Soft budget constraints and regional industrial policy: reinterpreting the rise and fall of DeLorean

Graham Brownlow

Cambridge Journal of Economics, 2016, vol. 40, issue 6, 1497-1515

Abstract: The rise and fall of DeLorean Motor Cars Limited has traditionally been interpreted as either the result either of John DeLorean’s psychological flaws or as confirming the supposed limitations of activist industrial policy. However when the episode is examined in greater historical detail, neither of these interpretations is compelling. The reinterpretation outlined here draws on institutional analysis as well as a range of archival sources, much of it previously unreleased. The inefficiencies within the original contractual agreement are highlighted. The lack of credibility associated with this agreement was in turn traceable to the institutional environment (with its associated risk–reward implications) under which industrial policy operated. This environment had a political element: it had been distorted by the Troubles and the resulting fears policymakers had of a cumulative causation relationship between violence and unemployment. Officials in Belfast, against Treasury opposition, advocated state-led entrepreneurship as a policy response.

Date: 2016
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