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Thursday, March 24, 2005


On the Adam Smith Institute Blog

By Alex Singleton 24 March 2005 Industry & Employment
Allders, the British department store group, has gone into administrative receivership. 1850 jobs have already been lost. In some towns, Allders was a key retailing institution. Isn't it wrong that the company, which was founded in 1862, should disappear?

Receivership is a nasty business, unpleasant for everyone involved. But, long-term, it is socially beneficial process. It takes resources that are distributed inefficiently and redistributes them to people who can use them better. Over the past decade and a half, Allders expanded from 11 to 45 stores, but 40% of the revenues came from the original Croydon store. Twenty of the stores, known as Allders at Home, were total disasters. The head office was hugely overstaffed, and the first thing the administrators did was to make 130 head office staff redundant. In 2003, the Daily Telegraph described Allders as "the country's most boring department stores".

The administrators have sold 24 of the Allders stores to Allders' competitors, like Debenhams, BHS and Primark. Thirteen stores were closed this week without buyers at present due to lack of interest. Three, including the flagship (but tatty and dilapidated) Croydon store, remain trading under the Allders brand for the time being. The administration process continues.

The alternative to selling the company's assets to the highest bidders would be for government to intervene and give Allders a helping hand. It could be argued that Allders is merely facing short-term problems and needs some breathing space. In reality, government support rarely achieves this sort of turn-around. Instead, the drug of government money becomes addictive and constant injections of cash are required. It is much better to have the redistributive process of receivership. It's survival of the fittest, but it is that process which benefits shoppers - and society - the most. And even the loyal shoppers in Croydon, where the store is a real institution, might be pleased - rumour has it that the capitalist collective known as John Lewis wants to move in.

I replied:
Bankruptcy, or less spectacularly, poor dividend return is the equivalent of what engineers refer to as negative feedback in machines. ie some system that self corrects a machine that is not running optimally.

In some ways a well run command economy can put investment in massive quantities in useful directions faster than the free market. However without the negative feedback loop when the industry doesn't work there is no automatic system to stop the mess getting worse.

This fact can, almost on it's own, explain the remarkable industrialisation of the Soviet Union under Stalin & the eventual collapse of it's outdated infrastructure.

If somebody develops a working socialism that allows the bankruptcy of lame ducks rather than their subsidy it will sweep the world.

I am reprinting this here, unlike most things I put on other blogs, because this encapsulates my opinions on economics, free marketism & alternatives. In practical terms I often call for the same reforms as libertarians but I do not share their almost religious concern for capitalism. I regard present day entrepreneurship rather as Churchill did democracy - the worst system except for all the others. I think it quite likely that someday, perhaps before the USS Enterprise is cruising space, a working socialism will be developed. I don't think any current socialist politicians will have contributed to it.

Almost all machines of any sophistication have some form of negative feedback otherwise they would quickly destroy themselves. The only one that immediately comes to mind that doesn't is the atom bomb. Social systems which don't employ feedback (such as bankruptcy, the separation of powers, primogeniture) are also unstable.

Good to see you are now king of the blogrolling

John Ray
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