Tag Archives: aggressive tax avoidance

John Kay, Professor of Economics [LSE] on the ’good corporation’

John Kay, whose remarkable career currently includes work as visiting Professor of Economics at the London School of Economics advises the Labour Party on its ‘rethinking of economic policy’.

In his FT article he focusses on the profit-making corporation a central institution of the modern economy. Though the writer qualifies his view of their status, remembering that many are subsidised by SMEs who perforce give them extended credit and that to date government, despite expressed intentions, have not addressed the matter. She also bears in mind that the European Commission’s SME Performance Review estimates the Gross Value Added of SMEs as €473 billion or 49.8% of the UK economy.

pcu3Setting aside that reservation, however, John Kay’s words are well worth putting before readers who receive alerts and also random visitors to this site from many countries – see last week’s stats, left.

John Kay stresses that the purpose of a profit-making corporation is not only to make a profit: “We must breathe to live but breathing is not the purpose of life.

The purpose of a corporation is to produce goods and services to meet economic and social needs, to create satisfying and rewarding employment, to earn returns for its shareholders and other investors, and to make a positive contribution to the social and physical environment in which it operates”. He continues:

The good corporation contributes relevant expertise to the formation of policy but does not engage in lobbying on a scale that corrupts political decision-making.

Like the good smartphone or the good school it can be identified by what it achieves:

  • It pays workers a living wage;
  • it does not engage in aggressive tax avoidance.
  • It develops the skills and capabilities of its employees
  • It does not bewilder customers with complex tariff structures.
  • It earns profits, reinvests some and pays a dividend to shareholders.
  • Its executives spend more time walking around offices and shop floors than sitting in the meeting rooms of investment banks.

Kay concludes: “The political and social legitimacy of the market economy and of the corporations through which it functions, cannot simply be asserted — as it has been in the market-fundamentalist rhetoric that has dominated economic policy for the past three decades. Its legitimacy has to be earned by the behaviour of the leading economic institutions. That social contract has too often been broken in recent years. And drawing attention to that breach, and the measures needed to regain trust, is an agenda that is not hostile but rather friendly to the long-term interests of the business community.