Posted on Sep 01, 2019
I know it’s bad for my mental health, but I recently tuned in to talkback radio.
And this time it wasn’t the crazies calling in that gave me cause to think – it was the host. One minute ranting about how much value the outgoing management at Fonterra had lost for the company, and the next minute about how fuel companies were ripping us off. It made for great confusion. If management lost money for their shareholders they were bad. If management made money for their shareholders they were bad. Which was it?
But of course, the discussion is not just about making money. It’s about who businesses should be responsible to – Shareholders? Staff? Customers?; and of course whether the damage they do to the environment should be calculated into their result. Plus of course there is another discussion which comes out of it – which is whether competitive marketplaces exist, and how much competition is needed and necessary.
In both the examples, Fonterra and the fuel companies, they supposedly operate in competitive environments. Fonterra in a global marketplace, and the fuel companies in a domestic marketplace, but with much of their input cost being determined by the global marketplace.
Later in the month the confusion is even worse. One day there is a report (or interim report, or consultative report – I get confused) detailing just how much excess profit the fuel companies are making.
The next day a report on the damage to the fuel line from Marsden Point concludes that the fuel companies need to urgently invest to ensure that the airport is not vulnerable to fuel outages again.
So we don’t want them to make a profit – but we want them to provide services and re-invest.
Unfortunately it all serves to highlight the serious problem we have here in New Zealand around the lack of financial literacy.
It is a relatively simple equation – business needs to make a profit to stay in business. And to re-invest for the future, business also needs to make a profit.
There are ample regulatory obstacles to doing business in NZ, not all are bad, but many are – and having an anti-business environment actively encouraged by the government doesn’t help at all.
Particularly when there is a lack of understanding in government that it is business which employs people, who then pay taxes, and business which makes profits, which also pays taxes.
And it is all those taxes that go towards the multitude of good and noble works the government is intent on undertaking.
Perhaps it would be more productive for our future generations if we ditched some of the PC subjects in our education system, and included a basic course in financial literacy. The current capitalist system is certainly not without it’s flaws. But it is worrying that a majority of people can come out of school (and university for that matter) and not understand how the system, and money, work. If there was a rudimentary understanding of concepts such as debt, compound interest rates, risk and return, time value of money, cash flow, hedging and diversity, then perhaps there would not only be better decision making at a personal level, but a better understanding of what government can and cannot do.