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Tuesday, February 20, 2018

Sentimentality in a free-enterprise economy

An article in the Financial Review "'Bashing business bashes our future'..." claims
"Business Council of Australia chief executive Jennifer Westacott says she gets 'depressed' at business bashing because the jobs of millions of Australians depend on having profitable companies."
Seemingly the Business Council's chief executive doesn't understand how a free-enterprise capitalist economy works.

The principle is simple enough.

If you have a dairy farm where 80 percent of the herd contributes 99 percent of the return that covers the cost of running the farm and the upkeep to maintain its productivity, then the fastest and most effective method to raise the farm's economic performance is to cull the 20 percent of the herd that is barely contributing at all.

That 20 percent to be culled eats the same per head as the rest of the herd. Each cow drinks the same amount of water and uses the same amount of labour and energy to care for it.

As a farmer you may even know all of your cows by name and love them all equally.

But there is no room for sentimentality in a free-market capitalist economy.

The 20 percent of Australian businesses that year after year fail to make a profit and pay no tax towards the maintenance of Australia's infrastructure and the skills of its workforce are dragging down the performance of the whole economy.

Without them the 80 percent of businesses that are productive and making a contribution will be able to expand and the whole economy will advance quickly. There may even be the capacity to reduce taxation that is required to maintain and expand the economy's productive capacity.

The death of the car industry and the closure since 2000 of four of the last eight Australian oil refineries pulls at the heart-strings of many.

The Business Council of Australia should know better than to be so sentimental.