SFB 303 Discussion Paper No. B - 360

Author: Krelle, Wilhelm
Title: Should Firms which would go bankrupt during the Transition Process from a Planned to a Market Economy be
Abstract: Should those firms endangered to become bankrupt be subsidized or not? In the literature you find two contradicting opinions. The first opinion (that of men of liberal convictions and those which favour a "pure" market economy) would say: no. If a firm cannot stay in business it uses up more value than it creates which is a disadvantage for a society. Thus it should go out of business as soon as possible and leave the factors of production free to other users. The second opinion is that productions kernels have to be kept alive in order to preserve the know-how and to have a chance to rebuild this industry after a while. In the following we shall deal with this problem. Of course this is not only problem of transition from a planned to a market economy. Constitution and laws have to be changed, there must be a rule of law which is to be observed by everybody. The repressed or open inflation which is present in many of these countries in transition must be removed. Free prices, labour and capital movements must be guaranteed. The socialized plans have to be privatized. There must be a social security system and unemployment insurance and so on In this paper I shall only deal with the problem of subsidies.
Creation-Date: March 1995
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