Open Economy: Let’s demand more from business agents

07 Feb, 2016 - 00:02 0 Views
Open Economy: Let’s demand more  from business agents

The Sunday Mail

Governments worldwide have to deal with the pressure of satisfying the demands of business agents. In certain circumstances, such demands can be uncompromising.
Governments must offer what are perceived as enabling business environments with marginal ease of doing business in comparison to other jurisdictions which business agents may alternatively choose to take their operations or relocate to as their domicile.
Arguably, no time before in modern economics has the World Bank Ease of Doing Business Index been such an authority of reference for interpreting ideal business friendly macro-economic structures.
Accordingly, numerous governments have taken to benchmark their structural discretion to this index.
To a greater extent, the metrics used by the WB index, along with traditionally conventional notions of business friendly structures, are correct and cannot be discredited.
For instance, legal environments of business must be efficient and safeguard vested business interests, as well as sanctify the means of resolution if conflict does arise.
Power and infrastructure availability undoubtedly enhance business operations and create foundations for growth.
However, the emphasis on governments to create business friendly environments in recent years has become increasingly vulnerable to vagrant behaviour by business agents using “game theory” on governments that are sincerely looking to attract businesses into their jurisdictions.
Game theory in this context is when business agents strategically wonder around jurisdictions with the intentions of prescribing competing governments to offer regulatory structures that optimise the interests of business agents.
This is most commonly targeted towards tax legislation and labour laws.
For instance, in the last year,huge companies such as Pfizer and Medtronic have threatened to leave the United States on the premise of high tax regimes; pursuing what are called inversions where an entity changes its domicile, making it citizen to a new tax regime.
Multi-nationals apparently owe back taxes to the United Kingdom of nearly US$1 billion from over the last decade.
But these governments have been submissive to the demands of business agents, hence lax in enforcing their authoritative mandate. Their passiveness has yielded to the aforementioned notions of providing competitively business friendly environments.
Under the existing order of economic size and appeal, when governments of larger economies compromise to such extents, smaller countries either cannot compete in tax enforcement; thus derive minimal fiscal gain from having companies set up business, or these smaller countries are simply not expected to raise louder authoritative voice to companies on the logic that they offer smaller economies anyway.
In effect, the pressure of “business friendly” can easily confine smaller countries to a situation of choosing lesser losses.
Within this context, perhaps we can start a global conversation that interrogates the actual returns derived by countries to warrant their governments going to such extents to create business friendly environments.
It is inadequate to ask governments to structure their economies in a manner that creates potential for corporate profits, yet governments achieve so little in return from benefiting business agents; elected governments in this case being representation of the socio-economic desires of respective citizens. Business agents have continuously argued that they create employment.
However, globally, most regions are experiencing prolonged stagnation.
Regions with data tracking back decades actually show steep falls in real wages. That could mean that as countries have improved their ease of doing business, the quality of employment offered by business agents has actually decreased. Moreover, through corporate pressure for friendlier business environments, labour unions have significantly lost bargaining power in many regions.
Business agents have also argued that by retaining greater profits after tax, they then have enough capital to reinvest into economies. Again, over the last decade, while that argument remains theoretically sound, it has become increasingly questionable in practice!
In a world where cash reserves have never been higher, currently at over US$2 trillion, global investment by companies has been subdued. Instead, corporate executives have created the theme that Europe, for instance, does not offer possible returns for investment.
In the US, retained profits mean stock buy-backs.
In emerging markets and Africa, just last year alone, we saw over US$735 billion in capital flight. Many companies that had promised to set up green field projects on the continent have opted to put those plans aside.
So, as more nations have improved their ease of doing business worldwide, the returns derived by their economies do not match idealist expectations.
While global profits are at an all-time high and ease of doing business globally at its more improved, in most of the world there is chronic recession or anaemic growth at best.
Perhaps business agents are not doing enough after all.
A lot of schools of thought are marginalised from mainstream economic discourse through compartmentalisation. Compartmentalisation is grouping thoughts so as to easily label some in a manner that exposes them to intolerance and dismissiveness by economic observers.
Compartmentalisation is a psychological defence mechanism that protects dominant schools of thought from alternative viewpoints.
Like many business agents around the world, I suspect that business agents, already conducting or looking to enter Zimbabwe, have become compartmentalised in the conventional school of thought of “business friendly” and ease of doing business.
Many of these business agents conform to the superficial notions of business friendly that I have described above; taxes are not good, labour unions are a burden, and other ease of doing business notions.
This compartmentalisation has made many business agents intolerant and dismissive to notions that ask for more from companies!
I would argue that such a superficial, but loyally kept stance is what has largely influenced a hesitance towards receiving the Indigenisation and Economic Empowerment Act.
Why else would many business agents disagree with legislation that they have not looked at to distinguish from superficial connotations of “business unfriendly” or “burdensome”?
Admittedly, the law lacks clarity in certain aspects.
However, outside of the predominant ownership context, within its frameworks and regulations are understandable and ample opportunities for companies to do more for the economy, all the while being offered reward for it!
If only our business agents gave it a thought to look.
If one is agreeable to my chosen narrative that an imbalance between Government enablement and complimentary contribution from companies, then one can perceive the IEE Act as offering potential solution to this unsustainable problem.
For instance, empowerment credits for contributing to vocational training and human development programmes are a mechanism to enhance labour-force competence and readiness to be valuable human capital for our business agents. Linkage and outsourcing programmes have a mutual benefit of connecting suppliers or contractors to companies that may otherwise have to join costly value chains.
Empowerment credits offered for technology transfer to communities actually expand markets for companies which require their consumer base to access their products on new platforms of market interaction.
It is time to see the Indigenisation and Economic Empowerment Act in a light that is supported by the dire global outcomes of governmental hesitation to demand more from business agents.
It is a law that aims to create greater balance between government enablement and business agent contribution; thus creating a more sustainable economy. However, as criticised as Government has been over the last few years, it is due compliments for choosing to incentivise greater business agent participation by actually offering reward to do so!

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