Can positive impact in society be accredited to successful business people? Just accounting for the companies on the Forbes list, the most successful businesses globally have generated sales valued at $50.8 trillion, giving a profit of around $4.4 trillion. I strongly believe that society generally benefits from this outcome, both when it has been made and when it is spent - let's look at the reasons behind this.
Arguably, successful people benefit others when spending money. We can explore this through the idea of dynamic efficiency. This is where firms invest in new production processes that increase output whilst decreasing costs. Dynamic efficiency is strongly linked to the pace of innovation within a market. This leads to greater technological advancements, and an increased focus on environmental impacts of production. These results can be directly linked to customer satisfaction; therefore, others benefit in this situation.
Technological advancements can benefit others, as they can increase productivity. Take the sector of agriculture as an example: improvements in the factors of production, particularly capital, will lead to an increased yield per acre. Technological advancements can increase production, leading to a lower cost of production. This lower cost can be passed onto consumers, decreasing the price of goods.
Whilst this could mean that the price of a Freddo, for example, might finally decrease back to the notable 10p mark, on a larger scale, this could result in greater food security and even food on the table for some families. We can look at both modern and historical examples that show that this is no coincidence.
There have been huge technological and agricultural advancements over time. The factors of production in Britain are much more advanced now than they were 1000 years ago. Taking Britain as an example, the last famine in England was the peacetime famine in 1623-24. During the British Agricultural Revolution, agricultural output grew faster than the population between 1670 and 1770. Likewise, agricultural output per agricultural worker increased from 90 in the year 1600 to over 150 in 1750. Some examples of advancements and innovation during this period are the Dutch acquisition of the Chinese iron-tipped, curved mouldboard, adjustable depth plough and the introduction of selective breeding. In short, there has not been a famine in Britain since the agricultural revolution - a period of enormous advancements in farming technology which caused a huge increase in productivity.
Today, we can look at technological advancements between different countries and how these effects living standards. A measure that can be used is the Solow residual. The Solow residual is the chunk of an economy’s growth in output that cannot be accredited to the factors of production, particularly labour and capital.
TFP = Y / (K^α (L * H)^(1-α))
TFP - total factor productivity Y - GDP K - capital input L - labour input H - human capital input α - output elasticity of capital
As shown in the Solow residual formula, the residual is the percentage of production that changes in labour and capital inputs do not account for. This can be used to explain why advancements in technology (innovation) benefit others, through increasing the standards of living. Robert Solow found that only an eighth of the increase in labour productivity in the USA could be attributed to increased capital, between 1909 and 1949. To put it simply, the United States became a global image of ‘freedom’ and ‘prosperity’ due to innovation in America. This aligns with the idea of the ‘American dream,’ which was popularised during the Great Depression in 1931.
Historically, China was a slow-growing country with a huge productivity problem. This is supported by the Solow residual. In the 2000s, China’s TFP was regularly negative. This shows that China wasted a lot of financial resources, particularly in industries like coal, steel, infrastructure, and cement. During the same time, around 13% of China’s total population lived on less than $1 a day, with 40% living on less than $2 a day. This extreme level of poverty was characterised by a stagnant and centrally controlled state, which made innovation and technological advancements rare. Although China is now considered an economic powerhouse, this is largely due to the sheer size of the country, and a spike in population.
A state of dynamic efficiency can also result in a company becoming more environmentally friendly. With people's recent exposure to the impact of climate change, a greater percentage of the world’s population is becoming more environmentally conscious. Companies becoming environmentally friendly is a symbiotic relationship: the company gains a USP, which allows them to increase their prices, which leads to more profit that they can reinvest in research, development, and production. Consumers also gain satisfaction when ‘doing their bit’ to help the planet. But how has innovation harmed the planet in the past, and how can innovation also be used to reduce this damage?
Notably, there was a significant increase in CO2 emissions in 1950. During this time industrialisation occurred, which increased the burning of fossil fuels. This was done to make coal for steel, and oil for vehicles and manufacturing. We can take a closer look at vehicles in particular. Karl Benz invented the first modern car in 1886, which was fuelled by petrol. Widely considered one of the greatest inventions ever, it has predominantly been held in a positive light, but people are now starting to become more focused on the environmental impacts of petrol and diesel vehicles.
