The Russian assault on Ukraine continues to shock, offend all sensibilities and create feelings of despair about the human capacity to be inhumane to others in at least equal part. I make no pretence to know what the outcome, or when it might arrive, might be. I am, however, inclined to note that a great deal of business has shown the capacity to react in response to what is happening.
In 1970, Milton Friedman argued that the only social responsibility of business was to maximize profits. In that case, if Russia represented a profitable business opportunity for the many multinational concerns that were located there, they clearly no longer agree with Milton Friedman. A wide range of concerns, including (at long last) all the Big Four firms of accountants, have now announced the closure of their operations in Russia. I suspect that it will be a long time before they go back.
I really do not think that I need to discuss the rights or wrongs of boycotting Russia at this moment. What is of much more interest is that in the face of substantial systemic risk these businesses were able to react, and quickly. Anyone who wants to claim in the future that enormous time, and notice, is required for any desired change to take place within the business community should take note: the evidence is that this is not true.
There are, however, two points to note. One is that it is the front of stage appearance of these businesses that has changed in a great many cases. For example, whilst the Big Four firms of accountants have undoubtedly made the decision to break their ties with their Russian firms, that does not mean that these Russian firms cease to exist. Given the structure of the Big Four, the reality is that the local operations that were previously a part of their network can now continue to exist under separate, local, operating names, and as a consequence provide similar services to those previously supplied in the names of the Big Four. My point is to simply note that what was previously a franchise has now become an outsourced operation. Whether anything much has actually changed is open to question.
The second consequence to notice that other, now closed down, activities will very likely be reopened in due course. For example, if McDonald's decides to never return to Russia (and I have no idea if that will be the case) then it is quite possible that somebody will take over the restaurants they once ran and operate some new, alternative, burger chain. McDonald's may take a hit on the sale, but Russia may not eventually be deprived of fast food.
There is good reason for noting these two facts. This is that they both have relevance when considering the likely reaction of business to the other great existential threat that we now face, which is climate change. The pressure on business to become net zero compliant is significant, and appropriate. Many businesses are making commitments to that target. However, we need to be wary of the way in which they are doing this. With colleagues, I am now noting an apparent increase in outsourcing to move emissions off balance sheets. There is also some evidence that pressure from investors to meet climate targets is creating pressure to divest from carbon intensive activity, but not to either change it or close it. It will simply continue under other, most likely private venture capital, ownership.
I am not suggesting that the businesses pulling out of Russia are insincere in their commitments. Most will take a significant financial hit as a consequence of doing so. What I am instead suggesting is that we need to be aware that the world is more complicated than statements of intent often imply. In particular, just because one business is pulling out of Russia does not mean that the activity ends, and my point is that we also need to be aware of this with regard to climate change as well. Ownership is an issue in monitoring business activity, but at the end of the day, ownership is much less significant than the activity that actually takes place within an economy. We need to keep an eye on that as well.
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Reading this reminds me that just because a country now has McDonalds, Louis Vuitton shops and Mercedes dealerships doesn’t make it a democracy.
The West perhaps mistook capitalism in Russia for democracy – a common fault from what I see because the West is blind to how capitalism undermines its own democracy.
As for the aims and objectives of the post I fully concur that we need to be vigilant.
Good point – I remember it used to be said “no two countries that have McDonalds have ever gone to war” (by way of justifying capitalism/globalisation)…. if only it were still true.
It is true that corporate short-term profit will reduce as a result of withdrawing business from Russia. However, corporations are very aware of their public reputational global image and their PR departments will see that if this is badly affected as clearly Russian military atrocities in Ukraine are a glaring example, then their long term profit margins will be greatly reduced so that the new ostracisation of Russia does preserve their profit margins in the future,
Did Milton Friedman have views on the maximisation of profits by, for example, the use of slave labour in plantations in the south of the US and the Caribbean? How about German companies such as Siemens, Krupp and IG Farben maximising their profits by taking advantage of cheap (forced) labour of inmates in concentration camps? Did he have any concerns about companies releasing toxic chemicals without regard to their effect on the environment, such as the indiscriminate use of persistent pesticides in farming?
