A Private Sector Failure, a Public Sector Crisis – Reflections on the Great Recession

• Date: 01 August 2016
• DOI: http://doi.org/10.1111/faam.12096
• Author: Irvine Lapsley,Ron Hodges
• Published date: 01 August 2016

Financial Accountability & Management, 32(3), August 2016, 0267-4424

A Private Sector Failure, a Public

Sector Crisis – Reflections on the

Great Recession

RON HODGES AND IRVINE LAPSLEY∗

Abstract: The Great Recession from 2007/08 to date (2016) has challenged

policymakers in significant ways. The initial challenge became a mission to rescue

the banking sector, which had major implications for public services. The severe

constraints on public finances after the rescue resulted in cutbacks in public services;

an example of financial conservatism in action. Neoliberalism is the dominant mode

of thinking by central governments, but its application has been questioned both on

its rigour and on the evidence which is available to inform this policy. This paper

examines the UK experiences of financial conservatism by mobilising ideas of failure,

hope and bricolage.

Keywords: banking failure, public sector cutbacks, failure, hope and bricolage

INTRODUCTION

This paper examines the experiences of the UK in the era of the Great

Recession1from 2007/08. The paper depicts the UK experience of the Great

Recession as falling into three periods: (1) the Recognition of Failure, (2) The

Presentation of Hope and (3) Bricolage. The first of these is the realisation

that major UK banking corporations were on the verge of collapse. The second

phase refers to the election of a Coalition Government in the UK with its

plans for the economy. The final phase recognises the experimental nature of

UK Government reforms as they turned to what was to hand – conventional

financial practices – in their attempts to overcome the influence of the Great

Recession.

∗The authors are respectively from the University of Birmingham and the University of

Edinburgh.

Address for correspondence: Irvine Lapsley, University of Edinburgh Business School, 29

Buccleuch Place, Edinburgh EH8 9JS, UK.

e-mail: Irvine.Lapsley@ed.ac.uk

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This paper offers a contrasting narrative to the depiction of the need for

severe cutbacks in the resources of public services because of their perceived

inefficiency and ineffectiveness. Instead, it shows how the public sector funding

crisis arose from private sector failure (something underplayed in utterances

from the UK Government). There is a certain irony in this as successive

UK Governments have held up private sector practices as a role model for

public sector organisations for decades (Hopper, 1986). This is exacerbated

by reflecting on the nature of this banking failure which, it can be argued,

was predictable but which was not predicted. Rather than a ‘Great Recession’,

policies were more likely to be predicated upon continuation of the ‘Great

Moderation’, running from the 1980s until, say, 2007, which was the term given to

a period with much shallower business cycles and which was variously attributed

to the independence of central banks, better monetary policy, improved inventory

management and to good luck (during this period there were no major energy

price shocks) (Summers, 2005; and Benati, 2007). The equivalent prediction in

political language might be that there would be ‘no return to boom and bust’

(Brown, 2006).

This paper concludes that the success of policies of financial conservatism

and fiscal retrenchment are not evident from the UK experiences. This

conclusion identifies a future research agenda around accounting in government

and the recognition of transparency and trust as key dimensions of public

finances.

THEORY: FAILURE, HOPE AND BRICOLAGE

There are many studies which demonstrate the complexity of the public sector as

a study setting (Arnaboldi et al., 2015). In the face of this, there are proponents

of the blending of different theories in the study of such complex phenomena

(Jacobs, 2012 and 2016). This approach is seen as particularly relevant to the

study of the impacts of the global crisis (Cohen et al., 2015). Therefore, this

study mobilises ideas of failure, hope and bricolage, to unpack the reactions

and policy actions in the wake of the global fiscal crisis of 2008. There is an

established literature on government failure, notably in the works of Miller and

Rose from 1992. The idea of hope as a transformative power which proves elusive

is most associated with Brunsson (2006). Finally, we acknowledge the ideas of

bricolage, as introduced to the literature by Levi-Strauss (1967), which refers

to the need to turn to what is at hand to seek solutions and to improvise and

experiment in the face of challenging situations.

Failure is evident in many writings on reforms in and by organisations. In this

context we examine both corporate and government failure, both inextricably

interwoven in the initiation of, and the struggle to resolve, the issues flowing

from the global financial crisis.

In a study of corporate failure, Hamilton and Micklethwait (2006) examined

the experiences of leading corporations which failed, including Barings and the

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2016 John Wiley & Sons Ltd