Johannesburg — THE Frame Group's 1400 employees can be expected to vehemently disagree, but the Department of Trade and Industry's decision to abandon plans to ride to the failed textile company's rescue after failing to convince an Asian investor to take up a stake, was the right one.

The department cannot be criticised for its concern over the loss of so many jobs, and a convincing argument can still be made for intervention to keep at least some Frame units going for strategic purposes given that they are the sole domestic producers of certain textile types that will otherwise have to be imported.

But the knee-jerk response that Frame -- and, by implication, holding company Seardel and majority shareholder the South African Clothing and Textile Workers' Union (Sactwu) -- should be bailed out by the state just because they're too big to be allowed to fail, was not thought through carefully enough.

Seardel, SA's largest clothing manufacturer, put considerable resources into Frame over several years in an attempt to modernise its equipment, improve efficiencies and make it internationally competitive, but to no avail. The inescapable conclusion was that most of Frame's operations were no longer viable in the face of imports produced en masse in countries such as China at a fraction of the domestic cost. The Industrial Development Corporation (IDC), an agency of the state, had already concurred, so insisting that it revisit the issue was bound to be an exercise in futility.

To their credit, the IDC did not bow to union pressure, and the government was big enough to throw in the towel when the prospective Asian investor walked away. Under the circumstances, any other outcome would have had disturbing implications for the IDC's credibility, SA's fledgling industrial policy and the yet-to-be-implemented recession rescue plan.

The fact that the initiative was being driven by newly appointed Economic Development Minister Ebrahim Patel, who was Sactwu secretary-general when it made its ill-fated investment in Seardel, was enough to set off alarm bells in itself. Any suspicion that the government is prepared to cherry-pick companies to rescue from the fallout of the global economic downturn based on their affiliation to its alliance partner, union federation Cosatu, must be avoided at all costs.

There is already concern among investors that Cosatu has excessive influence over the government; favouring some participants in the economy over others in the absence of clear and rational criteria justifying intervention would create a damaging moral hazard.

The lesson to be learned from the Frame episode is that if the government is to play a meaningful role in ameliorating the effect of the global slowdown on local industry it will have to be far more on the ball. Things happen quickly in the private sector, so pre-emptive measures in accordance with a transparent rescue plan are bound to be more successful than trying to intervene after the horse has already bolted.