I can’t make resolutions to increase long-term success and prosperity for business, but I can identify their requirements: more reason and freedom. Many of the companies I wrote about last year—Volkswagen, Tim Hortons, Exxon, Uber, Resolute Forest Products—would have benefited from more of one or both.
The single most fundamental requirement of long-term success in business (and in life) is the use of reason: adhering to reality by the means of observation and logic. It really is that simple. If businesspeople consistently relied on reason—instead of evading reality by ignoring facts or pretending they were different—long-term success could be theirs.
Had Volkswagen’s executives adhered to the fact that values cannot be achieved by faking, they would have avoided the emissions scandal (caused by their ‘cheating’ software), and losses of billions of dollars, declined share price and diminished brand value. And had Tim Hortons’ CEO recognized the fact that long-term success requires acting on principle, he would not have pulled oil pipeline company Enbridge’s ads from Tims coffee shops to appease environmentalist critics. That could have spared his company widespread boycotts (by customers who recognize the fact that oil and pipelines are good for people and business).
More reason would benefit countless other businesses and their managers as well. It would help them recognize that long-term profitability requires, not deception and exploitation, but trading value for value with their clients, employees and shareholders. Some executive students have told me that success in business requires cutting corners, manipulating clients, and exploiting employees—because others do it, too. However, the reality is that a trader that does not engage in mutually beneficial exchange and offer values, such as goods that meet specifications and price or acceptable working conditions and market salaries, will not remain in business for long (or will struggle to achieve long-term success when dissatisfied trading partners keep moving on).
While the use of reason is the fundamental requirement of business success, freedom—protected by individual rights—is its social requirement. It is possible to think—to use reason—to come up with an innovative product or a business model under a system of government regulation and in the absence of full protection of individual rights. But the implementation of those ideas for actual wealth creation is impeded.
The regulatory state curtails the freedom of business to exercise reason: to produce and trade material values that human life and flourishing depend on. The restrictions and outright bans on the innovative ride-sharing service Uber is a prime example of government restriction of a company’s freedom to trade: a violation of the company’s right to liberty and property. Likewise, oil and gas producers and other resource companies such as those in the forest products industry, are subjected to countless freedom- and trade-limiting regulations. Only a few courageous leaders in those industries, such as the CEOs of Exxon and Resolute Forest Products, have dared to stand up the government violation of, or failure to protect, their companies’ right to liberty and property—to their right to produce and trade freely.
The government interference with freedom to produce and trade also contributes to the lack reason, as we have seen in companies like Volkswagen, Tim Hortons, and others that resort to irrational attempts to circumvent government regulations, lull themselves into unquestioning ‘follow the orders’ mentality, try to run their business by deception, or reject reason in other ways. Government regulation creates a moral hazard for companies, where the executives count on someone else to pay the price for their unethical actions.
Only in a system of freedom where everyone is accountable for their own actions and will bear their consequences, will reason thrive, as the only means to produce and trade material values. Companies whose leaders flaunt reason and reality will simply not survive in competition, and the government will not be there to ‘protect’ them and bail them out. But the government will be there to protect the rights of individuals, including individual in collaborative endeavors such as in business firms, against initiation of physical force and fraud, thus ensuring their freedom to act, produce and trade.
The current reality with Canada’s leftist federal government and most provincial governments leaning the same way, and Bernie Sanders’ rise in the polls in the United States as a real contender for the Democratic presidential nomination, do not bode well for more freedom in 2016 in North America (not to speak of Europe and many other places in the world). So mere wishing for more freedom and reason is not enough for a better New Year—let’s advocate them through whatever means available.