A Wednesday thought – a case for corporate profits on the left

In the last week, the election campaign has focused on which of the two main parties are the better prospect for “business”. I use the term in quotation marks because it is such a broad term with many aspects, that anyone can almost mean anything by it.

The focus has been on a small number of Conservative-cheering chief executives come out and in a shock move that took everyone by surprise criticising Labour. In some cases the attacks on Labour were more vicarious as the criticisms were more directed against Ed Miliband.

Needing to save political face, Ed Balls was sent off to the Newsnight studio where he made a bit of a mess of things. Now while there is a very good case for saying that today’s Labour party is far too far to the political right, they remain further to the left than the Tories, even if that has as much meaning as saying that a place is further south than Greenland.

So here’s my attempt at making a case, from a left wing perspective, for why companies should be making profits.

The core of the case has to be that for a civilised, progressive country that looks after its young, its elderly, its sick, its disabled, its unemployed, its homeless or any other vulnerable group, there has to be a guaranteed provision for them. By being a guarantee, this means that the charity of the wealthy cannot be relied upon. For too long there has been a meta-narrative of the “deserving poor” when what is needed is social justice that, like legal justice, is blind to any impediments or prejudice.

Such a guarantee is a costly thing and it needs to be funded. This is where companies can make their contribution. By making profits, which are then taxed fairly, sufficient funding can made for every necessary public service. The main obstacle to this is neoliberal trickle-down ideology that insists, contrary to evidence, that the private sector, subject to market forces, is best placed for the provision of services. Once this false idol can be slain, then the tricky job of balancing the books comes first with a forecast of what central costs will be in the coming years. Then one can determine how much tax needs to be raised (though given the huge cost of the bank bail outs, an over recovery is needed) in order to recoup the costs.

But if companies are not paying sufficient tax then we will continue to run a budget deficit, funded by ever increasing debt. Such has been the case for the last 6 years.

Therefore, one of the major contributors to the public purse has to be corporation tax. The two main obstacles to this are tax avoidance and not having sufficient (un-avoided) pre-tax profits from which tax may be paid. So there are two prongs to using corporations to help fund public services, but they are not mutually exclusive.

This why many on the political left have made such a big deal out of tax avoidance. From the current corporate mindset, though, tax is seen merely as an expense that should be minimised. In this regard, what is needed is a change in the mindset, so that tax is seen not as a burden but as a contribution to the society in which the corporation is based.

The factor that the left is less noisy about is the fact that in order to be able to pay tax, companies must be allowed to make pre-tax profits. The difficulty that this brings for the left is that the cause of profits is generally attributed to some combination of over-charging customers or exploiting workers. If one accepts this premise, then it cannot be morally right for any company to make profits but the consequence then is that there’s insufficient funding for public services. If one is to then make a moral case for profit-making activities then the two-fold premise of profit creation must be brought into question. In other words, can a company pay its employees a reasonable wage, charge its customers a fair price for its goods or services and still turn a profit?

If the answer to this is ‘no’, then reducing loopholes that allow for tax avoidance is meaningless since, if all loopholes are closed, we would only seek to then go on and eliminate the existence of profits that could be taxed in the first place.

Therefore, I contend that profits are necessary. Whether they are regarded as a necessary evil is certainly a point that could be further debated. And, of course, what constitutes a reasonable size of profit could also be debated, hopefully in relation to the size of revenue of the business but without falling into the financially naive trap of trying to make a point of rhetoric based on “Co X had £Y of revenue but only paid £z in corporation tax”.

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