In a free economy, the principle of survival of the fittest is being followed. This means that companies have to be able to find a way to survive and compete in the open market. Those who thrive in a free economy are rewarded in terms of profits. Those who fail to compete are forced to shut down. This is the sad reality in a free economy where the government simply lets the businesses compete in a free market.
The government, ordinarily, does not interfere based on the principle that the government has not business meddling into the affairs of corporations. So long as the companies do not violate any existing laws the government is not supposed to interfere.
But there are certain situations where the government is forced to intervene in business affairs to prevent a ripple effect on the economy. The government is forced to protect certain businesses which are in danger of filing for bankruptcy. For example, banks play very important role in the economy. Because the business of banks is interconnected if a bank fails other banks will suffer and will be affected. The hundreds of thousands of their depositors will suffer. It also creates a chain reaction insofar as it affects its clients who may want to borrow funds from the bank for their individual business. Business organizations which rely on banks for their funds are also affected. For these reasons, the government supports major banks and protects them from filing of bankruptcy.
However, there are certain industries which do not involve banking functions but which play very important role in the economy because of their sheer size. The idea is that businesses which have become too big have become so embedded in the economy. Since it is so big other businesses also depend on them.
This is the concept of „too big to fail“ problems which highlights that there are certain businesses which are so large that they could not, and should not, fail because it could have a disastrous effect on other businesses.
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