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.

To continue reading, register now.

Subscribe now for unlimited access to everything PS has to offer.


As a registered user, you can enjoy more PS content every month – for free.