Coronavirus: PM looks to nationalise failing firms

Coronavirus: PM looks to nationalise failing firms, by Simon Benson.

Scott Morrison is heading down a road that may require him to do what was politically unimaginable only three weeks ago.

Some companies may end up having to be nationalised, if even only temporarily. …

Virgin could be one example of a company, if it were to go to the wall, that the government might consider a “strategic” priority. There is no way it will allow Australia to return to a virtual ­single-carrier environment in a post-virus world. …

Bailouts or buying dead ducks for a dollar. Then privatising them again on the other side of the crisis. …

These changes are massive and they have turned political ideology on its head. Economist Chris Richardson puts it bluntly. The way the world worked last month is now “ancient history”.

“It’s a new world,” Richardson says. “And with the Reserve Bank now mostly out of ammo in a virus world when the Australian economy is already weak, governments are going to have to do what was previously unthinkable. We will have to get over our old ways of thinking. …

Morrison now finds himself in the grip of depression economics. In that respect, he may end up being the leader for the times. He is pragmatic enough to pivot quickly and with flexibility into a new political paradigm without any hand-wringing over dogma.

If a business dies (perhaps because it was not prudent enough to keep enough cash on hand, or it cut back too slowly when it could see trouble ahead, or it signed stupid agreements with labor that ensured it had to pay too much even when there was no work), then its assets go on sale via the receivers. The next lot of owners take over, and the business usually continues in some form. “Rescuing businesses” often just amounts to rescuing the current owners of the business — and considering they were responsible for its demise, is this really a good idea?

Take for example Qantas and Virgin. Qantas had hoarded cash and is quickly cutting back costs. It says it will survive without help. Virgin probably doesn’t have enough cash, and may go under. Rescuing Virgin so that its current owners retain their ownership is morally odious (why are they special?), and counter productive (they messed it up). Is there is a role for the government to step in, keep the business together, and transfer it to the next owners? Of course. But if the next owners pay too little for it, then they will have a major advantage over Qantas because they won’t have loans to pay back the huge capital expenditure on the planes. Qantas rightly fears it will have to compete against either a government-owned airline with privileges and  no particular need to make a profit, or a revitalized competitor that has been freed of debt.

hat-tip Stephen Neil