Buttonwood: Industrial policies mean cosseting losers as well as picking winners
Buttonwood
Industrial policies mean cosseting losers as well as picking winners
from The Economist
Indices in London and New York have reached new highs. But individual stocks and industries have had the odd wobble.
Investors worry that Brexit negotiations, tax laws and trade talks are used as a way to favour some industries and punish others.
The real problem is protecting the position of established corporations—cosseting losers, in other words.
“zombie companies” like Nissan that possess lobbying clout are likely to get protected, which prevents the emergence of more efficient firms
A new paper from OECD finds 3.5% increase in the zombie share is associated with a 1.2% decline in labour productivity across industries.
Zombie firms are discouraging more efficient ones from investing, which causes the decline in new business formation.
EUR is criticised for its inflexibility in the labour market where the difficulty of firing workers makes companies reluctant to hire them
The issue may also help to explain why the productivity performance of the global economy has been so disappointing
If a company makes an investment decision based on a tax break or a presidential tweet, it is not making the efficient use of its capital
A more interventionist government policy is likely to make equities riskier. Who knows which sectors will fall out of favour?
Imagine the reaction of investors if President Bernie Sanders were berating American companies on Twitter, markets would be plunging.
