Uphold Values, Rebuild Wealth

This article from the Winter 2020 edition of the IPA Review is written by IPA Director of Research, Daniel Wild.

As the tide of the pandemic and government-imposed restrictions in Australia has finally begun to recede, it is clear the effect has been anything but even across our society. The private sector—the engine of our prosperity—has suffered a greater negative impact than the public sector, and within the private sector it’s small businesses and sole traders bearing the brunt of job losses and closures.

If our corporate sector is able to survive the lockdown and then thrive as we emerge from recession then that is a good thing, but if we do not pay attention to the state of our small business sector and the middle class it sustains then we risk the health of our society and our democratic way of life. At worst the lockdown will permanently disfigure Australia’s institutional make-up.

More people will be out of work and on government benefits, the size of government will be bigger as will gross government debt, and—having witnessed that what they have built up over years can be torn down in days—Australians are likely to become far more risk averse.

While some large corporates such as in the aviation and tourism sectors have incurred substantial losses, many have not only been shielded from the worst effects of the lockdown but have actively benefitted from it. Examples include big tech companies through the move to working from home and using technology such as Zoom and Microsoft Teams, the major supermarkets through food delivery services, Amazon through demand for home retail delivery, large fast food chains which are relatively well capitalised and can better manage social distancing requirements such as through the provision of drive-thru services, and streaming entertainment providers such as Netflix.

At the same time, small businesses on local main streets have either stopped operating entirely or significantly truncated their services. Some small establishments such as restaurants and cafes have been legally allowed to continue operating but in a heavily distorted manner; for example, only by being able to provide take-away services. While businesses which provide services that could not be altered to adhere to social distancing requirements, such as gyms and beauty salons, were forced to close.

The limited data which is so far available supports this observation. Data from the Australia Bureau of Statistics (ABS) shows that 61 per cent of small and 60 per cent of medium-sized businesses reported having registered or intending to register for the JobKeeper wage subsidy payment, compared with 45 per cent of larger businesses. And as early as 30 March, only two weeks after domestic restrictions started to come into effect, eight per cent of small businesses (0-19 employees) had ceased trading because of the COVID restrictions, which is around 181,600 businesses.

Small business aspirations to build for the future should be celebrated.

It would be a mistake to suppose the small businesses which closed will simply reappear once restrictions are lifted. Crises tend to expedite existing trends rather than create new ones. Small business formation and the proportion of Australians employed in a small business have been declining for many years now.

Research prepared by IPA Research Fellow Kurt Wallace based on ABS data estimated that the percentage of all workers employed in a small business (20 or fewer employees) has declined to 44 per cent in 2018, down from over 50 per cent a decade earlier. Meanwhile, the percentage of workers employed in a business with 200 or more employees has increased from 27 per cent to 32 per cent. Mr Wallace also estimated that in the year 2000, 20 per cent of total employment was comprised of owner-managers. But that rate dropped to just 16 per cent in 2018. Owner-management rates provide a good proxy for entrepreneurs by showing the proportion of workers who run their own business.

It is a common refrain that small businesses are the backbone of the economy and local communities, but when trends are against it is the time to re-examine and enliven this notion. This is necessary to counter the view that a job is a job whether it be at a local hairdresser or a global accounting firm (or indeed a job in a listed chain of hairdressing salons).

We also need to consider the aspirations which give rise to small business formation, then to thrive and to grow, and to build something for the future. Such aspirations should be celebrated.

SMALL BUSINESSES AND THE AUSTRALIAN WAY OF LIFE

Big businesses are not simply bigger versions of small businesses; they are categorically different. And an economy, society, and nation dominated by many small businesses will be categorically different to that which is dominated by few large businesses. Small businesses are not just the engine room of our economy and communities, but they are the basis of Australia’s egalitarian, liberal democratic way of life.

Small businesses are a vehicle for economic opportunity and upward social mobility, and a path to middle class life that would otherwise be closed off to many Australians, particularly those who lack formal qualifications and/or are recent migrants. Small businesses can be started by anyone at anytime and anywhere—of course, subject to government regulation and red tape. One does not need to have a university credential, to run the gauntlet of big corporate HR departments, or to be well connected, to start a small business or become employed in one.

