“A foolish consistency is the hobgoblin of little minds,” Ralph Waldo Emerson wrote.
So I’m going to make two points that are totally inconsistent, but not particularly foolish. To keep everyone guessing, only one of these statements could be true. But the other one isn’t altogether false:
- It’s obscene that bankers, fund managers and other corporate executives – particularly in the financial sector – continue to be paid outlandishly high compensation packages and bonuses. Some of them are responsible for the financial crisis that western economies continue to be mired in. They should be taxed up the yin-yang because it’s not healthy for our society to have such income inequality.
- Participants in the Occupy Wall Street movement should have worked harder in high school so they would have had better jobs by now. They think the world owes them a living, they have no idea what risks are involved in owning and operating a business, and they are jealous of anyone who makes more money than they do.
Now that the movement seems to be disbanding its tents or it is being forced to move out of the downtown cores of our cities due to injunctions and weather, it’s important to reflect on its message, and what it meant for small business because, although participants had some good points, in the end, they got a lot wrong.
A few months ago, Warren Buffet caused a stir in the United States by writing an editorial in The New York Times that essentially said “raise my taxes,” admitting he only paid 17-per-cent tax on his income while others in his organization paid 30 per cent. The view from the right was predictable. In some circles, he was labelled a traitor, a socialist or worse: a liberal. Others implied he was becoming senile.
“These millionaires and billionaires are the folks that try to create jobs and grow the economy. The last thing we want to do is increase taxes on them right now,” Republican Joe Walsh, a Tea Party favourite, said in response to Mr. Buffet’s editorial.
Mr. Buffet wisely recognized that inequality in incomes and a tax system that favoured the super rich wasn’t healthy for the United States. History teaches us that income inequality leads to a host of social ills – and revolutions, if you happened to live in France in 1789, or Russia in 1917.
York University professor Neil Brooks and journalist Linda McQuaig recently published a book called The Trouble with Billionaires that discussed the ratio of CEO pay to worker pay, and the huge inequality between the two.
“In the 1970s,” they stated, “the gap was about 30 to one; by 2007, it has (sic) risen to 340 to one. But even this understates the size of the gains made by the very top rung of CEOs. If we look at the average pay of just the 100 highest-paid CEOs and compare it to the pay of the average workers, we find that the gap in the 1970s was about 45 to one.
“By 2006 that gap had become 1,723 to one.”
For comparison, the average compensation of a Japanese CEO in 2007 was less than one-sixth of his or her American counterpart and 16 times more than the average Japanese worker.
Income inequality was originally driving the Occupy Wall Street movement, and so was a perceived lack of opportunity, underemployment and unemployment.
One of the many problems with the “message” was the confusion between big business and small business. Many of the protesters I listened to in Vancouver promoted the view that “corporations” were responsible for all the social and economic ills of the world, no matter what the size of that “corporation” was.
I looked at some of the signs in Vancouver a few weeks ago: “People not profits.” “Down with corporations.” All of them suggested that anyone who owned a corporation, or owned shares in a corporation, was somehow immoral and responsible for the economic downturn we still appear to be in.
Before my late father failed in business – he was wiped out in the crash of 1981 and 1982, and he declared bankruptcy in 1984 – he had probably created 2,500 jobs in his Victoria hotels and restaurants in the 1970s, together with jobs in the construction sector for those who built his properties, and jobs for bankers, accountants, architects, lawyers, restaurant supply companies and other businesses that benefitted from the activities of his “corporation.”
Small-business people like my father are the ones who take risks without prospect of a government bailout because they’re “too big to fail.” Like my father, they are not too big to fail and they fail all the time.
And most of them operate as “corporations.”
Most corporations in Canada are owned by small-business people, and many of them are family firms. I see these sorts of clients all the time. In fact, they make up much of my client base. These are people who don’t want to work for someone else but they are prepared to take on the arduous and risky prospect of working seven days a week, 12 hours a day, skipping statutory holidays and yearly vacations to succeed and to “put food on the table” for their families. .
These are people who pay their employees before they pay themselves, and they are the ones who employ an average of five Canadians through their corporations. They take huge risks, but by taking those risks they create jobs and opportunities for others. And if they don’t make a profit, they won’t be in business.
They incorporate to more easily allow other family members or business partners to own “shares” of the corporation – sharing the risks and the rewards that can come from ownership in a small business.
There are benefits for even the smallest of small businesses to operate through corporations. Among them: owners and directors aren’t exposed to personal liability from creditors unless they personally guarantee that obligation; tax benefits that are not available to individuals operating proprietorships (such as choosing a fiscal year that is not in line with the calendar year); and the banks are more likely to lend them money.
So if the Occupy protesters have concerns about income inequality, the concentration of capital and the ridiculously high compensation packages paid to CEOs and fund managers, then I think they still have some support in Canada.
However, leaving aside the drug overdose at the Occupy Vancouver site, lumping the small-business sector in with “big” business, and not understanding the enormous contribution of small business to our economy and to job creation, the Occupy movement lost a lot of support.
Special to The Globe and Mail
Tony Wilson practices franchising, licensing and intellectual property law at Boughton Law Corp. in Vancouver, and he is an adjunct professor at Simon Fraser University. His newest book, Manage Your Online Reputation, was recently published. His column appears every other Tuesday on the Report on Small Business website.
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