In business, pain and failure are necessary – they prevent bad practice

Jack M. McClure

September 7, 2018

While scrolling through my Twitter feed, I stumbled across a video published by Novara Media – the left-wing publisher that popularised the term “fully automated luxury communism”. In the video – the first part of their “Crapitalism” series – the presenter discussed the idea of an “industrial strategy” for British manufacturing, as outlined by Jeremy Corbyn a few weeks ago. An interesting idea she touched upon was the fact that although our politicians have typically claimed that the state ought not to pick winners in business, in practice they have done exactly that – ostensibly through supporting the financial services industry.

In the video, the presenter confuses pumping taxpayers’ money into non-profitable industries with loosening regulations on firms and corporations, holding them as equivalent practices of the state “picking winners”.

But this simply isn’t the case. The idea behind deregulation is to allow industry to be competitive and profitable without the need for state support. By contrast, a traditionally European-style system of state subsidies is used to maintain employment – propping up the local economy in the short-term.

However, the presenter does raise a valid point: wasn’t bailing out the banks a true example of this kind of “industrial strategy”?

Yet, there were legitimate reasons for supporting bailing out the banks – this was an industry in trouble, but the government had every reason to believe that they would return to being profitable companies relatively quickly. No such confidence – rightly so – existed with old manufacturing firms.

As a result of the crash, however, capitalism’s positive record has been unfairly tarnished for years. As the Conservative Party’s policy of austerity kicked into action, bankers received their bonus cheques. It was a situation that painted the picture of a nationwide divide between the disrupted life of the average citizen, and the continued life of opulence for reckless fat cats. Furthermore, quantitative easing after the crash meant that people earning an average wage felt even more of a squeeze on their household budget. All of these events helped to sow the seeds that would grow into the populist revolt of the last couple of years.

Politicians at the time justified their belief in the market, though they chose to embrace alternative solutions to the crisis. In 2008, President Bush remarked: “I’m a market-oriented guy, but not when I’m faced with the prospect of a global meltdown.” In the UK, Gordon Brown went on the charm offensive, saying to the public: “If you’re a saver, a homeowner, an entrepreneur, a family struggling to get by – I want you to know that we are doing this for you.” And so the concept of the state subsidising a failing firm or corporation was normalised.

I completely oppose this recent drive from the British left to introduce state aid for British manufacturing – the tax burden placed on the middle class to prop up these otherwise unprofitable industries would be substantial, cutting the amount of money each family has in their pockets. Besides this, it ignores the idea of comparative advantage – some countries simply produce some goods better than others. However, what is clear is that this drive is not without precedent. It is a consequence of bailing out the banks.

Let’s look at the situation today. People have seen what governments are willing to do in a crisis – namely throw money at the problem. Because of this, it is perhaps intuitive to want the government to become the bankroller for all sorts of projects and initiatives. If they can do it for one sector, then why not all of them?

This approach needs to be challenged urgently by the Conservative Party. Because the subsidising of an industry is akin to giving it a morphine shot. When a business stops being profitable, it ought to feel pain – pain is, after all, a signal to either stop what you’re doing or change your course. But when governments inject taxpayers’ cash, they numb the pain and allow bad practice to continue – only this time with public money.

A decade ago, the banks were bailed out better or for worse. However, we cannot allow this event to become the precedent for all kinds of government intervention in the market. Our future, particularly after Brexit, is dependent on a competitive, open economy which trades freely with other nations – an economy that, above all, recognises our weaknesses as well as our strengths.


Written by Jack M. McClure

Jack M. McClure is a student, and Editor of Barrister not Barista.


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