People who own and run a small business are living breathing examples and manifestations of the virtues and qualities of the Australian way of life: hard-working, risk-taking, entrepreneurial, having a go, and creating value for others. They do not need to ask permission of their bosses or a HR bureaucrat to do something. Their unflinching interest is in their customers and the products and services they sell, as that is the only way they can survive; so they just get on and do it.

Owners of small businesses tend to have a stake in their local communities.

Small business owners also tend to have a stake in their local communities and the broader economy in a way big businesses do not. They incur the effects of regulation, red tape, taxes, and bureaucratic interference in a way big businesses do not; in part because larger businesses can afford the overhead of HR resources, lawyers, and tax accountants required to navigate myriad rules and regulations. In fact, big businesses and their lobbyist representative industry associations are so often acquiescent if not enthusiastic about government intrusion and more regulation because it keeps their smaller would-be competitors out of the market.

Small businesses in Footscray, Victoria. Photo: Shuang Li

To use the analytical framework developed by David Goodhart in his book The Road to Somewhere: The Populist Revolt and the Future of Politics, small business owners and workers are often the patriotic “somewheres”, rooted in time, place, and community; respectful of tradition; proud to be Australian; and in possession of practical wisdom and knowledge. Big business owners and workers, by contrast, are more likely to be “anywheres”: in possession of a university credential, believing in progressive liberal causes such as climate change, mass migration, and who view the customs, traditions, and habits practiced by the “somewheres” as illegitimate constraints on their personal autonomy and “self-actualisation”. Most importantly, in a highly globalised and interconnected world, the “anywheres” of big businesses feel no allegiance to their particular nation or its distinct values. While committed to liberal democratic values, their preferences are for a type of guided democracy in which experts shape public policy and supranational institutions guide the more ‘parochial’ national governments.

Goodhart’s dichotomy gets to a deeper point, which is that the composition of an economy affects the structure of society and political culture; the regime, as the ancients would say.

In an article titled The death of small business is a tragedy for Jewish community and democracy, demographer Joel Kotkin, who is Executive Director of the US-based Urban Reform Institute, argues that “throughout history, as Aristotle noted, independent proprietors have been the driving force for self-government and republican order”.

Concern for the working man drove Churchill’s support for free trade.

In Ancient Athens—the cradle of democracy—the small middle-class (mesoi) farmers and agriculturists were the bedrock of the city-state’s constitutional form of governance. In his book The Other Greeks: The Family Farm and the Agrarian Roots of Western Civilisation, classicist (and farmer) Victor Davis Hanson argues middling farmers were “not creations, not the products of Greek politics and government, but rather the necessary prerequisites for constitutional institutions.” “The essential base of the ancient city was,” Hanson argues, “a community of small farmers who were free and who owned their own land.”

Queen Victoria Market: A haven of hard work and entrepreneurship. Photo: Colin Adland

Similar ideals prevailed in modern times. Benjamin Disraeli, Conservative Prime Minister of the United Kingdom in 1868 and then again from 1874-1880, developed the concept of “Tory Democracy” and “One Nation Conservatism”. Tory Democracy was a political program of the “somewheres”. It advocated the preservation and promotion of traditional institutions and ways of life, combined with an expansion of the democratic franchise, and social and economic policies to benefit the working classes, small proprietors and agriculturalists. These ideas received expression through Winston Churchill, who argued that “the British working man has more to hope for from the rising tide of Tory Democracy than from the dried-up drainpipe of Radicalism”.

Allow the broadest mass of citizens to have a stake in society.

A concern for the working classes is what, in part, drove Churchill’s support for free trade—and hence his defection from the protectionist Tories to the free trade Liberals in 1904—and for the development of a basic, limited social safety net.

