Bailout Economy Leads to Meaningless Innovation


EconomyWhat happens when a global recession is met by massive bailouts? When large corporations are not allowed to fail?

First, natural market corrections are not allowed to take place. If the economy goes into recession and companies fail, competition is reduced and the market share of the failed companies is spread out among the remaining members of the industry. The industry is then able to build back up as the remaining companies are in a properly saturated market in relation to the current state of the economy. However, when companies are bailed out the market remains overly saturated and all companies suffer for a longer period of time.

Second, there is no longer fair competition. When the large corporation fails and is bailed out, they are allowed to survive in their mismanaged state. However, the “little guy” who may be extremely innovative and well managed, may fail in the resulting economic downturn. Then the mismanaged large corporation carries on business as usual, possibly to fail again.

The result of all this is that innovation becomes effectively meaningless. I do not mean that world changing ideas are going to be rendered meaningless. What I do mean is that when an innovative company is allowed to suffer and fail for the benefit of a mismanaged company there is no reason to innovate. Sure you can innovate to gain a share of the market, but take too much and cause your competition to fail, and they will be bailed out and the economy will crash and your innovative company will fail!

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