HMV’s demise shows why even giant firms have feet of clay

Allister Heath
SO that’s it, then: HMV has finally gone into administration, the latest, most tragic victim of the revolution that is sweeping away erstwhile giants. This comes just days after Jessops, the camera firm, was liquidated, and after the demise of Comet, the electrical retailer.

So who’s responsible? Quite simply, all of us. Consumers are all-powerful, and shifting tastes and technologies mean that fewer of us had chosen to shop in these stores. We are the masters, and the capitalists our servants. It’s become easier to buy goods online, or pick them up (or arrange for them to be delivered) from a supermarket – and of course music is now primarily digital, with films following suit thanks to the likes of Amazon’s Love Film. HMV still controlled 38 per cent of what was left of the physical music market.

It is always sad to see ancient businesses die, and it is terrible news for the staff, whose livelihoods have suddenly evaporated. The government must do more to liberalise the economy to make sure more entrepreneurs create more firms and hence jobs.

But that’s capitalism and the process of creative destruction: it ensures ruthlessly that we get what we want, and that resources that cease to be used in an economically rational manner are reallocated swiftly. New models have emerged; they have displaced the incumbents by providing goods and services more conveniently and cheaply. Those who moan at HMV’s demise should look at themselves in the mirror.

There were also some cyclical factors: the economy is not doing well enough. But that wasn’t the real reason – and neither was the fact that some firms have a tax advantage over others. No, the recent spate of bankruptcies – unlike some earlier ones – was almost entirely caused by the accelerating technological revolution.

Several other stories in today’s paper are also directly the result of this technological revolution. Global PC sales collapsed 3.5 per cent last year, the first drop since 2001, according to Gartner, despite strong global economic growth, thanks to the rise of tablets. And while Apple, whose iTunes helped kill HMV, is doing well from this shift – its Macs are thriving, not just its iPads – even it is suffering: its share price tumbled as other, nimbler competitors such as Samsung are gaining ground in smartphones. The fallout from this endless technological revolution triggered yet another story: Dell’s share price shot up after rumours the firm may be taken private. There is no more brutal combination that those of technological change, globalisation, and consumer power. Corporations may seem unbelievably powerful but in reality they are giants with feet of clay.

Many of the government’s pension reforms are good – but some aren’t. The end to means-testing is excellent; saving will always pay. The contributory principle remains. The new system is simpler. But there are problems. Contracting-out, introduced in the 1980s, was originally meant to be the precursor for a system of fully-funded private savings accounts. Sadly, this never happened.

But its abolition will hike the national insurance (NI) paid by many employers and employees; this will destroy some private pension provision and hike taxes on labour. NI is now officially meaningless, merely a second tier of income tax. But at least this has the benefit of honesty – and it will make radical tax reform and the merger of the two taxes much easier to achieve. Now for the hard bit: the public will need to save much, much more in the years and decades ahead.
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