Life support for jobs threatens growth

ANOTHER set of labour market figures, another bout of head scratching. How can the resilient jobs scene be reconciled with a double-dip recession?

Solutions to the puzzle are picked up, then discarded: labour hoarding by firms; a temporary lift from the Olympics; an explosion in part-time working; or, indeed, the possibility that growth figures are wrong, and the recession a figment of a statistician’s imagination.

‘We keep looking at explanations and then finding evidence which doesn’t really support them.’ Thus spoke Sir Mervyn King, Governor of the Bank of England, earlier this month, clearly as baffled as we are.

But if the answer makes no sense, change the question. Rather than bemoan the lack of relationship between gross domestic product and unemployment, George Buckley, economist at Deutsche Bank, has put the labour market figures alongside those for corporate insolvency, with some intriguing results. In 2011, there were just under 17,000 company liquidations in England and Wales. Compare that with nearly 25,000 in equally depressed 1992. Even in fairly upbeat 1985, there were about 15,000.

These are historically low numbers of liquidations for a recessionary economy and suggest that the key factor behind unemployment, at least in the short term, may not be GDP at all, but the existence or otherwise of the business units for which people work.

In a sense this is a tribute to all those who over the years have worked to create a ‘rescue cul- ture’ rather than a receivership culture among banks and other creditors, from insolvency expert Sir Kenneth Cork in the Eighties to Lord Mandelson in the last Labour Government.

But this new willingness to extend life support to the private sector does not come free. The danger is of a new breed of zombie companies, kept alive by banks under pressure to bolster business lending. And this phenomenon may be feeding back into our sinking GDP as firms tick over, rather than grow.

A more intelligent approach may involve creditors’ committees, supervised by the Bank of England, for each troubled medium or large-scale firm, figuring out which parts are worth saving. Employees in the dud bits should get free travel warrants to seek work elsewhere.

Are we in the mood for such a serious, unglamorous slog?

The fear has to be that the ‘Olympic legacy’ will prove one last spin of that magic roundabout of illusion that is called Britain’s ‘creative economy’, in which other countries do all the boring stuff.

It is rather as if an indolent pupil surprisingly gets an award at school prize-giving, allowing his ever-indulgent parents to stand down that tough private tutor they had hired for the summer holidays.

Let the lad enjoy himself! Thus is more time wasted – again.

Read more on this at http:// atkinsonblog.dailymail.co.uk.