The business ethics of monopoly franchises

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Mike Wootton

Mike Wootton

So Tim Cook, the new Apple chief executive officer (CEO), became upset when an investor group attacked him on the “bottom line” effect of Apple’s well-publicized support for renewable energy. The investor group said utilizing renewable energy would reduce their returns. Angered by the attack, Cook responded by saying, “When we work on making our devices accessible to the blind, I don’t consider bloody ROI [return on investment].” His reported position in the meeting was that Apple, regardless of investor demands for ever higher returns, will make some of their business decisions based on factors other than the achievement of pure profit. How refreshing!

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The above was from an item in a major middle-class national newspaper in the United Kingdom, The Independent. What I found most interesting, though, were the reader’s comments. There were quite a lot—30 or 40—and they were all without exception critical of Cook’s position on corporate goals as being capable of striving for anything other than pure profit. One reader said: “I’m selling my shares today. After hearing this, I no longer have faith in the company anyway.” Several other comments accused Cook of being a “left-winger.”

It’s interesting to set the above sample of middle-class opinion on the purpose of business in the context of a survey conducted recently by The Institute of Business Ethics in the UK on the topic of unethical business practices across different sectors of the economy. The survey methodology was to track media reports of complaints or highlights of unethical practice across various industry and service sectors over a given period. Unsurprisingly, the sector with the most reports of unethical business practice was financial services and banking, which accounted for nearly 40 percent of all reports. The retail sector was next with about 11 percent, and the frequently maligned extractive industries was next with about 6 percent; right down at the bottom with hardly any reports of unethical practice was the tobacco industry.

The pursuit of shareholder profit in business is an objective that only companies with the market strength of Apple can challenge. The financial services and banking sectors fuel this inviolable single purpose for their own ends to maintain their own fee incomes and profitability, which in the case of banks in particular is maintained and grown for no economic benefit. So long as profit is the only real objective, then any other targets will forever be marginalized by the demands of avaricious shareholders and their financial coteries. But these are just some points against unconstrained capitalism, notable because they show an industry CEO defying shareholder demands for ethical reasons.

The Philippines today is looking like the champion of unconstrained capitalism!
Government, whether it appeals to the current administration or not, has a role to play in order to ensure that the considerations that get left behind and the corners that inevitably get cut in pursuit of shareholder returns are not at the expense of the public interest. In the Philippines context, where private franchises are still and increasingly “gifted out” albeit we pretend that they are not, regulation can never be anything but a sham. This as shown by the recent Manila Electric Co. rate hike, the water charges, toll-way charges, for instance. “Gifted” franchises and regulatory capture, what a fatal combination (except for the franchisees of course)! No benefit to the consumer can ever accrue in such an environment where maximizing profits for investors is the sole purpose of business, and ethical considerations are just for wimps!

Asia is full of gifted monopolies. Fortune Tobacco, gifted by President Marcos to Lucio Tan, had a virtual monopoly on cigarettes, and the Hong Kong Container Terminal, which charges the highest prices in the world despite labor costs being comparatively low, is dominated by Hutchinson of Li Kai Sheng to whom it was gifted by the former British administration. China under Deng Xiao Ping was (and probably still is) also in the habit of gifting many of its state-owned functions to its friends. I knew one who was gifted with a minor concession in a provincial economy, but that resulted in him owning a Rolls Royce and a Lamborghini, among other extravagant possessions.

Gifted franchises provide monopoly positions, only superficially controlled pricing, and assured returns for shareholders. It is only government which has the ability to give the gift.

A monopoly franchise for cigarettes at least allows the consumer the option not to smoke. A monopoly franchise for a container terminal holds importers and exporters to ransom. Monopoly franchises for necessities such as electricity, water and medical services invite the public to be held to ransom; to avoid that, they can be either properly regulated or they can be provided as a function of government, which while open to criticisms of inefficiency at least has a responsibility for public accountability and to serve the public interest—yes, even in the Philippines!

The Philippine business environment seeks the maximization of profit above all, and there is little or no control over this. Government is obsessed with privatization at any cost, and the business sector is relatively small in terms of the number of oligarchs. How can we ever expect the government to serve the people’s wider interest in a way that Tim Cook advocates?

Mike can be contacted at mawootton@gmail.com.

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2 Comments

  1. Its strange how you were so quick to point out a few people in the uk complaining about wanting maximum profit. I think you ought to sort your country out 1st. I will point something out to you about profit. Savemore supermarket in salitran dasmarinas cavite seels milk magic for around 68.5 pesos, robinsons supermarket ( i think in dasmarinas ) was selling the same milk for P11 less. Now that might not seem like a lot o money but if your salary is P350 per day its a huge ammount. Now tell me who is being greedy. I see some foods produced here costing more than in the uk, now in the uk the minimum hourly rate is about £6 for people over 21, thats approx. P440, as you can see the uk hourly rate is more than the philippine daily rate by a big margin. So why can we produce food so much cheaper than here, is it because here they want higher profits, i think so. My friend bought a new vehicle for around P2,000,000 & it was just before xmas, now i dont think he got any discount & the arrogant saleslady asked him for her xmas present. In the uk the sales lady would have bought him an xmas present to say thank you for buying from us. My friend in my subdivision cant get a phoneline from pldt because they said the box is full, well add another box. This is a national company & surely it wants more customers. So journalist i suggest you llook at your own country & sort out its magnitude of problems before you start criticising a much better country than yours.

  2. Claro Apolinar on

    Thank you for this and your previous columns, Mr. Mike Wootton.
    This government is a captive of businessmen and smugglers whose unpatriotic policy is to milk the Philippines dry.
    May God bless the new apple CEO and may his example inspire other businessmen to think also of the human beings.