Zombie Debtors

There is an interesting Business Week article on Zombie Debtors that is worth reading. These are basically companies that probably need to fail, but are being kept alive by taxpayers and the government. The problem with such companies is that not only do they consume tax money, capital, and labor that could be deployed better within growing industries and sectors, but they also make it harder for the viable companies to benefit from their natural competitive advantages - preventing Schumpeter's "creative destruction" from allocating capital and resources to those areas that can be most profitable and productive. Japan suffered from such companies in the 1990s, and the US will no doubt feel their effects from non-selective TARP bailouts, and those of any future homeowner bailouts, long into the next decade. That is not to say that government interaction is never useful for helping healthy companies overcome current difficulties (after all, isn't that what Chapter 11 is for?). But unless the hard decisions and selections are made now with regard to the next round of government funding, the guaranteed unintended consequences of such inaction will force the decisions to be made later - most likely at a much greater cost.