Creative Destruction: A Risky Idea Nobody Wants to Try
- U.S. usually has edge over Europe in rebooting after a slump
- But easier bankruptcy and firing may not help in Covid crisis
The U.S. is usually better than Europe at reshaping its economy after recessions, partly because it’s easier for American entrepreneurs to streamline their business by firing workers, or even start a new one by going bankrupt.
In the coronavirus crisis, that advantage isn’t immediately apparent.
The speed and severity of the downturn –- and the extraordinary uncertainty about what comes next –- raises the costs of a rapid restructuring as the pandemic passes. Governments everywhere are struggling to figure out how much leeway they should allow for what economists call creative destruction -- when outmoded companies and practices get replaced with new and more productive ones.
The argument against letting those forces loose right now is that firms with decent prospects of bouncing back, once the health emergency is over, will get swept away too.