Reflection: Geopolitics And Business
Geopolitics and business preamble
The world is changing massively, and not least, the geopolitical landscape. With elections due soon in the USA, and AUS, and recent landslide election of the Labour government, the impact to small and medium businesses could be big. We have seen, already in many countries the increase in the size of governments, supply side and fiscal spending induced inflation, and increased regulation in areas of environmental management and workers’ rights.
You could argue that larger businesses can weather much of this, but what about small and medium businesses?
Increased government
Governments have traditionally had a role of providing social safety nets, ensuring a healthy and educated society, and to ensure a stable, and investment friendly environment for businesses to prosper. More recently, and accelerating from the COVID health measures, we have witnessed greater encroachment by government into areas that arguably, are not business friendly. Let’s look at some of these:
- Free speech
- Environmental regulation
- Bureaucracy / licensing
- Government spending, taxes and fees
- Workers’ rights
Free speech
Free speech is the cornerstone to a healthy democracy. It allows and ensures that governments are held to account, and counters political propaganda. Arguably, the right to say something that someone doesn’t like is essential in a thriving democracy. Traditionally, if you didn’t want to hear something or agree with, you simply either turned away, or stood and argued your point and listened to others’ opinions. More recently, there has been an emphasis on ensuring messaging does not upset or infringes upon others, and especially in larger businesses, employing messaging and protocols that positively influence others. This is not a bad thing in itself, up to a point. However, small and medium businesses could easily find themselves negatively impacted in the court of public opinion, severely impacting revenues or even future status as a going concern. Governments have also shaped (as well as legislated against discrimination) many areas of the world. Entrepreneurs and Directors must ensure that they are in front of the legislation. In terms of planning, your forecasts should include increased spending on legislation compliance as well as the potential of increased allocation for legal fights should they occur with lobby groups or other strongly opinionated groups. Equally, advisors should advise businesses to ensure adequate marketing communications planning for adverse events.
Environmental regulation
Here, in Australia, and indeed, around the world, there’s increased environmental regulation to ensure governments meet net zero targets, protect flora and fauna, plan for increased or reduced rainfall, or to protect, culturally sensitive sights. Again, nothing too much wrong with any of this, up to a point. What this means for small and medium busineses, and their advisors, is to ensure that forecasts include the likely cost of increased environmental regulation. Consultant costs are likely to rise, in ensuring a business anticipates potential investment or operational risks. One must also ponder, the additional costs of licensing, or follow on studies or permits. If you’re an advisor advising your clients’ planning in this area, please remember significant additinional costs could result from this.
Bureacracy / Licensing
Whether we like it or not, governments are getting more and more in our faces. Again, ensuring protection for trades, building codes and the like are sensible and designed to protect the consumer. What we’re seeing however, is a greater encroachment into business lives. Think about the process for starting or opening up a company. I was recently talking to a small business entrepreneur that has had to allocate more than $150,000 in up front licensing, checks, and paperwork etc. That’s $150,000 that’s not going into productively growing the business, finding their first customers, or making the world aware that they’re here. In some respects, that’s criminal. Equally, another entrepreneur, have started a new business in a well established industry. So far, (as this is still not resolved), It has taken approximately 10 weeks to create the legal structures and open a bank account. Last I checked, the bank account (with no application for any lending) was still not open. Money laundering rules and so forth have combined to thwart this business so far. That is costing this businessits first revenues. Beware these delays, and therefore needing to fund this time, in assessing business plans
Government Spending / Taxes
Increase government spending ultimately means increased taxation. This may not be just direct taxation, such as sales tax or company tax, but also could include the cost of licensing, tariffs, and royalties. Even things such as tolls, permits for signage, and the like could be considered taxes. Whatever way you look at it, government services need to be paid for. When building your (or your clients’ ) budgets ensure that tax expectations are included as well as the payment periods for them. Advice in this area is definitely required from your accountant and must not be overlooked as missing tax payments could mean the end of an otherwise thriving business.
Workers' rights
The world has come a long way from the days of workhouses, 15 hour days, and unpaid leave. Today, your employees can be thankful for the rights they are entitled to. Having said this, here in Australia, we are seeing a big increase in entitlements. Legislated paid, non annual type leave, leave accruals, potentially increased annual leave entitlements etc all add costs and potentially risk to business. Small and medium businesses by their very nature, do not have spare capacity to backfill leave. In planning for these, ensure your forecasts include temporary or even casual cover for key workers, accrual of long service leave etc. Should annual leave be brought into line with European standards, where 26, 27, or 28 days are seen, this must be planned for cost wise and business coverage wise.
Business And Geopolitics Are Inseparable
The above has maybe rambled on a bit, but we wanted to bring an essence of how government or political policy impacts small and medium businesses, and therefore costs or risks associated with it. Good planning and great advice is critical in helping entrepreneurs and directors through potentially confusing and indeed, difficult planning for such convergence of needs between governments and small businesses.
