Wednesday 7 December 2016

David McWilliams: Why Government could learn a lot from the world of business

Published 05/12/2012 | 05:00

ONE of the many great things about teaching an economics course is that you get as many ideas from your students as you give them. The other night, one of my students, who is returning to economics out of general interest but who has a wealth of experience in turning companies around, explained what he thought the budget strategy must be in the context of turning a company around from bankruptcy.

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He said that the strategy must be one where the Government is getting its house of cards sorted in order to be able to default, not in order to be able to pay its huge debts. This is precisely the opposite of what is being articulated by the State. The State's central policy, continued today, is that we will get our budget deficit down to zero in order to be able to borrow again and add to the national debt. But for this businessman, the message should be the opposite.

Here is the thinking that underlies his conclusion. A few years ago, he and his team were called into a company that was going nowhere. Initially, they thought the problem was in the profit-and-loss account (P&L), the ongoing day-to-day business.

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