UK: Deloitte Monday Briefing: America's Flexible Economy

Last Updated: 11 February 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017

The UK has seen a weak recovery since 2009, one marked by poor productivity and a disappointing growth in exports. Some believe that "zombie" companies are partly to blame. The argument runs that, sustained only by low interest rates and forbearance by banks, such companies hog resources and hinder a cathartic process of corporate restructuring.

The zombie company argument fits with views of so-called Austrian school economists. For them the "creative destruction" of uncompetitive businesses frees resources for more productive uses and, in time, regenerates economies. Some Austrian economists think the UK's problem – and more widely Europe's problem - is that it has had too little economic change, not too much.

America's experience over the last five years of the financial crisis sheds light on this debate.

America's economy has long been widely seen as more flexible, and quicker to adjust to economic shocks, than European economies. Two popular manifestations of this view are the claims that America has a "hire 'em and fire 'em" jobs culture and that being declared bankrupt is a rite of passage for US entrepreneurs.

So what does the experience of the Global Financial Crisis tell us about such generalisations?

The US recession of 2008/09 was milder than the UK's. Yet measured in terms of jobs, corporate insolvencies, housing and credit, America saw a sharper downturn, and a swifter upturn, than the UK.

American employers proved far more willing to make employees redundant than their UK counterparts, pushing unemployment to a peak of over 10% of the workforce, significantly higher than in the UK. Whilst US employers were quick to fire, America's jobless rate has fallen much faster than the UK's in the last three years.

The downturn also inflicted significant damage on the US corporate sector. US business insolvencies rose by 178% during the recession while UK insolvencies rose by 57%. Now insolvencies are falling at a faster rate in the US than the UK.

US housing has also undergone shock therapy. House prices fell by 34% from peak to trough while UK prices dropped by 22%. America's housing bubble has burst but UK housing still looks pricey. The Economist estimates that relative to rent costs US housing is 7% undervalued, UK housing 21% overvalued.

America has also managed to get banks lending more swiftly than in the UK. Lending to US households and corporates collapsed in 2009, but is now growing by 5% year on year. In the UK bank lending is still contracting.

So, faced with a milder recession than Britain's, America's private sector seems to have adjusted more swiftly. That has meant greater pain, in terms, for instance, of job losses and business failures. But quick adjustment may also have paved the way for an earlier recovery.

By firing workers quickly US firms managed to maintain productivity and boost competitiveness through the downturn. The result has been a sharp rise in exports and a narrowing of America's trade deficit.

The UK experience is the exact opposite. Companies held on to staff and productivity and competitiveness fell. This has contributed to a disappointing export performance and a widening of the UK's trade deficit.

Unsurprisingly, it has been British, not American, economists who have been worrying about zombie companies. Over the last 2 years, the term zombie companies has been mentioned five times as often in the UK press than the US press.

The contrasting attitudes of business on either side of the Atlantic can also be seen in capital spending. US corporates slashed capex during the downturn but have since raised it by over 20%. UK corporates cut less in the recession but have scarcely increased investment since 2009.

Of course not all of these differences can be attributed to the US being a more flexible economy. Change in different parts of an economy is affected by numerous factors, just one of which is the flexibility of markets.

The US, for instance, has been relatively insulated from the euro crisis. American exports are far less dependent on the euro area than UK exports. The US economy has also benefited from the fracking revolution. It has led to sharp falls in gas prices and fostered a growing sense of confidence about the outlook for energy supply in America.

But the experience of the last five years fit with the idea of America as an economy which is quick to adjust. During the downturn the result was a sharp rise in unemployment and business failures. But that same flexibility has helped deliver improved competitiveness, cheaper housing and renewed growth in credit.

With such a starting point the US looks set for more buoyant growth over the next couple of years than the UK.


UK's FTSE 100 ended the week up 1.0%.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • US house prices rose by an annual rate of 5.5% in November, the fastest rise in 6 years – US housing
  • UK mortgage approvals rose in December to their highest levels since January 2012 – UK housing
  • UK manufacturing activity expanded in December at its fastest monthly rate since September 2011 – manufacturing
  • The UK faces a "significant" risk of losing its AAA credit rating due to a worsening economic outlook, according to Fitch Ratings – slowdown
  • Official figures show that 29,065 Spanish residents and 658 legal entities took up the Spanish government's offer of a tax amnesty, which ended in November 2012, raising €1.192bn in new tax revenues – Spain
  • A total of €93bn of private capital flowed back in to peripheral European countries in the last 4 months of 2012 according to data from Dutch bank ING – eurozone
  • The US economy contracted at an annual rate of -0.1% in Q4 2012 according to preliminary figures from the Bureau of Economic Analysis, the first contraction since 2009 – US growth
  • Eurozone business confidence grew faster-than-expected in January, driven by strong rises in confidence in Germany, Spain and the Netherland – eurozone
  • Eurozone manufacturing activity rose in December to its highest level for 11 months according to purchasing managers data – eurozone
  • Spanish retail sales fell by 10.7% in December compared to a year earlier, the 30th consecutive month of contraction – Spain
  • The total balance owed by UK consumers on all personal loans reached its lowest level since August 1999 in December, according to data from the British Bankers' Association – consumer deleveraging
  • The Reserve Bank of India reduced its main interest rate for the first time in nine months, to 7.75%. The move was expected after inflation fell to a three-year low – emerging market easing
  • Moody's completed the review it started last autumn of six Canadian banks and downgraded the credit ratings of all of them because of mounting levels of consumer debt as a result of rising house prices – Canadian boom
  • France's labour minister Michel Sapin claimed that the country is "totally bankrupt" – euro crisis politics
  • The Zimbabwean Finance Minister claimed the recession-hit country has only $217 left in its public accounts, with the regular wage bill for civil servants totalling 73% of the country's budget – Zimbabwe
  • The Japanese government unveiled a budget for 2013/14 that for the first time in 4 years will raise more revenues through taxes than bond sales– Japan
  • Online retailer Amazon announced record Christmas sales of $21bn, an increase of 22% since December 2011 – Amazon
  • On-line sales of eyewear (glasses) in the UK have doubled since 2007 – on line change
  • The value of contracts handed to the private sector by the UK government has more than doubled in the last four years – public sector cost saving
  • Netflix's new $100mn 13 episode production of House of Cards was released simultaneously around the world on Friday to users of the company's service. The move was hailed by Netflix's CEO as a "defining moment in the development of internet TV" – innovation
  • Royal Dutch Shells fourth quarter profits were dragged down by the depressant effects of America's shale gas boom on US natural gas prices which hit 10 year lows last spring – shale gas revolution
  • Southern Norway is experiencing a nappy shortage after a supermarket price war attracted shoppers from neighbouring eastern European countries who have bought stock in bulk, with prices less than half of what they are in Lithuania – nappy shopper



The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.