by Neville Kennard, preaching and practising capitalist
Originally published in Barry Maley et al., The Entrepreneur in Society (Sydney: The Centre for Independent Studies, 1983), pp. 51-56, as “The Views of an Entrepreneur.”
Kennards Hire was started by my father, a real entrepreneur, an old time horse trader and promoter, who had the advantage of having left school when he was 14 years old to go jackarooing. He owned a dairy when he was 18 and was a shearing contractor when he was 20. I didn’t have the same advantage. I grew up with a fairly affluent middle class background and happened to flop into the business which my father had started. He struck on the idea of hiring equipment in 1951 and started hiring out a few concrete mixers and wheelbarrows from the garage of his house. I came into it a couple of years later, found that I didn’t get on all that well with him in business and eventually managed to buy him out.
II. THE PROBLEMS FACED
Identifying a need
The problems that I’ve had to overcome fall into four areas and in increasing order of difficulty these are as follows: First, to identify or verify the need for a product or service. I think that is very easy. There seems to be no shortage of opportunity for entrepreneurial activity. You only have to walk down the street wanting to buy something, go somewhere or do something and you’ll find examples of things that can be done better or differently, or things that haven’t yet been done. I’ve never found that a problem. Verifying the need is just a question of doing the sums to see whether you’re going to make a quid of it. This is of course a little difficult, with unknown factors, but I’ve never found it a major problem.
The acquisition of skills
The second type of problem is more difficult — the acquisition of skills and the knowledge needed to do well the entrepreneurial tasks that one undertakes. This is not particularly hard either. The good old university of hard knocks is a great teacher and if you don’t have particular skills, it is always possible to go out and buy them in the market place. It is handy though to acquire some knowledge and personal skills in communicating with people, in getting on with people, in supervising, recruiting, training and getting the, to do things for you. It helps if you have some knowledge of accounting, budgeting, promoting and advertising, and in financing, borrowing and, if you’re lucky enough, lending.
The next most difficult area, I’ve found, is the bureaucracy and the red tape that’s involved with doing business. This seems to be a particular problem of mine. I’m not sure if it’s because I’m doing lots of new things or if it’s in my nature, but I frequently seem to have headlong confrontations with bureaucrats. I’m not very good at handling that. Patience isn’t one of my virtues and I don’t suffer fools gladly. I don’t like the negative attitude that most of these people seem to have, and it seems that whatever you want to do, there’s a bureaucrat there. Sometimes it seems there is a whole army of officials from whom you need permission to do what you want, when, where and how you want to do it.
In relation to what you want to do, it seems there is hardly anything a businessman can do today which doesn’t require a licence. In hiring equipment, for example, we don’t need a licence to actually go into the business, but we need a heap of other licences to perform certain functions in that business. In other areas, transport and communications particularly, it is almost impossible to get started. It is just not allowed. If you want to start an airline, a telephone company, a mail service, you either can’t do it, or you need approval which is very difficult to get.
In other areas you’re in competition with the government. I discovered this when I decided that growing pine trees might be an interesting sideline. I found that I was in competition with the government which is planting and selling pine trees and really isn’t interested in making a profit. It just keeps planting them, with little regard, it seems to me, as to whether there’s going to be a market there in the long term, and it cuts them down without necessarily trying to maximise its return.
If you want to build, fish, or farm, if you want to open a restaurant or a hotel, or even if you want to go into a profession, you need a licence from the government. In some cases it’s just a formality but you still need the piece of paper. For a factory you need a factory licence. It doesn’t do anything. You just hang it on the wall. It’s only $10, but it’s still got to be there.
As to where you want to operate, there are zoning laws and development laws and building laws and people telling you that you can’t do what you want to do where you want to do it. We find this happening quite often. The zoning that suits us properly is industrial, but it could be commercial. Mostly, when we start a new hire branch, the proposed location is zoned industrial. We go to the local council, whose knee-jerk reaction is: “You should be in a commercial area.” Of course if I go along wanting to apply in a commercial area, they’ll almost certainly say I should be in an industrial area. To one particular council which said “We think that’s a commercial activity”, I pointed out that I wouldn’t find three acres in the main street of Parramatta and that with the storing of equipment, its maintenance and the necessity of starting up engines, it may not be the best activity for a main street. I was told that I would have to store equipment in one place and hire it from another. That was a lower-rung bureaucrat and up the ladder a bit they did become more reasonable.
Next door to our site in Artarmon there was a store that sold timber and hardware. They were trading extremely well. We liked them there because they were complementary to our business, but the council closed them down because they were retailing in an industrial area. Their customers hadn’t minded them where they were and I don’t know of anyone who objected except the planners.
As to when you open your business, there are trading laws that determine what times of the day and the week that you can do things. In our business we can hire 24 hours a day, seven days a week, but we can’t sell after midday Saturday. When we hire a floor sander, we usually sell the paper that goes with it, but according to the NSW Department of Industrial Relations, after noon on Saturday we have to fence off the area where we sell the paper so people can’t buy it. There are lots of things that can’t be sold after midday Saturday. You can buy a screw for you boat but not a screw to fix you back gate.
There is an interesting rule permitting family businesses to trade seven days a week — a concession to small business. The family business is described as one not having more that two employees and two family members working full time. That means if you start your business with your family and two employees and you’re successful and need to expand, you have to close on Saturdays and Sundays. The logic of it eludes me.
