Curse of the ‘Zombie’ companies

The problem with throwing billions of dollars at struggling companies is that some of that money will be used to prop up companies that should be allowed to die. There’s a big difference between a company with a thriving core business which is temporarily suffering because of the frozen credit markets, and a company like General Motors which has been in a decade-long death spiral, only to be resuscitated at the last moment by a cash infusion. As this Business Week article points out, keeping sick companies on life support with government money just turns them into life-sucking zombies that hungrily consume scarce resources even though they have no future. The faster such companies are allowed to collapse, the faster those resources can be redeployed to new, growing companies with the energy and creativity to pull us out of the recession.

BusinessWeek