When Companies Fail, Allow Them To Fail

The Value in Allowing an Inefficient Business to Fail You might find my perspective somewhat discordant given the current state of global health crises, such as the Coronavirus pandemic. However, I urge you to consider the broader perspective that I'm about to present.

Is the failure of a large entity, say a bank, truly a catastrophe? I argue it's not. The void left in the market by such a failure will inevitably be filled by other players. Competitors, who operate more efficiently, will seize this opportunity to absorb the displaced employees. This dynamic is akin to a large tree falling naturally in a forest; the space it once occupied now allows younger trees and smaller bushes to grow and compete for the resources. If we impede this cycle, we risk stagnating evolution and stifling new growth.

The same principle applies to businesses of all sizes. We must permit them to fail when they've become inefficient or ineffective. No company is 'too big to fail.' By offering bailouts, governments may unintentionally reward the following:

• Inefficiency

• Excessive risk-taking

• Poor decision-making

• Failure to adapt to changing business landscapes

• Lack of innovation

The repercussions of rewarding such behaviour are predictably straightforward: these behaviours are repeated.

In this arrangement, companies are permitted to retain the rewards when their risks yield success, but when their gambles fail, they're compensated with public funds. This inequitable setup is tantamount to theft and is one of the reasons we witness economic downturns every 8 to 10 years.