the times | Monday June 13 2022 39

CommentBusiness

Only by focusing on profit can

business deliver human progress

Ben & Jerry’s plans to

halt sales of its popular

ice cream in Israeli-

occupied territories

B

ritain is experiencing its

tightest labour market in

nearly five decades

because many workers

have left the jobs market.

Latest figures from the Office for

National Statistics suggest that

overall economic inactivity rose by

522,000 people from October to

December 2021 compared with

those months in 2019, immediately

before the pandemic.

Of those, about 493,000 were

aged 50 or over. The statistics office

further reported that while some of

them had given up work because of

long-term illness or the need to look

after family members, presumably

in many cases suffering from Long

Covid, the reason offered by most

was retirement. Up to 221,000

people aged 50 or over gave this as

their reason for leaving the labour

force.

This is particularly striking

because it reversed a trend,

established in the decade before the

pandemic, in which a bigger

proportion of workers aged 50 or

over remained in the workforce for

longer.

Writing in these pages last week,

David Smith speculated that with

nearly three million over-50s

furloughed, the pandemic had given

many of them a chance to rethink

their lives, and he added: “Being on

furlough convinced some that

retirement might not be such a bad

thing.”

To retire at such an early age,

though, somebody must be sure that

they will have enough to live on.

Here, the ONS provides more clues,

via a breakdown of the previous

occupations of the workers aged 50

to 70 to have dropped out of the

labour force since the pandemic.

They are more likely to have been

educated to degree level and, given

their age and career background,

more likely to be men.

The biggest groupings were

professionals and associate

professionals and those engaged in

“professional, scientific and

technical activities”. In other words,

just the kind of people to have

accumulated sufficient savings on

which to retire and, in all

probability, well-supported by

generous final-salary pensions.

Nearly a quarter of those leaving

professional occupations for

retirement told the statisticians that

their savings had increased since the

pandemic.

This has huge implications for the

economy. First, it has stoked wage

inflation in many of the roles that

such workers previously held, since

it has created labour shortages.

Second, it hurts the country’s

already dismal productivity record,

because these workers were, on

average, more productive. Third, it

hurts the Treasury, because many of

these workers were relatively high

taxpayers.

Yet not all of these early retirees

will have been wealthy professionals

with plenty of savings. It is likely

that another contributor in this rush

to retirement will have been the

pension freedoms enacted by

George Osborne in 2015 that

allowed anyone aged 55 or over to

access their pension pot(s) while no

longer having to buy an annuity

with the proceeds. The sums

accessed to date are not trivial.

Sadly, HM Revenue & Customs has

stopped publishing regular data on

pension withdrawals, but the last

figures, published in April 2021,

revealed that more than £45 billion

had been accessed since 2015. Much

of that is likely to be financing these

early retirements.

The longer consequences of this

are unknowable. Pension freedoms

remain an experiment in this

country, but evidence from

Australia, where similar measures

were introduced nearly 30 years

ago, suggests that half of all people

accessing their pension pots ran out

of money in the first 15 years. If the

same thing happens here, nearly

seven years on from pension

freedoms, many of the people who

exploited them to take early

retirement could find themselves

drifting back to the jobs market

during the next decade or so, poorer

but perhaps wiser.

Matthew Lesh

Ian King

customers but also from policymakers.

Milton Friedman, the Nobel prize-

winning economist and a key

proponent of shareholder capitalism,

warned that corporations that sought

to pursue socially desirable ends

“would destroy a free society”. He

argued that executives had no

authority or ability to decide what was

beneficial. “If businessmen are civil

servants rather than the employees of

their stockholders, then in a

democracy they will, sooner or later,

be chosen by the public techniques of

election and appointment,” he warned

in Capitalism and Freedom, first

published in 1962.

Friedman therefore would not have

been surprised by the Labour Party’s

proposals in the last general election

to reform the Companies Act. John

McDonnell, as shadow chancellor,

proposed creating a duty on directors

“to promote the long-term interests of

employees, customers, the

environment and the wider public, as

well as shareholders”.

The proponents of stakeholder

capitalism often paint critics as

heartless, caring only about the

bottom line. But this misses the point.

It is by delivering a profit that

companies are able to provide high-

quality, innovative products to

customers, returns to our pension

funds, wages to workers and taxes for

public services. It is this free market

system that has been central to

delivering two centuries of immense

human progress, helping to lift billions

of people from abject poverty.

