Proponents of a free market would argue that it is never appropriate for the government to step in to help save a declining company. However, this approach fails to take into account the fact that the government offers assistance to companies in a variety of different ways. International trade and the policies that the government follows there offers the most concrete example of how the government assists companies. There is considerable pressure on the United States government to be protective of its industries with regard to countries, such as Japan, which are highly protective of theirs. The tariffs that are levied on certain products and the taxes (such as excise taxes) that are placed on even domestic products are all examples of ways in which the government exerts pressure on the "free" market. The justification for these intervention is the preservation of American jobs, and this is one of the key criteria for the government stepping in directly. If a large number of jobs are at stake, and there is no other prospect for employment for those laid off, it makes sense for the government to step in to assist a company.
The form of assistance can vary from company to company and industry to industry. Loan guarantees are perhaps the most beneficial form of assistance because these are not simply "handouts" to the company. In this situation, the government guarantees loans that the company would otherwise be unable to secure from traditional lenders. If the company is able to turn around its operations (often under the oversight of its lenders), the company repays the loans and the government loses nothing. If the company fails anyway, the government owes the amount of the guarantees to the company's creditors. It is loan guarantees that have been used not only with regard to companies, but also to entire countries, to help them recover from economic strain (Seiberg, 1996, p. 2).
In some cases, having the government st...