Thursday, April 29, 2004

"To Protect Bankruptcy and the Useful Arts" : seems that a new study from the UK thinks that going broke may be good for business. They also correlate patent activity with economic progress. Sounds like we are going to have a banner year . . .

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IT IS almost a business truism that when an entrepreneur goes bankrupt in America it is seen as part of a learning curve that makes him or her more eligible for backing next time, but when someone goes bust here they are never trusted again.

Now, John Armour and Doug Cumming of the Centre for Business Research in Cambridge have found a real-world correlation between bankruptcy law and the demand for venture capital, having studied the legal regimes and entrepreneurialism of 15 countries.

They found that having the right legal climate is just as important in creating the right conditions for new business as is the overall level of economic growth, or the level of patent activity.

From this, they suggest, the less-onerous bankruptcy laws that came into effect in Britain this month should provide a boost to business formation and increase demand from entrepreneurs for venture capital.

It may be self-evident but it is also encouraging, to have it empirically confirmed that 'investor-friendly' regimes create a supply of, and a demand for, venture capital greater than exists in more hostile environments.

What is interesting, though, is how specific proposals make a real difference - as in the severity of bankruptcy laws and the reluctance of people to take the plunge.

Germany, where it takes six years to get discharged from bankruptcy, has one of the lowest incidences of entrepreneurs seeking private equity finance.

This seems to have been recognised in the reform here which, in allowing people to be discharged within 12 months, sought to 'aid rehabilitation and business start-ups and re-starts'.

So now the Government can claim, in answer to all the complaints about red tape, that it has created in Britain one of the best places to go out of business.

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