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		Book Review - The Role of Business in the Modern World by David Henderson, foreword by Steve Forbes First published IEA, London, August 2004. Re-published in the USA by the Competitive Enterprise Institute, November 2004. ISBN 1-889865-04-4 Wednesday 10th August 2005 The business of business is business! A few weeks ago in Pyongyang I met with North Korea's Deputy Trade Minister, Mr. Kim. Asked to explain the huge discrepancy between the economic performance of North and South Korea (per capita GDP in the North is around 5% of the South's figure), he blamed the collapse of the socialist markets of Eastern Europe, the US embargo, and natural disasters. I asked him whether, in the spirit of "Juche" (self-reliance), they should not look for internal as well as external causes, and he replied rather huffily that they were entitled to choose their own economic system. Henderson's excellent book makes a powerful case that economic success is determined largely by a country's internal factors and policies, rather than by external factors. Looking at economic performance over the last half century, he notes that many counties that were poor in the fifties are now well on the road to prosperity, or in some cases (like Singapore) actually ahead of most Western countries in per capita terms. Yet many others, notably but not solely in Africa, are little richer, and in some cases poorer. The key differences, he argues, are free markets, and their essential infrastructure - the rule of law, property rights, and honest and credible institutions. Here he agrees, perhaps surprisingly, with Graham Watson MEP, leader of the Liberal group in the European parliament. Graham was on our recent visit to North Korea, and he remarked that "Markets are the most powerful wealth-creation device known to man", and that "Over recent decades, markets have lifted 300+ million people out of poverty in Asia". Henderson would agree, and so do I. North and South Korea provide perhaps the best head-to head test of a free market against a centrally planned economy, and the contrast is dramatic. It follows that global inequality and global poverty are not the fault of capitalism or of globalisation. Without capitalism and free markets, we would none of us have become wealthier, and the poor remain poor not because of capitalism, but because of the lack of it. Henderson agrees that protectionism in the West (like the EU's infamous CAP) have made life tougher for developing countries, but still sees failure primarily as a result of the lack of free markets. Henderson then turns his attention to the modern fad of "Corporate Social Responsibility", or CSR. This says, in a nutshell, that businesses should not be judged on profit alone, but on the "triple bottom line" of social policy, environmental policy and economic efficiency. Many corporate CEOs have bought into CSR (or at least pay lip-service to it), presumably to ward off criticism from the green lobby and the anti-globalisation movement. Henderson makes a strong case that profits remain the best overall measure of the value which an enterprise offers, not only to its customers, but to society as a whole, and argues convincingly that multiple objectives will undermine performance. He accepts that externalities need to be addressed (for example the presumed cost to the environment of CO2 emissions), but these he says are the responsibility of government, which should address them by general regulation that would apply to all enterprises. Such regulation should be circumspect, however, to ensure it does not put at risk the competitiveness of the whole economy. CSR may not deliver even in its own terms. For example, the "social bottom line" may lead to attempts to introduce Western social conditions to developing countries. But the standards that are right for Surbiton may not be right for Somalia. The low wages of developing countries enable them to get a foot on the ladder, and as they become more successful, wages and conditions improve. I can confirm this from my own experience. I have started businesses in Vietnam and Morocco. I also ran a business in the late 80s in Malaysia, and saw at first hand the rapid rise in wage levels and general prosperity. Advocates of CSR call for "vanguard companies" to adopt CSR measures. But if these companies are not followed by others, they will lose out to competitors. And if their policies become the norm, there is a risk that they will damage the competitiveness of the whole economy, compared (say) to China and India, and as usual we shall end up exporting businesses and jobs. I rarely read a book that substantially changes my opinion, but this is one of them. I am dealing with the CSR issue on the European parliament's Unemployment Committee. Previously, I was prepared to give CSR my qualified approval, provided it was approached on a voluntary and not a statutory basis. Now, I feel I can recognise it for what it is. It is anti-capitalism with a smile. It is Luddism with new clothes. We shall all be better served if business gets on with business, leaving regulation (and not too much of it) to government.