It can spell trouble for investors when politics mixes with business.
Is British society "anti-business"? Recent events make me think that it is. Hardly a day goes by without some politician attacking the business community, while the civil service continues to deliberately pile on the red tape, which makes it more expensive to operate in this country.
This concern was raised last Monday by a group of chief executive officers (CEOs) from companies as diverse as BAE Systems (LSE: BA), Burberry Group (LSE: BRBY), Centrica (LSE: CNA), Next (LSE: NXT), Sainsbury (LSE: SBRY) and WPP (LSE: WPP) when they met with the Prime Minister.
Even though the PM said that Britain was not anti-business, as the old saying goes "actions speak louder than words." While the coalition hasn't called businesses "predators", unlike the leader of the opposition, its much touted bonfire of anti-business and job-destroying regulations has turned out to be a damp squib.
Why it's a big problem
Ultimately, political attacks on business reduce investors' returns, and it's not just because of the misguided policies that they produce. The hostile climate that is created will cause some directors to run their businesses in a way that avoids attracting the attention of the political and media classes, lest they risk finding a pitchfork-wielding mob at their gates.
So if a factory is losing money and needs to be shut down, the chance that they could be vilified for doing so will encourage some directors to take the politically easy route and keep it open. This would most definitely harm their shareholders' interests.
Voters aren't rational
The economist Bryan Caplan, an expert on public choice theory, showed in The Myth of the Rational Voter that many voters are highly irrational and very badly informed when it comes to economic matters.
In particular, these voters (all parties have them) disapprove of free markets, international trade and new technology despite all of the evidence that shows how these things improve their living standards.
Consequently, they favour economic policies that damage their own interests and those of the wider economy. Since politicians' stock in trade is attracting votes, they are encouraged to pander to these irrational biases, and the result is that we end up with policies that attack business and weaken the economy.
No thanks, I'll invest somewhere else
Let's say that you're the CEO of a multinational conglomerate. You've been thinking of building a new factory in a foreign country, but in the last few weeks its political and media classes have started attacking the business community.
On the table are proposals to restrict profits, while business leaders are now being vilified in the media and a few have seen their contracts torn up by the state in an attempt to pander to the mob.
Would this country still be top of your list?
You can bet your proverbial bottom dollar that the recent spate of attacks on the Royal Bank of Scotland (LSE: RBS), concerning the bonus of just under £1 million that was owed to its CEO Stephen Hester, have been noticed by the international business community.
Higher tax rate, less tax is raised
At last October's annual general meeting of Diageo (LSE: DGE), its CEO Paul Walsh remarked that the increase in the top rate of income tax to 50% had made it harder for him to run the business. That's because some senior executives in Diageo's overseas operations were not prepared to move to the UK because the higher taxes would cut their standard of living.
The 50% tax rate is particularly popular among people who believe that it brings in more money. However, the jury is out as to whether more or less taxes are being raised by the higher rate, because of the strong incentive that it creates for people to avoid taxes and/or work fewer hours, and it appears that it is actually damaging the economy.
Furthermore, it sends out a big signal to the international business community that it would be prudent to consider other countries with more favourable policies and lower tax rates.
What can we investors do?
While most of us who live and work in Britain can't easily up sticks and emigrate, when it comes to our money it's a different matter altogether.
A few minutes of your time is enough to sell shares in a British-focused company and reinvest the proceeds in a British-based multinational that does very little business in the UK or in a foreign domiciled-company with no British interests.
During the last decade I've increasingly chosen to diversify away from the UK, and now some 75% of my portfolio consists of foreign companies and UK-based multinationals whose businesses are dominated by their overseas interests. Given the current political climate, I expect this proportion to continue to increase.
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> Tony owns shares in Diageo and Sainsbury.