EDITORIAL - No shame to business failure

Dr Marshall Hall, the former economics professor and business executive, raised two important issues in a recent article in this newspaper which we believe ought to be important themes in Jamaica's ongoing conversation on how to lift itself out of its economic rut and achieve sustained growth.

Such debates tend to centre on macroeconomic issues - the need of the Government to curtail its borrowing, narrow the deficit, slow inflation, and so on. All of which are, of course, important.

The same analysis and rigour, however, are hardly ever applied to the micro matters of how businesses work, how to make them work better, and the cultural and social impediments that impact on doing business in our society and societies similar to our own.

Dr Hall's piece, in last Friday's issue of the Financial Gleaner, uses the current enquiry into the financial-sector meltdown of the 1990s and the individual stories of economic ruin to point to this country's less-than-efficacious use of the concept of limited liability and to call for reform to the notion of unlimited guarantee of loans. The Government, using a vehicle called FINSAC, spent billions of dollars to bail out banks and insurance companies.

But in the process, Dr Hall raised an important cultural matter that weakens entrepreneurship, about which this newspaper has commented in the past: the shame of failure.

Said he: "Pleading Chapter 11 insolvency in the US by a company does not carry the stigma of shame, as it is recognised that business failure is normal."

In that environment, therefore, the start-up that goes under does not represent enduring humiliation for the entrepreneur, but part of the dynamic process of capitalism. So the entrepreneur keeps trying, and the economy benefits from this constant process of innovation and investment.

These principles, perhaps, are taught in business courses at universities. They, unfortunately, mostly stay there. Indeed, it is the rare, and even brave, executive from the FINSAC era who lifts his profile even now.

Reshaping philosophy

It seems to us, therefore, that the economic conversation in Jamaica has to be reconfigured to include a discourse on the value of risk-taking and that the process often includes failure. This is a discussion to be had not in hallowed lecture halls, but infused into popular culture at all levels of the society.

It is a matter that our academics, policymakers, business leaders and and various organisations should address as a point of urgency. Indeed, entrepreneurship and risk-taking should be part of the curricula at all levels of the school system.

The second, and related, plank of Dr Hall's observation is important in the absence of this culture of hope, and the limited availability of venture capital to support start-ups as well as the weak application of the concepts that underpin limited-liability companies.

The upshot: Individuals provide unlimited guarantees for loans to firms which, when unserviced, especially in periods of high-interest rates, can wipe out guarantors - as was the case with FINSAC.

Dr Hall suggests that unlimited guarantees should be made illegal. Instead, guarantees should be for a fixed amount, say, the principal value of the loan and perhaps six months' interest. He also proposes a cap on the annual adjustment of interest rates on such loans.

It is a discussion that we think is worth engaging.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.