Gone bust- Credit Mtaylor848

Poundworld has just gone into administration – excellent, that’s 5,000 workers who have just been released to go and do something more useful. True, that’s not the way we normally think of these things, what with the tears over the lost jobs and all that, but it is the way we ought to be thinking of things.

An organisation which was subtracting value from the world in general has gone bust, those productive economic assets it was previously wasting can now be used to do something useful, value additive, and thereby make the world a richer place. As to what they will or should do buggered if I know, that’s exactly why we use the market system.

Poundworld has plunged into administration putting 5,100 jobs in jeopardy after efforts to secure a last-minute buyer failed.

The stricken discount chain has appointed Deloitte as administrators, casting doubt over the future of its 335 stores.

So, what is it that we know about Poundworld? That combination of 335 stores, 5,000 people, the management it had and the capital deployed, subtracted value from the world. The output was worth less than the inputs – that’s what making a loss means. It costs us more to produce something than is gained from it being produced – that is, we’re subtracting value from those starting economic assets. And it’s hard enough out there as it is, we’d really rather like to stop destroying economic wealth in this manner. An organisation which subtracted value, Poundworld, has gone bust. Good.

More than 5,000 high street jobs will be thrown into fresh doubt on Monday when Poundworld crashes into administration following the failure of last-ditch rescue talks.

Sky News has learnt that the bargain retailer is set to become the biggest chain by number of employees this year to fall into insolvency, just over three months after the same fate befell Maplin and Toys R US UK.

Those 335 shops can be retasked to selling, say, jewel encrusted vibrators. Or turned into flats. Or sell coffee or, well, or whatever. Equally, those 5,000 staff can go and do something which adds value to the world. Change nappies, aid senior citizens, build aircraft, whatever. For the entire point of economic assets such as land, labour, capital, is that they can be used to produce things where the output is worth more than the input. That is, value adding activities. We want to not just stop subtracting value but also to start adding it.

As to what, specifically, those 5,000 should or will be doing I’ve not a clue, sorry. Nor has anyone else a Scoobie. No planner can tell us where they should or will be redeployed to. Quite literally no one, no one at all, knows where that labour will add more value. All we have is a system to find out. That market economy that is. Many things are possible, many things are desired. And the market economy is the mechanism by which we sort through those two sets and find where there is a match. Then we add one more stricture. The value of what is produced has to be greater than the resources used to produce it. People try all sorts of things and those which are profitable carry on, possibly expand, those which make a loss close and flee the market place.

Sure, it all sounds a bit ramshackle but it’s the only system anyone ha ever come up with that works. Works in the sense of uncovering those activities which do add value and thereby make us all generally richer over time. Think a moment, 5,000 people spread across 335 stores in what, 200, 250 different towns? Seriously, no one knows what to do with them, how they should be employed. No central plan ever will either, will it?

No, obviously it won’t, so we’re left with that suck it and see experimentation of the market, aren’t we? And do note, in the end those varied assets will be employed adding value. It’s precisely that Poundworld has gone bust, stopped destroying economic wealth, which will make us richer. Both because the wealth ain’t being destroyed no more and also because the absence frees the assets to be better used.

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4 COMMENTS

  1. With luck, Sears Holdings will be next, aggressively subtracting value and “anchoring” hundreds of American shopping malls with black holes of commerce mostly useful as conduits to the underused parts of the parking lot.

    Tim, if you could give a lecture along those lines at university (it would even work with grade-schoolers), some might graduate understanding how the economy works, rather than just convinced of the need to overturn it.

    • Quite; if your exclusive criterion is low price, then quality is off the table altogether. We have comparable places like Dollar Tree and “wholesalers” like Big Lots and sporadic going-out-of-business sales with fake markdowns, no real value offered by any of them. Whereas a supermarket that caters to customers who want to feel European and those who want to buy day-old at a markdown tend to give each what he wants.