My position is simple: I believe that you should trust people to make their own decisions as far as possible. People know what is best for them and, given freedom to choose and incentives to work hard, save and invest, they will make decisions that benefit not just themselves but society as a whole. Underpinning that freedom are markets and competition – not laissez-faire, but regulated competition that spurs companies to innovate, to invest and, above all, to follow the customer.
Profit and wealth creation are not dirty words to me, but the essential lubricant of markets. Without them, the basic laws of supply and demand will not function. More than that, the ability to prosper, to realise one’s dreams and give one’s children a better start in life than you had are the things that make people work hard, day in, day out, to turn small businesses into large firms.
The problem someone like me faces is that many people now believe the current crisis was caused by competition, markets and globalisation. Few of our global leaders have rebutted this misconception, and argued that the current crisis does not mean the principles which underpin competition are fatally flawed. Yes, the banks made hideous mistakes. But so too did governments, many of which embarked on reckless borrowing sprees, while doing nothing to deter individuals from getting deep into debt. Prudence was thrown to the wolves.
So, yes, we need to regulate the banks. And of course governments must pay down their debts: no nation, just like no household, can borrow its way out of debt. But bank regulation and deficit reduction will not, in themselves, be sufficient to resuscitate our ailing economies. For that to happen, governments need to harness the power of the market, not timorously, but wholeheartedly. As Tesco is the largest private employer, and one of the largest owners of real estate in the UK, of course I loudly applaud any measure to cut red tape in employment and planning laws. Yet the benefit of such measures, critical as they are to competitiveness, will take time to be felt.
As a believer in the free market, and someone who trusts people, in my eyes taxes are still too high. Insufficient incentives exist in the UK to encourage investment, hard work and job creation. The ambition to steadily cut corporation tax is laudable. This, though, should be part of a much wider programme of tax reduction, which does not imperil plans to cut the deficit or spook the markets, but gives employees, employers and investors more money to do with as they wish. That is the way to get the growth needed to pay down our debts. Just look at Sweden, where the government has cut taxes every year and abolished wealth taxes. The result? Growth of 4 per cent on average for the last two years, and a budget surplus. Yes, the highest rate of income tax is still high. But experience has begun to change the culture.
And that’s what is needed in the UK: a rebirth of the culture of capitalism. Business cannot sit idly by and expect politicians to do this alone. If we have the courage of our convictions, business people need to get stuck into the debate, taking this message not just to the media but elsewhere, including schools. Every student should be taught about wealth creation and entrepreneurship.
Finally, in case you are wondering, I was brought up in a socialist household. I write all this not because I learnt it in a textbook, but thanks to being part of a team that embraced competition, followed the customer, lived within its means, gave employees incentives to work hard, and delivered for its shareholders. Yes, you may say that you’ve heard this before – but sadly, not often enough from the lips of those who lead us.
Sir Terry Leahy’s Management in 10 Words (Random House Business Books, £20) is out now. Sir Terry is speaking tomorrow at 6.30pm at the Institute of Directors as part of the World Leader Interview series. To reserve a free ticket visit www.iod.com