Too big to fail? In the gig economy it’s not only the banks which could derail the global economy.

By Giles Croot
In the autumn of 2008, when Gordon Brown and Alistair Darling looked out over Whitehall, it wasn’t a love for RBS, Lloyds or the Halifax, or even bankers in general, which led them to commit billions of tax payers’ cash to rescuing the failed institutions.

The consequence of any of those institutions failing – and in all likelihood taking other banks with them – was much wider.  Thousands of well run, profitable businesses would have failed as cash dried up and the ability to make and receive payments came to a halt.

In the decade since many businesses, and indeed some banks, have failed.  Our High Streets show the scars of the restaurant chains and retailers – once familiar names – but quickly forgotten, now replaced by pop-up shops or simply an empty unit gathering dust.

From time to time there are calls for government to intervene to save a business.  However, even the failures of Monarch or Carillion whilst a tragedy for their employees had little impact to the wider economy.

But what if the failure of a business – as was the case with the banks a decade ago – would have a widespread, potentially critical impact on thousands of viable, mostly small businesses and over million jobs? 

WeWork provides office space in 528 locations in 17 countries.  It is the largest occupier of office space in both London and New York.

It’s Global Impact Report shows how, directly and indirectly, the businesses operating from it’s space support over 1.15m jobs and deliver a GDP of $122.3bn – equivalent to the GDP of Dublin or Vancouver.

Many of WeWork’s members are small businesses.  Organisations which have chosen shared office space because it provides them with support services, flexibility to grow and convenience.  Businesses which don’t have a facilities team.  Nor often an IT department or Finance function.  However, they are reliant on their office provider, and not just for somewhere to work and somewhere to meet colleagues and clients.

The failure of WeWork’s fundraising IPO – and with it the associated additional bank loans – has drawn attention to the rate at which the business is burning through cash.  According to the Financial Times[1], no more than three of WeWork’s 60-plus UK sites are profitable.

What happens to businesses should they arrive at work only to find the doors locked, their equipment and documents trapped inside; their future the collateral damage between an insolvent supplier and an out of pocket landlord?

A decade ago policy makers and regulators saw the carnage that the failure of a major bank would have and acted.  Increased stress-testing, more capital and maintaining greater levels of liquidity.  Arguably, in a post financial crisis-world, the equity and bond markets would now do a better job, maintain greater scepticism and ensured management are not enabled to stretch their finances to breaking point.  However, the risk of failure always remains – and should do for any commercial organisation.  So, to ensure that the wider economy was protected, UK banks now must have in place Living Wills, a process to allow an orderly windup protecting the payments system and the institution’s customers.

In the airline industry, following two recent failures, the UK Government appears to be moving towards a system which would allow it to use a failed business’ assets to repatriate travellers.  Arrangements have always been in place to ensure that trains continue to operate even if a company failed.

The gig economy brings with it opportunities for businesses to be agile, fast moving, efficient and successful.  But it has created new infrastructure, in its own ways as vital as the railways to the Victorians, and as we can see now – in some cases as fiscally unstable.

With so many livelihoods and businesses, directly and indirectly, reliant on this vital infrastructure is it time for policy makers to require the likes of WeWork to have in place its own Living Will to ensure that should it fail, it doesn’t take a million jobs with it.

[1] WeWork’s losses rise 10-fold at main European holding company, 11/10/2019

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