First published, September 14, 2012
Published by The Nashville Business Journal
There’s no two ways about it: Business always comes down to economics. As a business leader you are in an ideal position to teach associates, employees, friends, family and particularly children, about what makes our economic system — and our great nation — tick. In the process, you might just inspire the next generation of business superstars.
The United States achieved success through innovation, drive, passion and freedom. Don’t be shy: Teach others about the forces that create jobs and wealth — and make our country great. Start lively discussions about the basic economics that have made the United States the envy of the world. This is your chance to be a leader, a listener, a coach and a teacher.
As a former CEO, I always start basic economics discussions by dispelling what I believe to be some serious misinformation in the marketplace. Here are some points that always seem to come up:
When a company makes a profit it can reinvest in the business. Profit enables the enterprise to invest in facilities, equipment and people that will ultimately yield growth.
The nature of business is to grow revenue by outperforming the competition. When each company is challenged to outdo the next, creative ideas pop to the surface, resulting in better products and services often at lower costs. The best companies grow. The mediocre companies may survive. And the weak ones go away.
Growth means everyone’s happy. Customers are buying more. Employees are more likely to have long-term security and increased compensation. Business partners who supply products and services to the enterprise do well. And stockholders see increased wealth.
The cream of the crop rise to the top. When weak companies are sold or liquidated, that’s just part of the constant “cleansing” process that makes our economy vibrant. Assets are redeployed to make profits elsewhere.
When there is only one provider of a product or service, there’s no incentive to be great. Innovation dies, service is typically poor and prices go up.
The government’s role is to see that the playing field is level and that generally accepted business and cultural norms are in play. However growth slows when excessive regulations interfere with a business’s day-to-day ability to operate.
Big long-term business investments include the evaluation of government policy. Predictability is key. If business is unsure about future taxes, environmental rules and trade regulations, business is less likely to make the big investments.
8. Crony capitalism
Any time business and government “get into bed with each other,” watch out. Very often the outcome stifles competition and upsets the natural force of the market.
The government collects money from citizens and businesses to redistribute for various reasons. But the real wealth and job creation comes from the private sector.
These are my nine economic basics. You’ll likely have your own. However you lead the discussion on economics, this is your opportunity as a business leader to initiate, educate and inspire. I leave you with this simple challenge: Be a teacher.