Govts can do whatever they like to help troubled companies at the best of times, let alone in a deepening recession when the political pressure goes on, from leaving all firms to their fate in an unfettered market to nationalising the lot. What they should do lies somewhere between, the closer to the do-nothing end of the spectrum, the better. What they shouldn’t do is respond too hastily.

Key Shocked. John Key no doubt was stunned on Monday by news of strife at F&P, widely hailed as a model manufacturer. He perhaps went directly to a press conference without thinking too hard about what his Govt should do, after phoning F&P’s boss, but was eager to show it won’t be indifferent. A consequence of declaring a readiness to do something if need be was a bounce-back in F&P’s share price. This raises the issue of what notification should go to the Stock Exchange and when about matters which influence listed company share values. More important for the economy generally, if the Govt intends rescuing companies, iconic or otherwise, it must set out the rules in a transparent process.

Weigh All Benefits. Key was right to show he is in charge and is dealing with issues flowing from F&P’s troubles. In fact, he didn’t say more than he would not rule anything out. This is fine. He is willing to consider all the options, and all should be carefully considered. If there’s a liquidity problem, let’s see what the banks or RBNZ can do to help. If it is more structural, the Govt could help ease the way through the approval process for a foreign investor to take a cornerstone stake or (more extreme and more contentious) the state could take a stake, as happened with Air NZ. But this demands a thorough weighing of costs and benefits – how many jobs will be lost; how will confidence be affected; what else in the economy will be hurt if this company falls? A big question is whether the Govt can afford not to intervene.

These are not times for ideology: assessments must be made pragmatically and realistically. But the Govt must consider its policy carefully and declare it, mindful of the potential for hundreds of companies to line up for state succour. And hard-hearted though it is, let’s not forget recessions can be cathartic in sorting out which companies deserve to survive and which should perish.

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