In praise of profit

In western societies, the very concept of profit is under threat. That is according to Sir John Sunderland, chairman of Cadbury Schweppes and former president of the Confederation of British Industry (CBI). He was speaking at the recent IoD spring lunch in Dublin's Four Seasons Hotel, where he made an impassioned speech in defence of profit. "The word is becoming taboo - in some quarters an expletive," he says. "How many companies today are willing to say: 'Our purpose is to make profits and increase the value of our company to those who lent it money?'"

Sunderland argues that the reason for this is that special interest groups dominate the debate. "We all work in societies comprising major, often opposing, forces — business and labour, government and media, the public and voluntary sectors, the non-governmental organisations and other special interest groups. I say opposing, because all of us in business know some of these forces are often ranged against us.

“Personally I find a supreme irony in this," he adds. "Nothing in society can function to any effect without wealth. All these opposing forces in fact rely upon business — for the simple reason that only business creates wealth. We provide most of the employment, generate nearly all the tax revenue directly or indirectly and consequently fund the roads, schools, hospitals and prisons. Of course we make profits, but these days, 90pc of the public capital markets are owned by the institutions who care for all our savings and pensions."

He argues that, were we to abandon the pursuit of profit, we would destroy not only the motor of business, but the engine of every modern, dynamic society. "History is full of societies that have tried to extinguish profit. Without exception they have been conquered, supplanted or ruined," he insists, illustrating the point with the efforts made by the mediaeval Church in Europe to control profit through the ban on usury. "The result was economic stagnation. Fortunately, as the Church lost its authority, the ban was ignored by a growing mercantile class whose efforts created western capitalism and the first truly global economy."

He points to other regimes that were more successful at suppressing the profit motive, and their subsequent collapse - the Ottoman and Soviet empires. "Every society with profit is one that changes and innovates; every society without profit is one where change is suppressed as a threat to its rulers," he concludes.

“It is interesting that in almost every western language, the word 'speculate' has the same double meaning - to risk money and to think imaginatively. Societies that open themselves to profit, such as Japan in the late 19th Century and China in the late 20th - have modernised themselves with incredible speed."

And why have western societies become so uncomfortable about profit? Sunderland blames the special interest groups. "From a mixture of motives, they have created a false opposition between the pursuit of profit and objectives in our society that we all cherish, such as the environment, social justice, public services protection of the weak and vulnerable, shared values and a sense of community. These special interest groups influence modern governments across the world. And modern governments - and their huge array of employees - have to justify their existence, their privileges and their costs."

Running interference

And Sunderland has harsh words for these same modern governments, who he says have given themselves potentially limitless powers to interfere in or over-regulate business life and control the pursuit of profit. "Modern governments risk joining special interest groups in treating business as a potential enemy, and profit as the antithesis of public welfare. But where would government be without profitable business?"

Taking the UK as his example, Sunderland says business paid approximately £125bn sterling in direct taxes to the Treasury in 2005/6, a figure that represents the cost of building and equipping 600 general hospitals or more than 6,000 new secondary schools. Add to that the receipts business makes possible, from the taxes on income and spending of its employees and shareholders, and the Chancellor actually obtained closer to £425bn from the private sector last year, he says.

“To paraphrase Monty Python, apart from 23 million jobs, pensions, new schools, more hospitals and better roads, what has business ever done for the country?" he quips. "I could also mention the pride, fulfilment, social mobility and the sense of being needed that it offers to people."

A strong advocate of privatisation, Sunderland believes challenges such as the provision of high-quality but affordable healthcare, education, transport, infrastructure and other public services can only be tackled if it becomes profitable to do so. "Profit not only spurs the creation of newer and better methods of providing public services but also provides the essential basic tools for analysing why and how they go wrong in the first place," he says.

"As the UK Government has belatedly recognised, it is fatal to leave public services to the public sector alone. The public sector is driven by values other than profit — some of them worthy and well meaning, others less so. A wise man recently said: 'At its best, public sector ethos is public servants seeking to make a difference, but at its worst it is just the defence of vested interests.' This wise man is not one of us — he is the Chancellor of the UK Exchequer, Gordon Brown."

And he hasn't finished with the public sector yet. "The UK Government is doing more to encourage private business into the delivery of public services but its involvement is still held back by the self-seeking myths that the public sector and its unaccountable unelected friends continue to propagate. Those myths are that only the public sector can be trusted to behave ethically and give value to the taxpayer, only the public sector cares about the poor or disadvantaged and can understand the needs of public provision."

Health is wealth

To debunk these myths, Sunderland sets out an example that will ring a bell with an Irish audience, the National Health Service in the UK. "Just three years ago its budget was £65bn. By 2007 it will be £107bn. In spite of this record increase, every day brings news of massive hospital trust deficits, wards closed, jobs lost and routine operations suspended to save money. Meanwhile, although the number of managers is rising more quickly than clinical staff, managerial delivery is simply not adequate. According to the King's Fund, more than half of this year's extra money is being spent on pensions and pay rises, another 12pc on staff reforms and 5pc is set aside for negligence claims - leaving just 2.4pc more for extra beds and operations.

“If this is the best the so-called ethical public sector can do with our NHS, maybe it's time we brought in more of the 'boys' from the private sector," he concludes. "By contrast, in sector after sector, from prisons to schools to hospitals, the private sector has shown that it can procure, design, build, improve services and reduce cost to the taxpayer better than the public sector."

He has a stark warning for Europe in a world of intensifying global competition, political volatility and rising energy prices. "European business has its work cut out to survive and maintain its existing commitments to its workforces, its shareholders and the exchequers," he says. "If governments and special interest groups together continue to treat business with suspicion - and profit as a dirty word - and if they continue to pile regulation and pressures on profit-makers, more and more European businesses will disappear. A shrinking working population will pay higher and higher taxes for poorer public services. Fewer and fewer people will take any kind of risk or embrace any kind of change.

“Alternatively, we can recapture our faith in profit, the faith which made many European countries world economic powers. We can apply that faith - and the faith in innovation that goes with it - to every area of our national lives including those from which profit is now artificially excluded. And with that faith we can achieve living standards for the many, of which even the enlightened few can only dream at the moment.

“To meet global challenges including poverty, terrorism and climate change we need the same, simultaneous, self-reinforcing revolution in science, technology, economics, government and business methods as that which created the industrial revolution. We will not get this revolution without offering men and women the chance of profit — the reward for investment, inspiration and change."

Having worked for some 38 years with Cadbury Schweppes right up to CEO level, today Sir John Sunderland is group chairman. He also holds several non-executive directorships including Barclays Plc and is deputy president of the CBI, having stepped down as president in 2006.

This article first appeared in Irish Director magazine.