Small Business - Good Business


Contents List:

Mistaken Assumptions
A Better Assumption
The Significance of Money
Fairness and Value
A Mixed Blessing
'Economies' of Scale
'Genuine' Economy

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World Views
Ardue Site Plan

See also:

Business Focus for the Owner-Director

Mistaken Assumptions

Two assumptions of monetarist materialism appear to be that money is everything and that the only reason for setting up in business is to make a monetary profit. The first is easy to refute. Very few people imagine that money can buy good will (as opposed to 'goodwill' in the accountancy sense): it is much more likely to generate envy and malice. The second is at best only a half truth. While profit is essential for sustaining and improving a business, seeking the 'fast buck' wherever it may be found is not conducive to building a good business in the long term. It therefore makes more sense to view profit not as an end in itself but as a reward for doing something right.

The grossly mistaken idea that individuals set up in business only out of greed for monetary riches is too often allowed to go unchallenged. A simple change of perspective is enough to reveal business as the great benefactor of mankind because it, and it alone, generates the goods, services, salaries and taxes which make the material comforts of civilisation available to billions of people throughout the world. Thus the founder of a good business deserves to be honoured above all politicians, judges, bishops, bureaucrats, and others whose comfortable lifestyles ultimately depend on a successful outcome to the efforts of a relatively small number of entrepreneurs. However, it is necessary to distinguish good business from bad.

A Better Assumption

To make sense of both business and money, it is necessary only to assume that the principal aim of the good business is to create and deliver a service.

A moment's reflection should be sufficient to show that civilisation advances mainly because people are willing to exchange mutually beneficial services. This includes goods because goods are 'good' only if they are serviceable. By exchanging surpluses generated by individual skill and labour, advances in knowledge and improvements in individual performance are shared out to benefit whole populations.

The Significance of Money

This perspective clarifies the significance of money. Money is first and foremost a catalyst which facilitates the fair exchange of diverse and dissimilar services such as the purchase of food, clothes, bus journeys, books, training courses, insurance policies or electricity with the proceeds from the sale of a cow no longer required for milk production. Secondly, by acting as a temporary store of value, money becomes equivalent to deferred service: it makes people willing to provide services today in exchange for the assurance (represented by money) that they will at some time in the future be able to obtain services for which they have no immediate need.

Fairness and Value

The foregoing paragraph contains two words 'fair' and 'value' which require further consideration. How can fairness be established and what determines value?

The answer is surprisingly simple: fairness and value are both determined by the participants in each individual transaction. No exchange takes place without the mutual agreement of both parties to the bargain. The bargain is an expression of each participant's subjective assessment of the value of the service offered and accepted. When both participants are satisfied with the exchange, each considers himself 'better off'. No third party is required, or entitled, to intervene. The mutual exchange of surplus goods, services, or money is a natural human activity which will tend to take place whenever and wherever humans meet and communicate with one another. The intervention of governments or other regulatory agencies merely gives rise to complications and should be countenanced only in circumstances in which it can be clearly demonstrated that untrammelled exchange would be detrimental to the interests of society at large.

Money has proved itself so useful in facilitating exchange that it has become customary to record the value of each transaction in terms of a unit of currency. It is important to bear in mind that the accepted value of the unit of a currency is not something that can be arbitrarily determined by a bank or a government. It is determined essentially by the aggregate of the very large number of transactions which are recorded in terms of that currency. If a currency is held in low esteem, perhaps because of a history of rapid devaluation through inflation, people will prefer to use a 'stronger' currency which they hope will ensure that the passage of time will not seriously erode the value of their deferred services.

A Mixed Blessing

The invention of money, useful though it is, has not been an unmixed blessing. For one thing, it facilitates the imposition and collection of taxes whose effect is to artificially distort individual judgments of value. It also enables businesses to distract attention from the underlying fundamentals of exchange by putting their own prices on their services, thus discouraging bargaining and tending to tilt the terms of exchange in their own favour. The larger the business organisation and the greater its monopoly power, the more easily it can dictate terms to its customers.

But large size has its disadvantages. Sheer momentum implies resistance to change in response to subtle changes in the operating environment. Furthermore, the bigger a business becomes, the more wasteful it inevitably gets. For long-term success, the founder of a business simply must put his customers' needs and preferences at the top of his list of priorities. For the employees of an established business, on the other hand, there is a strong temptation to give relatively more weight to their own pay-packets, job security and conditions of work, and thus to put up costs while allowing service standards to slip. Large organisations also attract more attention from legislators and their attendant enforcement agencies and thus have to expend more resources in complying with (or getting round) ill-considered regulations and idiosyncratic interpretations of legislation.

'Economies' of Scale

Superficially, it may appear that these wasteful tendencies may be more than compensated by the economies of scale which enable the larger organisations to offer goods at lower unit prices than their smaller competitors. Viewed globally and in the long term, however, it can be seen that economies of scale are all too often purchased at the cost of unnecessarily rapid depletion of the earth's natural resources, pollution of the natural environment, and cruelty to other living species. Cheap goods and comforts in 'advanced' countries today are bought at the expense of the present generation in less 'developed' countries and of future generations in all countries.

Financial muscle enables the large business to enlist the aid of highly talented publicists, lobbyists and advertising agencies to promote its interests and present its large-scale predatory activities in the best possible light while blurring the uncomfortable details.

'Genuine' Economy

The individual entrepreneur must fight back and argue the case for the small business focused on customer satisfaction as opposed to the large corporation motivated by profit; for genuine personal consideration as opposed to polite anonymity; for local environmental awareness as opposed to global carelessness; for acceptance of personal responsibility as opposed to bureaucratic buck-passing; for mutual co-operation as opposed to cut-throat competition; and for genuine economy as opposed to false economy of scale.