Not a Pound Of Flesh

The quality of mercy should never be strained, and businesses need to balance ethics and profitability. 

 

Listener: 30 June, 2007. 

 

Keywords: Business & Finance; 

 

The cause of Folole Muliaga’s death after a contractor for Mercury Energy cut off the electricity supply to her household remains uncertain, but the tragedy reminds us that business operations can be damned heartless. Which was the point of the protest outside Mercury’s head office, when people held up signs saying “Profits Before People”. 

 

Is it that simple? We live in an increasingly complicated economy, which we co-ordinate through the price system. We know of no alternative that deals as effectively with the complexities. (The planning mechanisms of the Soviet empire broke down as their economies became more affluent.) 

 

The price system rewards risk and innovation (as well as saving). We know of no better way of dealing with risk and innovation: government bureaucracies do not do it at all well. 

 

But should we treat the price system as a means to an end? As Humpty-Dumpty might have said, “The question is, which is to be master?” Which was what the protesters were asking: society or the economy? 

 

That is why there are restrictions on business enterprise. In the case of cutting off power, there existed a set of guidelines of which apparently few, if any, electricity supply authorities took notice. It may be wrong to condemn Mercury alone. Another company could have cut off a poverty-stricken household’s electricity in similarly tragic circumstances. 

 

The guidelines may become regulations. Perhaps someone will mutter about the additional compliance costs. They should be considered as a part of checking that the regulations are effective, not – as sometimes occurs – an argument for business to be master. 

 

Such regulations do not resolve the wider problem. Other vital supplies also need attention – apparently the Muliaga family had their telephone cut off, too. Businesses may be heartless now, but they could be made responsive. Sure, if it is in their interests, businesses will be socially and environmentally sensitive, but we can also set up a regulatory framework against the times when they are not. 

 

While businesses are not human and cannot be ethical in the human sense, we can demand that their employees are. Every business should be required to have a policy of expecting all its staff (and subcontractors) to maintain the highest ethical standards, even if that compromises profitability. However, for the price system to work in a socially acceptable way, people must have adequate incomes. It would be intrusive to speculate on the Muliaga family’s finances, but we know they were a two-earner family cut back to one income because of her sickness. 

 

Many families find it difficult to adjust to such sharp income reductions. While employers may provide some sickness cover, it is usually only for the short term. A family with a second earner does not even qualify for a sickness benefit – a residual leftover from the days when social policy encompassed only one-earner families. 

 

So there needs to be a better form of publicly provided earnings-related sickness (and unemployment) cover, perhaps not as generous as ACC, but one that gives families the opportunity to adjust to longer-term circumstances. 

 

Yes, there will be compliance costs – we need to make sure any scheme is effective -– but without something to meet these transitional needs, our price system fails to serve people as well as it might. 

 

The first article I ever studied about the price system was a rigorous, lucid analysis in which there was no income redistribution. It observed that there would be people with insufficient income to survive. So the writer bleakly proposed that these people died off, and then derived some elegant and insightful theorems about the survivors. 

 

Tjalling Koopmans, who was later awarded a Nobel Prize in economics for this work, was not an inhumane man – far from it. Rather he was deliberately confronting us with the brutality of the price system if it is master and not servant. It is a lesson that this student has never forgotten and it is why I am so insistent that an economy based on prices and business must have a fair distribution of income.