bankruptcy vs efficiency

in a capitalist society, bankruptcy is dreaded, an outcome to be avoided any way possible.  what is bankruptcy, and why is it so bad?

insolvency is the inability to meet your financial obligations as and when they fall due, with bankruptcy being when the courts recognise this inability to pay.  at this point the company is either wound down, and sold off to pay creditors what it can, or provided with special freedoms / protections to allow it to trade out of bankruptcy (depending on what country you are looking at).

the inability to meet obligations would normally result from not making a profit for a period long enough to exhaust the working capital.  it could also result from tying up capital in assets that cannot be converted to cash readily, but either way it means the entity cannot pay its liabilities, it cannot service its debts, and therefore under the rules of capitalism it should no longer retain stewardship of those assets.

bankruptcy is traumatic for all involved - creditors frequently get only a small amount back, shareholders even less, employees lose benefits, customers may not receive goods paid for, management become pariahs who failed the commerce game and will forever be stained by having guided a business into such dire straights.

but in reality - the assets still exist, and can still be used to produce goods or services as they have been.  it is only in the human mind that the business, including the assets, has failed, and therefore must be disbanded.  the human mind comes to this conclusion due to how the assets are funded.  for example, if there was no liabilities, no debt, (ie 100% equity), the business can never go bankrupt, however the shareholders may choose to liquidate the assets if the feel their return on assets is inadequate.  it is having debt, liabilities, that sets the conditions where bankruptcy may result.

so not being a natural law, merely being a concept in the human mind, there is no actual need for  bankruptcy.  just different rules for the game are required.

a bit of a tangent, but serfdom was a system prevalent in medieval europe where the lords retained ownership of the fields, but would allow the 'serfs' to grow crops on the fields in return for a substantial  portion of the produce.  the serfs in this system were trapped in subsistence and poverty, and the system is generally held to be grossly unfair.

in the modern capitalist system, businesses cannot be started without funding.  this funding isn't real, there is no real asset that is provided to new businesses.  it is the accumulated profits of prior economic activities representing power over future economic resources.  this funding is largely wielded by an economic elite (frequently i read the ratio that 80% of the worlds wealth is held by 20% of the population, and am sure that the top 5-10% hold the vast majority of it).  this funding is therefore equivalent to a field being tilled by a serf - you can use the funding, but only if you can pay your lord his required tithe, which will allow you to subsist a little longer.  you may even be able to feed yourself in retirement.

effectively, bankruptcy is not having the capacity to pay a  tithe to your master, in recognition of their previously accumulated power and resources which they want to continue building.  this tithe (in the form of interest, dividends, taxes or capital gains) makes it more difficult to achieve a profit, but not impossible.  the significance of profit is that, based on the market price of inputs and outputs, the business is adding value.  while the money it is measured in isn't real, i think the underlying message of adding value to society is useful.

in the ample system, i have suggested that, rather than being required to make a profit as in capitalism, businesses be required to satisfy demand (a pre-requisite for profit, you could say) and maximise efficiency.  i consider maximising efficiency a better measure because profit isn't necessarily meaningful, whether a company is making or losing something that isn't real in the first place (money).  whether they are building up more of this fake resource on their balance sheet is actually irrelevant, but for the signal it gives on adding value based on market prices.

what if, rather than companies going bankrupt when they can't make a profit and can't service their liabilities, they are allowed to continue to operate due to the fact they are satisfying demand, their customers find their product or service of use and attach value in continuing to receive it.  but, in recognition that society needs to make the best use of its resources, the least efficient companies in each sector are liquidated, effectively allowing the remaining more efficient businesses to purchase the assets and use them in their more efficient operations.

effectively, i envisage this efficiency measure to operate similar to profitability, probably be measured based on the ratio of the income measured in the defacto currency 'hours' to the costs.  however, instead of a fake threshold (the business is not profitable, cannot meet it's obligations, and will be forced into bankruptcy), companies can go negative in 'hours' and continue to service their customers assuming there is still demand.  the least efficient 10% (or other %) on an annual basis lose their business certification, with the auditors selling the assets on the open market to remaining businesses.  in an ample system, there is no debt, there are no shareholders, liabilities are always settled as there is no impediment to going negative in the defacto currency 'hours' (just for business, private individuals cannot go negative).

employees are the most adversely affected by this loss of certification, but as they are guaranteed their minimum needs, and as there abundant jobs due to the ease of starting a business (no funding required, just demand for the product and a business plan), i foresee it being less stressful than bankruptcy in capitalism and much easier to find alternate employment.

a major benefit i see in replacing profitability with efficiency is that it facilitates 'creative destruction'.  it 'destroys' those businesses least able to add value to society, offering up their assets and labour to businesses able to extract a larger societal dividend from them.  and then does it again the next year, and the next, in a never-ending cycle toward a perfection that can never be achieved.  also, there is no stigma attached to it, there is no impediment to starting a new business, people can still contribute to society to the limit of their ability, simultaneously having their needs met and achieving as affluent a lifestyle as they want based on how much they want to work.