In Australia, Prime Minister Sir Robert Menzies captured the spirit of Tory Democracy in his famed 1942 speech, The Forgotten People. Menzies’ people were the “salary-earners, shopkeepers, skilled artisans, professional men and women, farmers and so on”:

They are envied by those whose benefits are largely obtained by taxing them. They are not rich enough to have individual power. They are taken for granted by each political party in turn. They are not sufficiently lacking in individualism to be organised for what in these days we call ‘pressure politics.’ And yet, as I have said, they are the backbone of the nation.

Today, “Tory Democracy” and “One Nation Conservatism” has been expanded into concepts such as “asset-owning” and “property owning” democracy where working and middle class citizens are able to put stakes down in their local communities through work, small business creation, home ownership, control over their finances and retirement plans, and participation in the organisations of civil society.

As Matthew Lesh argued in these pages (IPA Review, Autumn 2020), One Nation Conservativism as articulated in the United Kingdom offers a vision of government intent on allowing the broadest mass of citizens to have a stake in society; and the challenge is to ensure policy settings reflect that intent and unleash their potential, rather than defaulting to the hidebound bureaucratic regulatory measures that emerge from the corporatist model of big government working with big business (and big unions).

It was not always so, here in Australia, that those at the commanding heights of big business were so detached from the values of their nation and from the concerns of ordinary citizens.

NOT YOUR GRANDMA’S BIG BUSINESS

The IPA was founded by a group of prominent businessmen in 1943, including some at the commanding heights of Australian commercial life. These businessmen included Sir George James Coles (founder of what was to become Coles Group) who served as inaugural Chairman of the IPA, Harold Gordon Darling who was Chairman of Directors of Broken Hill Proprietary Company (now BHP), Sir Keith Murdoch (Chairman of Directors of The Herald and Weekly Times), and Sir Ian Potter (Founder of Ian Potter and Co. and the Ian Potter Foundation).

Ownership means the incentive to take care, improve and pass on.

All, naturally, wanted their businesses to succeed and be profitable. They also were proud Australians who understood at least part of their success was enabled by Australia’s liberal democratic institutions, which provided for the protection of private property and the rule of law. They held a strong sense of duty to defend and promote an Australia that was free, liberal and democratic against the socialist alternative in the post-WWII era.

The IPA’s marquee policy document published in 1943, Looking Forward: A Post-war Policy for Australian Industry, imbibed the spirit of asset-owning democracy. The document’s primary author, C.D. ‘Ref’ Kemp, argued Australia’s post-war industrial and economic system “should avoid the excessive concentration of economic power and ownership in a few hands, and provide for the broader diffusion of such power and ownership through the community”. Kemp understood the fundamental importance of small businesses to the Australian way of life, arguing that “a policy concerned with the encouragement of individual enterprise must give full consideration to the future of the smaller business unit” which forms a “vital and significant part of our industrial and economic system”.

Byron Bay Beach handstand.

There was a distinct sense of the old noblesse oblige that would have been familiar to Disraeli and Churchill: that their position of influence and authority should be used not just to improve their own condition, but that of the ordinary worker and small business owner. That is, the partnering of the elites with the working and middle classes in the name of national solidarity and mutual benefit. Contrast that to the views of today’s big businesses who promote policies such as more regulation (red and green tape), emissions reduction policies, closing coal-fired power stations, divisive identity politics, and rapid population growth underpinned by mass migration.

The structure of an economy affects the structure of politics.

To the extent they are engaged in societal challenges, this is limited to a concern for the least fortunate (to be relieved mainly by government welfare) and the various crises of ‘exclusion’ (to be cured by rigid adherence to the nostrums of identity politics).

These approaches are diametrically opposed to the interests of mainstream Australia and fundamentally challenge the Australian way of life.

In the first half of 2019 alone, for example, 21 law firms, 21 investment banks, superannuation funds and accounting firms, and a group of 14 major Australian corporations each issued a statement in support of the proposal for an indigenous-only voice to be embedded in Australia’s constitution—a proposal which would permanently divide Australians by race. BHP, to take one example, has led a chorus of big businesses in pursuing drastic emissions reductions obligations. BHP has a short-term goal to cap 2022 emissions at 2017 levels, and a long-term goal of achieving net-zero emissions by mid-century. Andrew McKenzie, then CEO of BHP, stated: “While we endorse a carbon price this is not enough in isolation” and “All emitters, resource companies, customers, consumers must play their part together with governments to meet the climate challenge”.

