Former Woolworths chief executive Roger Corbett says recessions can act as a "cleansing process" in the economic cycle by weeding out bad companies that should be allowed to fail.
Corbett, who is a board member of the Reserve Bank of Australia, said the exception to the rule is retail banks, which are too important for consumer and business confidence in the financial system.
"I think there is a place for recessions, as they are a cleansing process," Corbett told a breakfast seminar in Sydney yesterday.
"Experience has shown that economies that don't allow that cleansing process to happen bounce along the bottom for a long time, as Japan has for the past 20 years."
General Motors, the biggest carmaker in the US, was a company that should be allowed to fail because it was too expensive to try and change the culture of the company, Corbett said. But Corbett also said there needed to be adequate social safety nets to support and retrain workers who would lose their job in the process.
Corbett said the event that triggered the global financial crisis was the run on UK-based regional bank Northern Rock in September 2007, which eventually forced its nationalisation by the British Government.
- AAP
Recessions 'rid economy of bad firms'
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