The collapse of Rover – Triumph of capitalism

Alex has a link to the long awaited report on the collapse of Rover and also links to a contemporary post of his predicting the main findings of the report:

Since then, though, we’ve seen one of the most horrible examples of shameless self-enrichment at others’ expense in British history. The restructuring of the Rover complex was conceived to get all the profitable bits of the firm out of the MG-Rover Group, the car factory, and into the hands of the Phoenix chaps. This may not seem that bad, until you remember that a sizeable chunk of the original capital was put up by Rover workers themselves. They got shares in MG Rover Group, not Phoenix: so they have now lost everything. Another point: the famous £427 million interest-free loan from BMW was paid to Phoenix (well, actually to another shell company, Techtronic, but this can be collapsed for clarity), not MG. They then charged MG Rover interest on it. What this means has only just dawned on me-as shareholders, the Phoenix group have only the same minimal claim on the assets as the workers who bought in. But as creditors, they are at the top of the heap behind only the Inland Revenue.

Expect a very big supermarket on the site.

Which to me sounds like a textbook example of what Naomi Klein called disaster capitalism in her book The Shock Doctrine (or more precise, capitalism). A natural or artificially induced crisis is “solved” by throwing money at private parties because government is unable, forbidden or ideologically incapable of solving the problem itself. And because it’s an emergency, the money needs to be spend now with any oversight forgotten and neglected. But the first goal of any profit driving company is making a profit and hence even “good faith” companies will strive to do the least amount of work for the largest amount of money, will be tempting into rent seeking behaviour. Which is what the Phoenix group did; getting that interest free loan themselves and then charging Rover interest on it, taking away much of the benefit Rover could’ve had from that loan. Instead of adding value, they took away value because their first loyalty was to their own interests, not Rover’s.

And this is an essential feature of capitalism, not a bug. Capitalism is profit driven and any goal which is supposed to be achieved by making use of this will be secondary to this. What Phoenix did to Rover is not a crime, not a regretable exception, but the rule, even in day to day transactions between companies. Which is why it’s nonsense to talk about the greater efficiency of the private sector as opposed to the public sector, unless you judge it in the context of making profits.

Which is also why so many big public sector IT projects fail of course. The NHS or the Home Office might want to get their working IT systems, but for the companies who have gotten the contract the goal is to keep the project alive as long as possible and “goldplate” it…