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zombification

  • Thursday 5/11/2020
    Hans Degryse

    COVID-19 puts firms under severe strain in countries where the pandemic continues to hit. The initial reaction was to provide outright transfers and liquidity support to weather this perfect storm. We argue that a focus on the solvency of firms and sectors is needed. We discuss several avenues on how to improve firm solvency such as conditional transfers and a pandemic equity fund. We further argue that support policies should avoid a further zombification of the economy: preserve firms (and jobs) that have a post-COVID-19 viable business model. Redirecting resources to the future engines of growth is desirable. Banks, policy makers and businesses face a balancing act to keep firms and sectors with “post-corona viable business models” liquid and solvent. At the same time, policymakers should avoid zombification and allow for creative destruction such that firms with “post-corona non-viable business models” are reorganized or liquidated.