Corporate failure is the market working, not failing

One of the biggest PFI contractors has failed.

It’s time the FT smelt the coffee and woke up to reality. The market has failed here. It’s not a matter of dealing with it as a result: it’s a matter of living with that fact. No amount of words from the FT will now change that.

Any economy, any system of human organisation, needs a method of clearing out those doubleplusungood ways of doing things. The market does this by people going bust.

People going bust isn’t market failure, it’s the point of the market system.

9 comments on “Corporate failure is the market working, not failing

  1. I think it is capitalism failing, when a business entrusted with public services fails so massively.

  2. @ Donald Aberdeen – Grump

    It’s not a failing of capitalism. It probably is a failing of due diligence either down to incompetence (either not caring or being stupid) or greed (brown envelopes or promised directorships). This is the government who failed, not capitalism.

  3. Hmm, what did fail here?

    The previous management of Carillion, certainly.

    But the principal/ agent problem isn’t a feature of capitalism, per se, but applies to any organisation that isn’t directly “owner” manager.

    The HMG procurement process? Yes, albeit the warning signals only started in July 17. Still, there are £1.3bn worth of contracts that probably shouldn’t have been placed. But that’s not £1.3bn of loss to the public purse and, again, not a failing of “capitalism”.

  4. Of course capitalism did not fail here, as capitalism was never designed as a perfect guarantee against mismanagement and failure to devise a good plan for the future that actually unfolded.

    Capitalism in fact succeeded, as the failure was isolated to one corporation. The mismanagement was prevented from spreading through Britain and leaving the island destitute and undefended (as it will if we get serious about Ritchie’s manifesto and lash all the boats together). The losses are confined to Carillion’s managers and investors, who are expected to have prepared for it. Yes, and to many people who did nothing wrong; that isn’t the consequence of capitalism but of dealing with other imperfect humans.

  5. Government gained by getting cheap services. How exactly is that a problem for government?
    Now the company subsidising the government goes under, yes its a problem – but government may have to pay out more now to get someone else doing it. And that may well also be subsidising the government…
    Just to a lesser degree.

    Councils and government have absolutely no problem being subsidised by charities and companies on contracts.

  6. I keep reading here that the government got cheap services from Carillion.

    I doubt it.

    Carillion went down for incompetence, a large part of which was no doubt organizational. Their expenses were too high for what they produced. They spent more than the end product was worth.

    Plus, as everyone knows, the cost of a new contractor completing a partially built project is much larger than the theoretical percentage basis.

    Does anyone know if Carillion was ahead of the government on payments or behind? Did they work on advances or payments for completed work after completion? Did the government use quantity surveyors to confirm completed work?

    Or was the Carillion incompetence in their estimation and bidding?

    This is all very interesting to me as my oldest son is an engineer working as lead of an estimating bidding team for a very large american international contractor doing roughly the same thing as Carillion, but profitably. I shall ask him what the professional gossip is.

    No doubt his firm will be sniffing around the Carillion corpse.

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