Advertisement
Canada markets open in 4 hours 36 minutes
  • S&P/TSX

    21,837.18
    -12.02 (-0.06%)
     
  • S&P 500

    5,149.42
    +32.33 (+0.63%)
     
  • DOW

    38,790.43
    +75.63 (+0.20%)
     
  • CAD/USD

    0.7370
    -0.0019 (-0.26%)
     
  • CRUDE OIL

    82.43
    -0.29 (-0.35%)
     
  • Bitcoin CAD

    86,024.81
    -6,338.34 (-6.86%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,152.80
    -11.50 (-0.53%)
     
  • RUSSELL 2000

    2,024.74
    -14.58 (-0.72%)
     
  • 10-Yr Bond

    4.3400
    0.0000 (0.00%)
     
  • NASDAQ futures

    18,227.75
    -3.75 (-0.02%)
     
  • VOLATILITY

    14.47
    +0.14 (+0.98%)
     
  • FTSE

    7,721.65
    -0.90 (-0.01%)
     
  • NIKKEI 225

    40,003.60
    +263.20 (+0.66%)
     
  • CAD/EUR

    0.6791
    -0.0001 (-0.01%)
     

Why RadioShack's demise is a good thing

Source: Radio Shack

Over the next few years, more longstanding and iconic American businesses from Sears (SHLD) to JCPenney (JCP) to the makers of the Yellow Pages telephone directories could easily follow RadioShack (:RSH) into oblivion. That might sound like bad news, but it's not. It's exactly what we need in this country. If anything, we should root for more business failures to help us climb out of the Great Recession once and for all.

Don't get me wrong. I know RadioShack's ruin will be a major disruption for its thousands of employees, as well as its shareholders. But like almost every other bankruptcy I've witnessed in my thirty years in the investment business, I am certain it will be a net positive for our private sector and our economy. The Onion lampooned RadioShack's obsolete business model way back in 2007 and, since then, the company has tried valiantly to remake itself, but it has simply failed to adapt to changing consumer tastes. There's nothing tragic about that. It's the sign of a healthy market ecosystem. In much the same way a forest fire thins diseased trees and allows new seeds to sprout, RadioShack's bankruptcy will clear market share for better-managed and more innovative competitors.

Read More RadioShack expected to file for bankruptcy; shares to be delisted from NYSE

As paradoxical as it might seem, a high rate of corporate failure is a key ingredient in a thriving economy. Take Silicon Valley. It's the world's epicenter of smart, creative entrepreneurs. It's also an epicenter of rampant failure. I've been visiting management teams there since the 1980s and I can tell you that for every powerhouse like Google (GOOGL) that emerges from the Valley's crucible, there are dozens, even hundreds of less-famous flameouts.

ADVERTISEMENT

Talking about these failures in a positive way isn't meant to mock or disparage the businesspeople who failed. Quite the opposite. I hope to take away some of the stigma of failure by showing just how common it is, and how vital it is to our economic wellbeing. New ventures in Silicon Valley are tested ruthlessly and rapidly. The good ones catch fire. The bad ones die quickly so that their founders can learn from their mistakes and come up with better ideas. This crucial "freedom to fail" is what drives innovation and business expansion. It's free market, American-style capitalism at its best.

Unfortunately, during the financial crisis, we abandoned our commitment to failure when we bailed out some of the most inept corporations in our history, and we're still paying it.

Read More Investors bet on RadioShack default as loss grows

Imagine if our political leaders in Washington suddenly decided to inject huge amounts of taxpayer money into RadioShack. The idea is absurd, and yet financial institutions like Bank of America (BAC) and Citibank (NYSE:C) made far more disastrous business mistakes than RadioShack. Instead of going into bankruptcy or receivership - as they so richly deserved - they were kept afloat. Worse still, the very managers who committed those calamitous errors were allowed to stay in their jobs. Perhaps worst of all, years of low (to no) interest rates have allowed those companies and many others to borrow cheaply, refinance debts, and live on far past their normal expiration dates. That has prevented better managed financial institutions like Wells Fargo (WFC) from gaining market share. It's also led healthy companies like Apple (AAPL) to spend borrowed money on economically useless initiatives like stock buybacks. Add it all up - and throw in the fact that vanishingly low interest rates have punished prudent savers - and you've got a recipe for sluggish economic growth. In other words, exactly what we've seen since 2008.

If we want to get back to robust growth, we need to learn to love failure all over again. It's nothing to be ashamed of. It happens every day to some of the smartest people in the world.

Read More Who may buy some RadioShack stores

Commentary by Scott Fearon, the founder and president of Crown Capital Management. He is also the author of "Dead Companies Walking: How a Hedge Fund Manager Finds Opportunity in Unexpected Places," which chronicles his 30 years of experience in the investment management industry.