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Growth or Bust

If there were more corporate collapses, the economy would be a healthier place

Given the collapse of Comet last week, here’s a contrarian claim: far too many companies are staying solvent, avoiding bankruptcy and continuing to trade despite the troubled economy. If only we had a few more corporate collapses, the economy would be a healthier place.

Could this possibly be true? It’s not quite as mad as it might seem. An economy with a vibrant entrepreneurial culture, in which new companies with good ideas find it easy to raise money and reach customers, is also likely to be an economy in which slow-footed incumbents find themselves outcompeted and out of business.

To look at the same problem from a different angle, think about an economy in which banks prop up loss-making companies because of political pressure, or because foreclosure would crystallise a loss at an awkward moment for the bank, while forbearance would postpone the day of reckoning for both borrower and bank.

This is from the blog of Tim Harford and he makes a compelling case.  I would suggest two things. Firstly, the culture of entitlement among both organisations and individuals and there compulsive need for handouts is stifling the economy and individual growth. Show me a billionaire and I will show you someone with their hand out. Secondly, as a trader you dont have this concern – if you go bust you go bust…….

More from Tim Harford here

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