Whilst this spark of brilliance by the Austrian inventor in the 19th century has had a significant effect on global warming, this opened a gap in the market: electric vehicles. Even though the electric car has been around since 1888, it has only become mainstream since the late 1990s. The popularity of the electric car has increased hugely due to the realisation of how quickly climate change is worsening. Electric cars release zero tailpipe emissions, and a collective of this will slowly reduce the CO2 emissions in the atmosphere, thus benefiting others through making our planet habitable for longer, as well as improving people's satisfaction.
Looking at both historic and recent examples, we can see that firms investing money can lead to a state of dynamic efficiency, which can benefit others through increased production, technological advancements, and becoming more environmentally focused. This supports the idea that successful business people benefit others when spending money.
But there is also a compelling argument to suggest that successful business people benefit others when making money. The overarching support for this is the idea of corporation tax. Corporation tax can benefit others in a multitude of ways, but I am going to focus on two of those: government reinvestment of the tax into public services and the effects that corporation tax can have on consumers.
Corporation tax is a direct tax that is paid on any corporate profits. It is currently at 25% in the United Kingdom, which results in the UK government receiving a staggering 25% of all limited companies’ profits. In 2022-23, this meant that the total corporation tax summed to £88.3 billion. But how does this yearly influx of money to the British economy benefit others?
The largest UK government expense in 2023-24 was social protection at £341 billion. The United Nations Research Institute for Social Development defines this as preventing, managing, and overcoming situations that adversely affect people's well-being. The money spent on social protection improves the living standards of the public with the intent to reduce the levels of poverty. With standards of living being such a prevalent issue today, particularly because of rising energy prices after the onset of the pandemic in 2020, it is crucial that social protection is at the top of the government’s interests. Economies began re-opening in Summer 2021, which resulted in huge demand and little supply. This, coupled with reduced supply because of limited trading paths due to the conflict between Russia and Ukraine, means that energy prices are at a record high in the UK. In the first year of the conflict between Russia and Ukraine, the average UK household spent £800 more on gas than in previous years. A lot of households cannot afford this rise in energy prices, so poverty rates have unfortunately risen in the UK. The fact that public spending has facilitated social protection the most out of any sector benefits others, as more is being spent to reduce social inequality.
The money spent on a lot of the other sectors, particularly public sectors like health, has opened many jobs in society. This benefits others as the unemployment rate will decrease, meaning greater job security for many. A lot of this public spending stems from corporation tax. Therefore, successful business people making money benefits others in the sense of living standards and employment.
The other idea that can be explored when considering corporation tax is the effect it can have on consumers. The largest causes of death in the West are cardiovascular diseases, cancer, and chronic respiratory diseases. This is a huge issue, and can be traced back to demerit goods, such as cigarettes, alcohol, and unhealthy foods. As these are all demerit goods, they are all inelastic products. The introduction of a tax (such as corporation tax) causes an inward shift in supply. This is because demerit goods are very addictive, so people are prepared to pay the significant increase in price when supply shifts inwards due to the introduction of a corporation tax (which causes quantity demanded to fall). This creates the opportunity for producers to levy most of the corporation tax onto the consumer, resulting in these products being much more expensive to purchase. Theoretically, consumption will simultaneously drop, as more people will not be able to afford these price increases. This correlation is shown when looking at the prices of cigarettes compared to smoking rates - the rate of smoking falls as the cost of cigarettes rises. This benefits others as less people are getting preventable diseases, which lead to death. In the case of cigarettes, passive smoking also decreases. Therefore, there are fewer negative externalities in consumption.
In conclusion, I believe that successful business people can benefit others when both spending and making money through various pathways, such as dynamic efficiency and corporation tax, which serve to increase living standards both nationally and globally.
Writer: Joshua Clee
Editor: Ritisha Baidyaray
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