NCPA - National Center for Policy Analysis

Europe and Japan Salvage Broken Companies -- And Weaken Their Economies

July 24, 2002

Corporate bankruptcies are accepted in the U.S. and politicians here no longer rush to prop up failed businesses. But governments in Europe and Japan follow the opposite policy. Fearing the loss of jobs, they offer aid to the nearly defunct -- at the expense of taxpayers, stronger companies and their nations' long-term economic vitality.

  • When Japan fell victim to an asset-price bubble more than a decade ago, its government propped up banks and the insolvent companies they owned or lent to -- with the result that Japan's banks and corporations remain locked in a death embrace, funded by run-away government borrowing and zero interest rates.
  • In France during the 1990s, there were at least four bailouts of the Credit Lyonnaise bank -- and while it was eventually rescued and privatized -- the price to taxpayers was over $15 billion.
  • In Germany, Chancellor Gerhard Schroeder has tried -- and mostly failed -- to strong-arm local banks into propping up local businesses.
  • He did, however, arrange a 1999 bailout of a large construction company -- which finally failed earlier this year, weakening participating banks.

Trying to salvage failures is a dark feature of managed economies. In the U.S., the emphasis now is on catching, removing and punishing the culprits -- then letting the system clear away the debris and build anew.

Source: Brian M. Carney, "Scandals Show America's Strength," Wall Street Journal, July 24, 2002.

 

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