Today is one of those days when I had a Tom Harris moment and realise the perils of blogging. I checked PoliticsHome (as I do pretty much ever hour) to see that I was referring to “Cameron’s ‘disastrous’ left-wing business plan.” Hardly a wicked distortion of what I wrote – but not what I meant either. For the record, I don’t considerer Cameron’s entire business plan to be intrinsically left wing. I was referring only to the introduction of a Chapter 11-style insolvency law to Britain, which I oppose. I also believe that in proposing it Cameron is positioning himself to the left of Labour. I consider this to be significant, like his NHS plans and his proposal to tax non-doms.
As always, CoffeeHousers make intelligent criticisms. Mark says there is a balance to be struck between protectionism and letting banks and lawyers devour companies for the smallest blip. I agree, and consider the government’s current balance to be correct. For all its reputation as the free-market centre of the world, America has several protectionist tendencies (think farm subsidies, steel tariffs) and Chapter 11 is something we’re better off without. It has a very chequered history, for the reasons I outlined in my post. It is ripe for exploitation by unscrupulous companies and that’s why I say it is “potentially disastrous”.
Team Osborne called me up to say the Tory policy would do a better job at sorting the deserving sheep from the undeserving lambs. Also, the Tories would have a time limit (as yet unspecified). So they intend to take the good bits of Chapter 11 without importing the bad. I remain sceptical: just how Britain would succeed where America failed remains unclear to me. It is a tool wide open to exploitation, and getting the wrong balance could be a real danger to the economy. It’s the sort of trap that Labour used to lead Britain into. In America, teams of lawyers pile in to dress up undeserving companies as deserving ones.
David, another CoffeeHouser, says small companies are welcoming Cameron’s move. I’d expect them to. Chapter 11 protects failing companies against start-up companies, so this policy was always going to go down well at the CBI. A company that has been granted immunity from interest charges (and allowed to wriggle out of paying its pension duties – another one of Chapter 11’s ills) will always have an advantage against a solvent rival which has to pay its creditors (and pensioners).
As for my view being one of the fire-breathing, baby-roasting, neo-liberal right – I can only cite this quote as something which exactly reflects my position.
That’s Vince Cable.“Chapter 11 not only rewards failure, but as the debacle of the US airline industry showed, it distorts the market and can be used as a cynical ploy for executives to weasel their way out of paying the pensions owed to their employees.”
There is an economic crisis on, and one of the biggest dangers of this crisis is reverting to the protectionist policies which did so much harm in the 1970s. Cameron’s plan is well-intentioned, but the road to economic hell – Britain in the late 1970s – was paved with such good intentions. And (TrevorH) it is precisely because I do not want to see people on the dole that I want Britain to come out of this downturn quickly and painlessly. Protecting failing companies tends to prolong agony. This is always the paradox: that allowing insolvent firms to go bust is the best way of ensuring job growth – as it make space for stronger and higher-employing companies. When C&A closed down, its staff lost their jobs. I was (then) retail correspondent of The Times and took some stick for saying this was good riddance. What about its poor staff? But C&A was soon replaced by a brilliant new wave of retailers – Mango, Zara, New Look etc – that employed even more people because they had more customers. The result was more jobs, and brighter British high streets. There may well be a case for tweaking British bankruptcy laws. But Cameron has, I believe, made the wrong decision in using America’s Chapter 11 as his lodestar.
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