I think we can safely dismiss this sort of sociopathic view, which treats business and economics as a morality free zone.
Catching up recently with Myles Allen on the Life Scientific, a couple of years ago now, explaining in very simple terms that, in order to reach net zero (which is what we need to do to stop catastrophic damage to the climate of our planet) every business needs to explain how every tonne of carbon emitted is matched by 3.7 tonnes of CO2 taken away. If they can’t do that, they should not be in business. In the absence of functioning carbon capture and storage (which seems as much a pipe dream as fusion power) we simply need to cut emissions.
Friedman did make clear that the profit made had to be generated within the rule of law.
As we know, though, law is a poor moral arbiter and slavery has too often been legal in history. It would seem he would have tolerated that if the law did so too.
I rather strongly suspect that, as is the case with his current day followers, he would have had little regard for the planet.
And I agree with you on emissions.
And we also know that law is undermined when legal aid for average citizens is reduced and that our courts and legal system become playgrounds for the rich to mould society to their liking.
Doesn’t it Boris?
Just as we have too many accountants who know the price of everything and the value of nothing, we have too many lawyers who know only the letter of the law and have long forgotten the spirit.
Your good self excepted of course Richard!
Meanwhile, a lively debate in the Lords yesterday with much impatience with the governments belated and inadequate actions to tackle Economic Crime. It has taken the conflict in Ukraine to finally goad them into some action – still insufficient and poorly resourced. Much as one might have doubts about our unelected upper house and some of the charlatans who are appointed, it does have many people with deep expertise who are rather better at challenging the government on the detail than MPs.
https://www.theyworkforyou.com/lords/?id=2022-03-09a.1483.2&s=speaker%3A13517#g1536.2
Agreed
I imagine that the government and more specifically the Tory party are nervously checking themselves for loose threads. Assuming that someone starts unpicking Russian finance in the UK some of the treads are sure to lead to now quite tatty Tory tan top.
Having done a spectacular number on Chelsea FC worse might follow for anyone linked with dodgy Russian money. There will be those here who know this, how would you even start to discover, for instance, property held by oligarchs?
On a tangent it must now be time for English football’s owners’ and directors’ test to be overhauled.
The latter is true
Right now we have no register of foreign ownership of property…
On the matter of “loose threads”, thank you for reminding me of Douglas Ross MP, leader (I use the term loosely) of the Scottish Conservatives. Mr Ross has withdrawn his call for Johnson’s resignation as PM. This was based on Johnson having shown he was unfit for office. The war in Ukraine is Ross’s excuse for the u-turn; do not change your leader in a crisis. Ross demonstrates not only his deep ignorance of politics, but worse for him – deep ignorance of the history of Britain and the Conservative Party. In a far, far worse crisis than Britain now faces in 2022, the Conservative Party replaced the PM Neville Chamberlain in 1940, with Churchill, when faced with imminent invasion. They at least recognised when they had a dud for a PM and Government.
Play that one out. Had Chamberlain remained in power we may surmise that Chamberlain’s fixer in international affairs, Sir Joseph Ball would have managed unhindered to complete his known attempts to open negotiations for peace with Hitler, which were thwarted by Churchill’s takeover. You work it out; then note that obviously it all went over Ross’s head, or he is simply ignorant. Ross’s opnions have no substance, no backfill; he is a product of modern, vacuous, sound-bite politics, keep it cheap and cheerful, and keep moving the goal-posts. Where on earth do the Scottish Conservatives find these gimcrack, nonentity politicians?
Incidentally, Chamberlain was dead within the year; but Churchill did not move against Ball – ever. Presumably because Ball knew where all the bodies were buried – and Ball knew, because he had buried most of them.
Ball wanted Halifax for replacement PM
He would have delivered that ‘peace’
It has been stated that Russia has $650 billions of foreign exchange. If this can be accessed by the west, it can be used to re-build and re-arm Ukraine and provide compensation for dispossessed families.
Half is now frozen
[…] Cross-posted from Tax Research UK […]