Tuesday, 22 January 2013

Bush fire treatment

Some commentators have suggested that about a third of our businesses are 'Zombies' (unproductive and lacking innovation), certainly a large number are loss making.

In my last Zombie post I looked at the scale of this problem, since then HMV and Blockbuster have gone under:   http://getwd50.blogspot.com/2013/01/were-all-zombies-now.html 

Whilst low interest rates have allowed these companies to limp on, as we head into the 5th year of the downturn owners and managers must be getting weary. We have seen an increase in insolvency, particularly in those industries being impacted by other structural change, retail by on-line and finance by regulation.

Perhaps 2013 will the year when the less well run businesses in stable sectors will finally throw in the towel. This might even create the conditions for the economy to find a new lease of life.  The theory is that in the same way that a bushfire clears all the deadwood and unproductive undergrowth to create space for new shots and fresh grass a recession should do the same for poor companies. 

In this recession because of low interest rates we still have too many unproductive companies that are tying up skilled staff and capital that could be used to start new more productive enterprises.  The bushfire is tough medicine but it seems to work in the US where there is a much greater velocity of company failure and start up.

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