The collapse of one of the U.K.’s largest engineering firms, Carillion, has generated a lot of media coverage as well as featuring in today’s Prime Minister’s Question time (or PMQs as it is known). At this event, the Tories evidently found Labour Leader Jeremy Corbyn’s questions to the PM re this debacle humorous. More fools them!
To me, the Carillion case looks like a Ponzi scheme. The company went for growth more or less regardless. But, the growth was essential to survival, for like any Ponzi scheme, it depended on new customers to provide cash and confidence in order to keep cash flowing to pay suppliers, and keep the banks, shareholders and, ultimately, the government, sweet. This is also called ‘deception’.
Unfortunately, continuous growth cannot be depended upon. For one thing, the government’s austerity policy led to reduction in the number of contracts in the pubic sector, thus jeopardising continual growth. Underperforming or problematic contracts further jeopardised the slim margins upon which Carillion operated. So, things started to unravel.
Profit warnings were issued. The hedge funds started to short Carillion — always an indication that there are problems. Meanwhile, the government, a major Carillion client, continued to dish out large contracts to Carillion, partly because the government didn’t want to be the stakeholder that brought the company down by not giving it more contracts. One side effect of this is that many of the various outsourced suppliers took this as an indication of confidence in continuing business with Carillion.
As things unravelled, the banks (with Carillion loans of £900k) lobbied government to help out (cf. bank meltdown of 2007-8). The govt refused. Inevitably, things completely unravelled, with Carillion heavily in debt, and with only £29 million in the kitty (which means that it may have been trading illegally if i were cash flow insolvent).
The CEO and executives have secured their own financial interest — their salaries and bonuses can’t be ‘clawed back’. The pension fund is around £540 billion underfunded. Thousands of suppliers — mostly SMEs — are in danger of going under. And hundreds of thousands of employees are in danger of being without an income.
The government, which is complicit in this dreadful state of affairs, has already started denying/avoiding complicity — thus the Tory MPs laughter in today’s PMQs. And like all Ponzi schemes, many will suffer. But I’m not confident that this Tory government will do anything that will seriously change the neoliberal approach that has given rise to this appalling state of affairs.
