The great paradox of capitalism is that destruction brings creation, says Alan Beattie in False Economy: A Surprising Economic History of the World ( www.penguin.com). “Companies trying to put each other out of business in fact bring many more businesses into existence and people into jobs as they strive for better technology, for more efficient ways of operating, for a smarter way of pricing their product – for anything that will win them more customers and give them an edge over the competition.” But this only works if certain rules of the game are observed, adds Beattie.

Competition, he says, has to be based on agreed norms and within set boundaries, just as in football, rather than aiming to win at all costs. For instance, there can’t be great football “if teams could use any means necessary against the opposition to score a goal – gouging, maiming, knives, cudgels, assault vehicles, calling in air-strikes.”

Similarly, consumers do not benefit when companies are free to do whatever they want to get a competitive edge, including cheating, stealing, bribing, intimidating and assaulting, the author notes.

He cites as a negative example the extractive industries, which are notorious for their corruption.

“It is not the best companies for the job that get oil contracts, necessarily, but those willing to bribe, particularly since they are so hard to challenge once they have the contract. And so, honest and decent companies find it hard to compete.”

Beattie is aghast that oil companies, including those of Western democracies, have done ‘some pretty repellent things to keep the stuff flowing.’ Insightful read.

Impact of direct taxes

While both direct and indirect tax revenues, measured as ratios to GDP, have significant positive effects on investment and significant negative effects on consumption, the response of investment and consumption to direct taxes is greater than the response to indirect taxes, observe Shashanka Bhide and Kanhaiya Singh in one of the essays included in Macroeconomic Management and Government Finances from Asian Development Bank ( www.oup.com).

The authors explain that when the aim of fiscal stimulus is to increase investment and promote saving (reduce consumption) then the revenue mix should tilt towards direct taxes. “Direct tax also has positive effect on exports, both in the short run and in the long run, but the indirect tax has negative short-run effects.”

The essay reveals something perverse about expenditure – that higher development expenditure has a negative long-term impact on private investment, even as non-development expenditure has a positive impact.

“One implication of the result is either the accounting system has led to unforeseen incentives or such expenditure is inefficient in terms of its impact on investment,” conclude Bhide and Singh.

Recommended addition to the finance professionals’ shelf.

Survival strategy

Negotiating your way through the complex maze of business environment can be a difficult and frustrating process of learning, writes Kevin Hogan in The Secret Language of Business: How to Read Anyone in 3 Seconds or Less ( www.wiley.com). “Most of that learning comes in the form of on-the-job training where you dive right in and learn valuable lessons by observing others and making your own mistakes along the way.”

He classifies business environments as conservative, casual, industrial, and academic, each with its own set of norms and expectations.

For example, conservative environment is very traditional, structured and regimented, as in a bank or corporate headquarters.

Watch out, much of what you see can be superficial, because ‘everyone practises controlled, deliberate activity, and most pay a great deal of attention to what others think of them and their abilities.’ Competition is usually an underlying theme in this environment, and it can be brutal, Hogan cautions.

In contrast, the mood in manufacturing companies, and repair shops, is industrial, where your body language can be ‘willing, active, and unafraid.’ In such an environment, it is okay to joke and laugh as long as you are working hard and carrying your fair share of the workload, the author advises.

A book that can add value to your communication.

BookPeek.blogspot.comD. Murali

(This article was published in the Business Line print edition dated June 7, 2009)
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