zingales24_Dave Tschorn Dave Tschorn

Attack of the COVID Zombies

All too often, entrepreneurs and managers use the threat of massive layoffs to extract large unwarranted subsidies. After the COVID-19 pandemic, workers should get to decide whether such assistance is justified.

CHICAGO – As Western economies emerge from the COVID-19 crisis, banks and governments are facing a new problem: how to deal with the corporate walking dead. But an innovative worker-centered scheme could offer a possible solution.

In both the United States and the European Union, corporate bankruptcies have declined during the 15 months of the pandemic, despite the severe accompanying recession. That decline is a result of rich-country governments – in their understandable desire to soften the pandemic’s economic blow – extending every possible safety net to firms. Often, however, they did so without even trying to separate those with good economic prospects from those with none.

As a result, the business sector’s natural selection process has weakened precisely when COVID-19 has accelerated many preexisting trends, increasing the share of firms that should be considered zombies. But policymakers must now address the wider economic impact of sustaining unviable companies.

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