Cameron is disowning Thatcher’s economics
5:21 pm - July 15th 2008
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David Cameron is moving further away from Thatcherism. This is one interpretation of his call for a US-style chapter 11 bankruptcy law. He says:
Instead of companies going straight into liquidation and having to lay off staff, they get a stay of execution and they can be restructured to try to save the business, to try to save the jobs.
This is a flat contradiction of standard neoliberal economics. This says that the very fact that a company is bankrupt is a sign that it has little value; the market – customers – judges things right. The firm should therefore be broken up, so that workers can be released to find more productive employment. And in removing excess capacity from an industry, the firm’s more efficient rivals will become more profitable, allowing them to expand.
And the notion that bankrupt firms can be restructured is pish; if there were a way for the firm to become more efficient, either the existing managers would have found it, or the firm would have been bought by those who can make a go of it. That this hasn’t happened shows there’s no hope for the firm.
Now, this view was pretty much orthodox Thatcherism. “Lame ducks must go to the wall” was a cliché of the early 80s. And the reason Thatcher called coal mines “uneconomic” – rather than just unprofitable – was because she thought miners would find better work than digging up cheap coal*.
In calling for a chapter 11, Cameron is rejecting this view. Why?
One possibility is that the evidence is on his side. We know now that displaced miners generally did not (pdf) find work, suggesting that workers don’t quickly find valuable work elsewhere. There’s some (but limited) evidence that firms can turn themselves around in chapter 11. And it’s not clear that firms in chapter 11 in industries with excess capacity actually do harm their more efficient rivals. Chapter 11 does, then, have its supporters.
But there’s another possibility. Whether or not chapter 11 is good for the economy generally, it’s certainly good for investment bankers and lawyers, as creditors spend a fortune fighting over the scraps. So perhaps Cameron has just listened to his friends.
* Of course, it’s possible that Thatcher’s pit closure programme was motivated not by economics but by mere class hatred. But no-one believes this, do they?
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Chris Dillow is a regular contributor and former City economist, now an economics writer. He is also the author of The End of Politics: New Labour and the Folly of Managerialism. Also at: Stumbling and Mumbling
· Other posts by Chris Dillow
Story Filed Under: Blog ,Conservative Party ,Economy ,Our democracy ,Trade Unions ,Westminster
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Reader comments
I’m sure the CBI will lap this up while it looks certain that the economy is headed into a recession, though I’m not sure they’ll think the same when the green shoots start showing.
There’s nothing like a good bit of protectionism heading into an election, its just like padding the balance sheet prior to a potential takeover.
What other pork barrels can we expect to be rolled out next?
Ah ah, Socialism for the rich, hey? It is the right wing way, particularly in America. Socialise the costs, and privatise the profits. That is what is going on in Iraq. The whole cost of acquiring the oil fields will be paid for by the tax payer, and then the profits will be skimmed off by the oil firms.
As for chapter 11, this allows company’s to go bust, and still trade. Bush today said of his latest piece of socialism for Freddie Mac and Fannie Mae….”This is not a bail out ……the shareholders will still own the company” Too right George, we must not let the rich elite pay for their failures. Let the plebs pay out of their taxes instead.
Of course if you read the Evening Standard on his comments about bringing an end to redistribution then you could take the opposite point of view…
Does this blog have to crowbar Thatcher into every post due to an unwritten rule, or just desire?
“And the notion that bankrupt firms can be restructured is pish…”
That’s just incorrect. I don’t think you quite understand economic theory in this area, “neoliberal” or otherwise.
Could someone explain to me how the policy objectives set out by Cameron differ from the policy objectives underpinning the law of administration – as amended by the Enterprise Act 2002 – which was originally introduced by the Tory party in the mid-80s in response to the Cork Report on Insolvency Law and Practice. The current administration regiume gives a moratorium for restructuring and to rescue the business if feasible. What does this not do that Cameron’s proposals would achieve? And for the original poster do you think that administration doesn’t work in allowing otherwise failing businesses to buy time to turn around?
Scott, you provide some great information, so thanks. However, I think that the answer to your final question is covered in the OP’s last two paragraphs.
Synergy? Did you read the whole post, or just stop at the bit you disagreed with and fail to notice the later paragraphs pointing to evidence that this attitude was wrong? Including links to economic theory showing that Chris, at least, does understand it?
I am pretty ambivalent about limited liability companies registered by the state in the first place and I am not sure what the least worst legislation for covering their liquidation would be. But if this policy will insulate business people from the consequences of their own actions, then I am against it! Thanks for pointing it out.
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