England in the early 1980s was characterised by a government trying to close coal mines in the northeast and other heavy industry that was being outcompeted by new players.
There was a need and a desire on the part of the government to accelerate the closure of these industries and, with that, came social and political frictions.
Similarly, he told our sister publication Portfolio Adviser, if you look at the debt in China it is largely concentrated in state owned industries, in heavy industry, much of which is concentrated in the northeast.
“The government is using these old industries as a kind of welfare state and, as such, want to close off the capacity gradually. They have had some success in closing down some of the marginal capacity over the past year or so.
“But,” he added, “they will go slowly because they don’t want to see the same kinds of social and political upheavals that the north east of England went through.
Where the country has been able to shut down some capacity in some of these industries more recently, is in some of the more economically vibrant regions, where there is enough nominal growth, he said, “to ease the frictions of moving people from one type of work to another”.
As a result of this desire on the part of the government to avoid the social and concomitant political upheaval that could stem from a too rapid adjustment of the economy, Horrocks said that while the country’s debt level will remain a headwind for growth in the near term “gradually people will become attuned to the fact that it doesn’t necessarily presage a cataclysmic change”.