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December 04, 2005

When Big Companies Fail

By Neil the Ethical Werewolf

One virtue of some arguments for the awesomeness of the free market is that they don't depend on management being infallible.  This is a good thing, since businessmen can be as foolish as anybody else.  In some cases, the market will give you more and more efficiency even if lots of companies are run by morons.  Poorly managed companies will go out of business quickly, and well-managed companies will grow to take their place.  Importantly, this can be a fairly swift process.  A poorly run business often won't last long enough for workers to build their lives around the assumption that their jobs will always be there for them.  So when they have to change jobs, their lives don't get seriously screwed up. 

But when the corporations in question are huge and old, like a number of domestic automakers who kept betting on SUVs as oil prices rose, things don't go quite so nicely.  Lots of people (and in the case at hand, entire cities) who have come to depend on the corporation can experience massive disruptions.  As long as there's some competition around, things don't go too badly for the consumer -- we just buy Hondas instead.  But things go very badly for workers and regions who have planned for their futures on the assumption that the corporations will always be there.

December 4, 2005 in Economics | Permalink

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Comments

And this problem is exacerbated when ultimately-doomed companies extend their lifespans by virtue of government subsidies, preferential laws, and other such intervention. And in the meanwhile, their more agile successors get shafted.

OT: Congrats to Ezra on being nominated for Best Liberal Blog by Weblog Awards!

Posted by: Mastiff | Dec 4, 2005 3:37:07 PM

Whoa… I got nominated for Best of the Rest! How sweet is that?

Posted by: Mastiff | Dec 4, 2005 3:38:34 PM

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