January 31, 2011

541 words 3 mins read

4 Ways Government Can Help Create Shared Value

Last week I wrote about Creating Shared Value. In that post, I pointed to a Harvard Business Review article by Michael Porter and Mark Kramer. If you haven’t read both my post and the Michael Porter piece, please do so now. I’ll wait.

Now that you’re up to date, let me add the Tea Party angle to this.

Though Porter did not dwell on government’s role in Creating Shared Value (CSV), he did point out that government must reform for CSV to succeed. Here are a few of the Tea Party reforms necessary if Porter’s (and Whole Foods CEO John Mackey’s) vision is to succeed:

Stop Vilifying Business: Both parties fail to defend business when business is unfairly attacked. Instead, politicians tend to jump on the populist bandwagon, piling on companies and industries. One example: the regulation of cable television in the early 1990s. Responding to false claims that cable companies were gouging customers, Congress stepped in and imposed regulations that caused cable rates to increase faster and customer satisfaction to tumble.

Stop Picking Winners: General Motors, Chrysler, Bank of America, Citigroup, and dozens of other banks and businesses should have failed. Only illegal and inappropriate government interference in the market saved these companies, transferring financial responsibility from the owners to the tax payers. Regardless of future performance, our economy is worse off than it would have been had government stayed out of the mess. Moreover, innovation and ideas that might have improved the world and increased sustainability are lost because government’s clunky hand manipulated the markets.

Stop Creating Entitlements: Welfare reform gave us a few years of federal budget surplus. With Barack Obama’s historical and dangerous deficits, the last thing we needed was a new entitlement. But Obama and the 111th Congress gave us just that with health control. John Mackey of Whole Foods pointed out a system that many employers offer that reduces healthcare costs and makes good insurance affordable for everyone. Were affordable health insurance Obama’s actual goal, he would have embraced the high deductible solution. Instead, he outlawed it. Government must eliminate all entitlements, not make new ones, if CSV is to succeed.

Reform the Tax Code: Most of the our favorite tax breaks—designed to change behavior—will go away in order to pay off massive deficits brought about by entitlements and political handouts. It’s time, then, to flatten out the tax code. That means establishing in a tax-free income level (say $20,000), and a tax rate (say 18 percent). The new 1040 looks like this:

Income:________ – $20,000 = _____________ * 0.18 = Tax Due ______________

Creating Shared Value is a business strategy. Fully embraced, it offers the possibility of remarkable growth for companies, communities, and economies. It rejects the notion of trade-offs, like clean air or full employment. Instead, it means clean air because of full employment.

Companies can reach CSV only if government gets out of their way. And if companies get out of their own ways. But Michael Porter has advanced a strong argument for the later. Now it’s time for the Tea Party to encourage government to do its part.

How else can government help advance Creating Shared Value by reducing its size, scope, and cost? Leave your thoughts below in the comments.