Debt is always paid for by someone

2008-06-09 00:00

Both politically and socially Britain would appear to be in one enormous mess, with almost everyone affected.

What amazes me is how such basic mistakes are being made day in and day out.

For years in South Africa, we have been told how wonderful the British economy is: arguably, one of the most successful in the world. Well, the truth is, Britain has accumulated the biggest debt of almost any European country. The British people also struggle, as they spend money they haven’t got — haven’t produced — and are in debt. Only this week, one of the oldest and most respected building societies, Bradford and Bingley, announced it is on the brink of toppling into the financial abyss. The problem: too much money out, not enough coming in, major cashflow dilemma.

It is most interesting to look in from the outside and see how its business is attempting to strategise its way out of this incredibly crippling operational climate. There would seem to be three broad-brush approaches. The first one is simple: put up the prices, batten down the hatches and wait for all to blow over.

This week, Debbie and I visited Cawsands — a picturesque seaside village in Cornwall. We popped into the local pub and paid R232 for two crab sandwiches, half a bitter and a dry lemon! All the holiday centres are adopting the strategy of upping the prices. If they come, they have to pay.

The second strategy is one that says: “Come in, buy today, we’ll deliver tomorrow and you pay nothing for 12 months”. Furthermore, the deal is interest free. So let’s look at this: the business has bought the stock and at best could screw 120 days’ credit out of its supplier.

They have paid for advertising, all the business’s upkeep and staff and have sold say, a suite of furniture for £600 — but won’t get one penny of income for 12 months! Who in their right mind comes up with a strategy along these lines? Locally, you read of companies announcing that they have no alternative but to lay off up to half their workforce — hundreds of job losses.

This comes as a result of management not anticipating difficult times and, perhaps more importantly, not adopting strategies that can weather the financial storm. Who pays the price for this inadequacy? Hundreds of redundant employees!

The vast majority of British people simply do not have disposable income. Their credit cards are full and their overdrafts have long since reached the maximum.

One company that is booming is Primark, a Spanish-owned retail conglomerate with branches everywhere. Primark offers a fantastic range of merchandise, predominantly clothing, at ridiculously low prices.

I visited one of their stores in Plymouth on two occasions and on each it was full of customers, whom I believed in the past would have purchased from other large department store groups such as Debenhams.

The sting in this particular tail is that 95% of Primark’s clothes are made in third world countries, by companies that pay labour a dollar a day. And we think we are making progress!

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