Do struggling firms endanger growth?

It used to be a defining feature of economic recessions that lots of people went bust. But this time it is different.

Anthony Hilton: 'The storm never arrived and from 2011 onwards we had the ironic sight of the insolvency profession in difficulties.'
Anthony Hilton: 'The storm never arrived and from 2011 onwards we had the ironic sight of the insolvency profession in difficulties.'

This slowdown has not caused a huge rise in either individual or corporate financial collapse. Indeed, the rate of failure has been lower in the five years since the financial crisis broke in 2007 than in the five years of boom before that.

This has caught a lot of people out. Several of the insolvency specialists and experts in corporate recovery (or turnaround as they like to call it) recruited heavily in 2008 onwards in anticipation of an upturn in business. They held marketing seminars, where they pitched their skills to bank managers, lawyers and accountants in the hope they would be called in when an overstretched local firm needed specialist help. Then they sat back and waited for the coming storm.

But it never arrived and the insolvency firms found they had staffed up for a boom in business that failed to materialise. From 2011 onwards we had the ironic sight of the insolvency profession in financial difficulties.

Most are now back on an even keel, but there is still no upturn in business. What is different, though, is the skill of the profession in getting a debate going about the issue through a combination of speeches, blogs, evidence and briefings. Today it is hard to pick up a paper, read a speech by one of the financial great and good or listen to evidence before a Parliamentary Select Committee without finding a reference to the damage zombie companies are doing to the economy.

It is fast becoming the established wisdom that the reason the economic recovery is so feeble is that all our efforts are going into keeping companies on life support that should have been allowed to expire. As a result we have insufficient resources to develop new businesses.

Now the evidence for the proposition is dubious. Given the slack in the economy, it is hard to believe that the only way we can prop up the old is at the expense of the new. But one can see where the protagonists are coming from. If we become less willing to support weak companies, then it can only mean more work for the insolvency profession.

Anthony Hilton is City commentator on London's Evening Standard.

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