COVID crisis: Should companies be prevented from disappearing?

Governments and central banks in OECD countries are trying to limit as much as possible the number of corporate bankruptcies caused by the loss of production under the effect of the COVID crisis. They are using subsidies, tax cuts, rent reductions, government loan guarantees, short-time working schemes, etc. Indeed, default rates have risen significantly less than would normally correspond to the huge fall in GDP. But it has been argued that this policy is inefficient, that it keeps “zombie firms” alive, and that it inhibits the Schumpeterian process, whereby employment and capital leave “bad” companies in favour of “good” ones. We believe this criticism of the corporate support policies is unfounded for three reasons: Some companies threatened by bankruptcy are sophisticated, innovative companies (in the air transport, aerospace and automotive sectors and their subcontractors); It is not currently known in which economic sectors activity will normalise or remain depressed after the COVID crisis; Training systems are not capable of retraining or converting the huge number of workers who would have suddenly lost their jobs in the sectors in difficulty had companies not been supported and sheltered from bankruptcy.