For markets to work, firms need to take risks. That’s no way to run the things we all depend on
The mid-market restaurant business is apparently in trouble. Chains that made ill-judged investment decisions are losing money hand over fist, outlets are shutting down, a boom that attracted millions in private equity investment is turning into a crisis for the industry. But, really, unless you’re a shareholder, so what? It may seem trite to point out that the financial difficulties of Byron burgers don’t matter as much as those of Northern Rock or Carillion, but it’s true, and the reason why it is true in turn provides insights into the parts of our economy that we do worry about.
The story of these chains is the story of so many other industries within capitalist markets. Something becomes fashionable, investors pour in looking for the next big thing, the market becomes oversaturated and poor performers die out. Five years later only a fraction of the boom firms are still around. Some of this is down to good management, some to good luck, and it’s ferociously difficult to know which is which.
Quasi-public firms just sit in an extraneous layer between government and public and siphon off money wherever they can
Related: Number of UK restaurants going bust up by a fifth in 2017
Continue reading...