Regarding how you do business, there are all sorts of rules and regulations you have to conform to. If you build the better mouse trap, before the world will be allowed to beat a pathway to your door, the mouse trap will have to conform to all sorts of consumer standards. The RSPCA might want to know whether you’re going to kill the mouse kindly. You’ll probably have to conform to the Australian Standard for mouse traps, if that exists, and if it does, it is certainly going to be different from standards in the rest of the world. The unions are going to tell you who you can employ. The Department of Industrial Relations will tell you what hours they will work. You’ll be told what shape and size your building will be and how many toilets and parking spaces you’ll have.
To test all this, I started to list out the pieces of paper we have to go through. I identified 1,600 bits of paper we have to handle for the government every year. A lot of them are involved with vehicles — registration labels and inspection certificates — amounting to about 600 pieces of paper a year. Then we have air receivers and air compressors. Each one of those has to have a certificate and it’s supposed to be inspected annually by a little guy who goes around with a hammer and taps it. This is a carry-over from the days when boilers were made with rivets. An air compressor is a pressure vessel under the definition. I asked one of the inspectors if he had ever seen one blow up and he said in his 30 years he hadn’t. We have to have sign licences for all our signs. We’ve got to have dog licences for our guard dogs. Each place of business has a factory licence. We have certificates of incorporation hanging all over the walls. We have fuel storage licences and hoist operator’s licences. If we want to put in a builder’s hoist, not only does the guy who is to operate it have to have a hoist licence, but the guy who installs it has to have one. If we do the rigging work with scaffolding those people have to have riggers’ licences. We are supposed to have an explosive tool licence if we fire Ramset guns into walls. We have a diesel fuel tax exemption certificate, because some of our diesel fuel is used in air compressors, where it doesn’t attract road tax, and some is used in vehicles, where it does. One of the funniest ones is the builder’s licence which we are required to have for building jobs and extensions we do on our own premises. I’ve never quite worked that out. Is there a danger we will defraud ourselves? Or is there some other purpose?
The fourth and most difficult area, I find, is taxation. The taxation structure in Australia greatly inhibits the ability to accrue capital. The taxation level is extremely high, making it difficult for a wage earner or anyone else to accumulate capital. Once you are in business it’s difficult to accumulate more to expand and buy more sophisticated equipment or to go into other fields.
Taxation rates in Australia are so confiscatory I did a brief exercise. They are very much higher than they appear. For a private company, with a pre-tax profit of (say) a hundred thousand dollars, company tax takes forty-six thousand of it. Inflation (you can’t include that if you play it by the book) in our business probably accounts for ten thousand dollars inasmuch as we’re only allowed to depreciate our equipment at original purchase price. That leaves forty-four thousand after-tax profit. You then have to distribute another 50 per cent of it. If you don’t distribute because you want to keep it in the business you’ve got to pay 50 per cent tax on 30 per cent of the balance of the fifty-four thousand, which amounts to eight thousand one hundred. In the end you’ve got about thirty-six thousand dollars left to plough back to expand or to improve your business. This is before the shareholders get anything.
There are all sorts of ways that people seek to avoid tax through legal tax shelters and by evasion. It is very much more difficult for private companies to accumulate capital. I see it as a great incentive to avoid tax; in fact, I was tempted to call this paper The Tax Avoidance Imperative. I think there’s a natural desire to hang on to what you’ve made, to hang on to what’s yours. There is a survival imperative. If you want to survive, if you want to stay in business, it is difficult not to seek to avoid tax. There is a great competitive force, too, for if your competitor is doing it, or you think he might be, you can’t afford not to. So there are plenty of good reasons why people will, I believe, try to avoid income tax.
Then there are the other taxes that are payable. It’s amazing how many there are: there’s company tax; pay as you earn taxes (when we collect on behalf of the government from our employees); payroll tax (that’s a terrific one, tax for employing people); sales tax (some of the things we buy are taxable, some are not, so we have to have a rule where we quote a sales tax exemption or we don’t, depending on the item, and then when the tax inspector comes out we argue about whether the rear vision mirror went on a vehicle or on a piece of construction equipment); we have land tax; and we have a hire tax (believe it or not) which is really a stamp duty. There are about 8 or 10 different stamp duties — stamp duty on real estate transactions, on cheques, on mortgage transactions, on insurance, on lease or hire purchase transactions and on purchase of vehicles. We pay import duty and sales tax when we import equipment. There are council and water rates. There are development taxes and fees and so it goes.
I conclude with a couple of observations on the role of the entrepreneur. Firstly, he does benefit society. He brings goods and services to the market which wouldn’t otherwise be there. These result in lower prices or better services, higher employment, new ideas and he might also pay taxes to the government if he hasn’t found a way not to.
Secondly, the role of entrepreneur is open to everybody. Education, colour, creed, and background are not really important to the people to whom you sell or the people from whom you buy. What matters is that you give them the service they want and you pay your money. It is a very egalitarian form of activity. I don’t think people are concerned what religion their butcher or baker is.
The system as it now works, with extensive government intervention, discourages newcomers. It works for the benefit of those already in business, because it is difficult both from the financial and regulatory viewpoints for new people to get into business. The result is that those of us already in business are less innovative and less bothered by newcomers and competitors than we would otherwise be in a freer economy.
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