Capitalism, with the market as its central mechanism, is a system in constant renewal, more unstable than in equilibrium. From a historical and aggregate perspective, no other system has achieved better performance. When analyzed in more detail, this dynamic hides winners and losers, at least in the short term and, as “in the long term we are all dead”, it is natural that the more immediate effects become more evident. This year’s Nobel Prize was awarded to economists who studied such “creative destruction”, as last year’s was awarded to those who analyzed the role of institutions in facilitating progress and equity.
Sometimes companies disappear for less virtuous reasons than creative destruction. For example, because productivity is low due to the poor quality of production factors (management included). In an open economy, it may happen that not even the quality of management or factors is sufficient to guarantee the company’s survival. Statistics reflect this process: every year a large number of companies disappear and a large number of companies are born. From a journalistic perspective, as the former tend to be larger, the closure of a company can be news, for example due to the number of people who lose their jobs. On the contrary, the creation of a company rarely deserves mention. For some reason fado is the national song…
The eventual closure of companies is, therefore, something inherent to the functioning of the market economy. What is no longer natural, nor acceptable, is the way in which some of these closures occur: without prior notice, with the diversion of machines and equipment and other skills, more or less, fraudulent like the unfair competition that, in many cases, these companies, in their throes, practice. In capitalism, trust, transparency and accountability, and not the law of the jungle, are pillars of the proper functioning of markets. Wild bankruptcies, even when they are the exception, violate the rules of competition and ignore the human costs, contributing to tarnishing the image of companies. Business associations should be the first to condemn such practices. They should…