Comment before editorial is by William Macadam of UK and is carried with his permission
It is terribly sad here (in UK). High street chains are going under by the day. Centuries old icons like Wedgwood yesterday went into Administration (the precursor to bankruptcy as they try to find a buyer for it at a knock down price). It is likely a huge number of small businesses will go under, as well as large, as they can no longer get a line of operating credit from the banks who have hunkered down and their lending has all but dried up. When otherwise sound companies who depend on a line of credit or overdraft facility to carry them through cyclical trading swings go to renew their lending facility they are finding that the banks say that their cupboards are bare.
There is a deep unfairness in it all in that the banking institutions who brought on this financial crisis almost single handedly through their failure to understand what they were doing with the ever more complex instruments their whizzes were dreaming up. They seemingly had no understanding that their phoney profits were mirages based on not understanding their ever more inventive schemes, derivatives and packaging and selling on unsound mortgage instruments etc to get ever more obscene bonuses. But it is the financial institutions, who abandoned proper risk management and got the world into this mess, who get bailed out for their excesses here, in the US and Europe. Meanwhile one small business after another here is going to the wall. Even here in the market towns all around one the store after another is suddenly shuttered. No bail-out for them. It is a deeply disheartening and gloomy outlook over here.
Others who would help out and invest are finding that they themselves have been all but wiped out. Overnight banks who were supposed to be unspectacular investments but shrewd husbanders of money have lost their investors huge amounts of money.
Anyone who has been working their heart out at a small business here is now living in fear. Any worker, whether in a factory or in retail, lives in fear of losing their livelihood at any moment. It seems so unjust that the institutions that brought this all about are bailed out and sitting on the taxpayers money (thousands of Pounds per head of the population here) plugging the holes of their own making so they survive to see another day while the wheels of commerce here grind slowly to a halt.
Obviously the government here (and in the US) deserves tremendous censure for their abdication of their role in supervising the financial industries but it is the small businesses as well as large - and their workers - who had nothing to do with creating this dreadful situation that will be suffering and going under in record numbers. I feel we are witnessing a tragedy of enormous proportions. This is an editorial from The Times today. What will be left in the rubble of the ruins to come is hard to know.
So far, this recession feels deeply unfair. The financial firms that plunged
the world into a credit freeze have, in many cases, been bailed out. The
brunt of job losses will be borne by innocent workers who had faithfully
manned the shop floors of other businesses. It is not their fault that
Woolworths and Whittard had become purveyors of goods that not enough people
wanted to buy. Nor that Waterford Crystal, while an eminent brand, had been
kept on life support to protect Irish jobs, thus delaying a move to Asia
which could have saved some of them. But in corporate terms, this recession
has so far been meritocratic. The Darwinian process of natural selection is
at work in the economy. These fundamentally flawed firms are its early
There will be many more. Industries caught in the coincidence of their own
structural weak-nesses with cyclical recession face extinction. Three types
of businesses are vulnerable: first, those that are inefficiently managed,
such as Woolworths; second, those that are being overtaken by technology,
such as Jessops or photo-processing; third, those, such as textiles, whose
relative costs are surely too high for them to be sustainable in Britain
much longer. These are businesses that will – and if you believe in creative
destruction, should – fail. There is also a fourth category: businesses that
banked too heavily on the boom. Some overextended themselves in terms of
business activity, such as property development and construction. Others are
well managed, but took out loans that are now almost impossible to
refinance. Whether and how to support these companies will pose the most
difficult choices this year for both private and public sectors. Government
will naturally be concerned to ensure that good businesses do not fail on
such a scale that Britain suffers a permanent loss of productive capacity,
beyond that which is already inevitable from the shrinking of the City of
Yet governments have a poor record on intervention. The US Congress has been
rightly wary of bailing out a car industry whose problems stem from
inefficiencies, high costs and poor product. Public funds should be used to
rescue essential services, including the provision of credit, without which
no other business can prosper. But it is kinder to force makers of unwanted
goods to restructure than to bail them out and postpone reality. The
Treasury should let restructuring play out as much as possible. It is scant
consolation to those who lose their jobs, who will suffer mightily, but the
surviving companies should emerge fitter, shrewder, and better able to
create jobs and wealth in the years to come.
The ultimate test of government is not the shape of short-term bailouts, but
the framework for restoring the long-term health of the economy. It is clear
that the British economy must tilt away from the financial services sector
on which it had become so dependent. But towards what? What is the plan for
encouraging real long-term job creation? Creating make-work jobs in the
public sector will suffocate innovation and entrepreneurship, put a
dead-weight tax burden on the private sector and expand already large
state-run localities. The Government has made surprisingly little of
Britain’s potential to build replacement industries.
In 2009, economic reality will trump political rhetoric. The posturing of
Gordon Brown as saviour of the world economy, and David Cameron as supplier
of bright ideas, will pass most people by. All they want to know is: where
will the jobs of the future come from? Britain should have a tremendous edge
in both earth sciences and life sciences. Westminster should get to work on
durable remedies for the coming loss of jobs and industries, not sticking
plasters for bankrupt businesses.