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October 30, 2004

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Blimpish

Might it also not have big policy implications too?

What I mean is: politically, we still seek to stop businesses from dying. Even in these more market-friendly times, we still find ways to do so - not through protection or outright subsidy, but through advice or innovation grants to help them diversify, etc.

Case in point: the textiles sector in your home town (I checked your About page) has been in decline for decades, and regularly becomes a political issue... especially with one of its MPs as first DTI small firms minister, now SoS. So, lots of programmes to breathe life into these businesses which face chronic problems in competing.

But the evidence you cite above suggests that creative destruction - actively seeking the demise of declining firms - would be a much stronger option. Economically, the only real premise for the current approach is that established firms offer institutional capital that will be lost through bankruptcy. The OREP paper suggests that the net value of that capital is severely limited (possibly negative?), perhaps because the same institutional forms might be inflexible, uninnovative?

Sorry... Did economics at Uni and retain an interest.

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