THE WAY FORWARD: ASSET-OWNING DEMOCRACY

The way forward is to understand that the structure of an economy affects the structure of politics. One of history’s great enemies of freedom and capitalism, Vladimir Lenin, clearly understood this well when he argued that “small-scale commercial production is, every moment of every day, giving birth spontaneously to capitalism and the bourgeoisie… wherever there is small business and freedom of trade, capitalism appears”.

Importantly, Lenin noted “capitalism begins in the village market-place”. Lenin realised capitalism and free enterprise are based on individual production, small enterprise, and freedom of trade and commerce. Replacing capitalism meant replacing the small business owners and proprietors, which Stalin put into practice by executing millions of small land-owners during his dekulakisation of 1929.

If people have an interest or stake in a given economic and political system, and that system broadly works in their long-term interests, they will continue to support that system. The converse is also true. People will not support capitalism if they themselves are not capitalists. They will not support a system of private property-ownership if they themselves do not own property and do not have the prospect of owning property. They will not support the continuation of Australia’s egalitarian liberal democratic institutions if they form the conclusion that those institutions do not offer them the prospect of a better life.

The best way forward is re-establishing Australia as an asset-owning democracy.

The best way forward is through the re-establishment of Australia as an asset-owning democracy in the spirit of Tory Democracy, in which individuals and families are able to build their own lives and to establish concrete ties within their communities and the broader society.

Asset-owning democracy means everyone having the chance to put down stakes in society: homeownership, work and enterprise, saving for the future, volunteering, and charitable giving. When people can make a home for themselves, then they will attend to the nation as the home they share with others. This is the true meaning of Edmund Burke’s image of the ‘little platoon’, that people learn their affection for society through their local affiliations.

This is also what Menzies referred to when he argued:

The home is the foundation of sanity and sobriety; it is the indispensable condition of continuity; its health determines the health of society as a whole.

National patriotism… inevitably springs from the instinct to defend and preserve our own homes.

People with a stake eschew revolution in favour of stability and gradual change.

People that have a stake will eschew radicalism and revolution in favour of stability and sensible and gradual change, and are more likely to resist unwanted external interference from government and bureaucrats. And ownership means the incentive to take care, improve and pass on.

From a public policy perspective, many of the ways of supporting the normal aspirations of mainstream Australians are familiar: reduce red and green tape to make it easier for Australians to start their own business; reduce taxes to encourage investment and work effort; reduce regulatory impediments to development; low-cost and reliable electricity generation; and end the grip super funds have on the nation’s capital stock by ending compulsory superannuation and giving people more control over their own retirement income. But those on the centre-right must be willing to think about the interaction of the economy, culture, and politics more broadly than solely through the lenses of economic growth and efficiency which, as important as they are, are not guarantors of freedom, limited government, and human flourishing.

REWARD RETURNING TO THE AUSTRALIAN WAY OF LIFE

A nation with more people steeped in practical rather than abstract knowledge will produce vastly different policy and political outcomes than vice-versa. For example, tradespeople, mechanics, small artisans and shop owners, manufacturers, labourers, miners, and farmers have a different mentality to knowledge economy workers. The former are naturally the ally of limited government, traditional Australian values and stability, while the latter tend to be the beneficiaries of government largesse and champions of politically correct causes.

Public policy decisions around tax and regulation—but also immigration and trade—should have due regard to structural economic changes induced by those policies which in turn will feed back into social and political changes.

The overarching goal should be the development of a nursery of steady citizens who are rewarded when they practice the virtues which define the Australian way of life: hard work, entrepreneurship, love of country, celebration of national symbols and days, freedom of speech, freedom of religion, and an enjoyment of life impervious to political correctness—what once was called larrikinism and mateship.