Monday, 2 November 2009

UK Plc doing better than in past slumps


This morning I picked up a copy of City AM the freesheet rival to the Financial Times. It had an interesting editorial from Allister Heath. I have highlighted the parts in bold which are a consequence of the last 12 years of Labour government:
THERE are many reasons why the stock market has bounced back, despite the severity of the recession. The fact that corporate earnings didn’t collapse as much as originally feared is one such explanation, as highlighted this weekend by Lombard Street Research. The operating profits of UK companies have fallen 8.4 per cent from their peak, compared with 10.6 per cent peak-to-trough in the 1990s recession, and 22.8 per cent in the early 1980s. The fact that the drop in profits has been contained to single digits is a considerable achievement; it can be attributed in part to very speedy cost-cutting and drastic reductions in inventories (helped by modern just-in-time stock-control). The other big driver has been labour market flexibility, which has helped avoid redundancy and early retirement schemes where possible by freezing wages and cutting hours.
It is often thought that one of the big lessons from the present collapse is that nothing ever changes in economics. It is certainly true that each time pundits start to claim that we have entered a new order – in the late 1990s, justifying the dot.com bubble, or in the mid-noughties, rationalising the property bubble – the economy has a habit of imploding. But something does seem to have changed: some parts of the economy have become more flexible, companies employ more efficient IT systems and employees have started to cooperate with employers better.
It is easy to become gloomy, especially when one looks at Britain’s future prospects; but what this shows is that not all the trends are bad.

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