The past few years demonstrate that

the social good of business is well

aligned with profit-seeking.

Throughout the pandemic, companies

kept food on the shelves in difficult

circumstances, developed innovative

tools that enabled us to connect and

work remotely, provided a plethora of

entertainment services and delivered

life-saving vaccines.

Now we need enterprises to keep

down costs, strengthen supply chains,

make investments and develop

innovative products to solve the

world’s challenges. None of this will be

achieved by lecturing the public or PR

stunts, but by

focusing on business

fundamentals and

ensuring good

returns.

Ben & Jerry’s is an

unashamed political

actor. Last week the

ice-cream maker

described the

government’s plan to deport refugees

to Rwanda as “ugly”. In February,

before the start of hostilities, it

declared that sending weapons to

Ukraine would “only fan the flame of

war”. The company is intending to

cease sales in the West Bank by the

end of this year.

Such activism sits well with

Unilever, its parent company. In 2019,

Alan Jope, the chief executive,

declared that “every Unilever brand

will be a brand with purpose”. The

company is a standard-bearer for

stakeholder capitalism, the idea that

companies should focus less on profit

(shareholder capitalism) and more on

workers, communities and social and

environmental issues such as climate

change, racial justice and feminism.

Unilever, busily finding a “purpose”,

seems to have become distracted,

performing poorly compared with its

rivals. Shareholders aren’t happy. “A

company which feels it has to define

the purpose of Hellmann’s

mayonnaise has in our view clearly

lost the plot,” Terry Smith, the

investor, said in January. Nelson Peltz,

an American activist investor, will be

taking up a seat on the Unilever

board. Peltz’s mantra contrasts heavily

with Unilever: “Sales up, expenses

down.” Unilever has begun cutting

staff and restructuring.

This turn of events may just mark

the high-water mark of stakeholder

capitalism. In the past, proponents of

this version of capitalism argued that

it would deliver greater profitability by

winning brownie points among

customers and staff. But, as the

Unilever case demonstrates, it is

distracting from profit-making,

increasingly divisive and

counterproductive.

In the United States

Ed Rensi, former chief

executive of

McDonald’s, has

launched The

Boardroom Initiative

to push back against

politicised companies.

“Corporations have no

business being on the right or the left

because they represent everybody

there and their sole job is to build

equity for their investors,” Rensi, the

inventor of the McNugget, said. The

initiative will use shares in companies

to advocate for a change in approach.

Last month Vivek Ramaswamy, the

biopharmaceuticals entrepreneur,

launched an “anti-woke” investment

fund designed to compete with

BlackRock and Vanguard. There have

been backlashes against the likes of

Disney, which is losing a special tax

status in Florida after angering Ron

DeSantis, the Republican governor, by

taking political stands.

In Britain, shareholders are also

pushing back against companies that

are not focused enough on profits.

Foxtons, the estate agency, has been

accused of trying to hide declining

profits (during a real estate boom) and

of big executive remuneration in

“snow-flakey” rhetoric about

environmental and social issues.

Angry investors have succeeded in

replacing Foxtons’ management to get

the company back on track.

There are also signs that the public

is becoming exhausted by the

bombardment of political messaging

from companies. A report from

Brunswick last year found that 35 per

cent of voters believed that companies

should speak out on income

inequality and race relations,

compared with 63 per cent of

corporate executives.

Corporate managers should take

note. They are clearly doing

themselves and their companies no

favours by diminishing the importance

of profit. Executives who fail to focus

on profit are being derelict in their

fiduciary duties, misusing the funds

entrusted to them by investors to

pursue their own goals. By

sending the signal that

they are embarrassed

by the idea of a

profitable

enterprise,

executives risk

undermining

the entire free

enterprise

system.

The

consequences

of diminishing

the importance

of profit will come

not only from

shareholders and

‘‘

’’

Ian King is business presenter of

Sky News. Ian King Live is broadcast

from 10am-11am on Sky News,

Monday to Friday

Over-50s are retiring in

droves, but will they be

forced back into work?

‘The trend has stoked

wage inflation, hits

productivity and hurts

the Tresury’s tax take’

Matthew Lesh is head of public policy at

the Institute of Economic Affairs

making,

d

sending the

they are

by the

profi

ent

ex

un

th

e

sy

co

of d

the i

of prof

not only

shareholder