry that can demonstrate a capacity for import substitution and providing the VET sector to expand emerging exports based on Aussie ingenuity.

Finally, before going over to turn off the telly, it might be good idea to think of ways in which the family business can learn from Warren Buffett – stay close to your customers, manage for profitability and cashflow, and think long term rather than focus on the immediate political environment.

The worst may be over for a couple of months but the best will only come when there is a genuine interest in fostering entrepreneurship and enterprise.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton. 

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