Normal churn - when not all businesses can (or should) be saved
WHEN a broad-based crisis threatens to cause mass business closures, it is important to distinguish between firms that were on the way out regardless, and healthy enterprises that just need some help to weather the storm. The nature of the Covid-19 crisis, however, might make this distinction harder to draw.
Business cessation is a normal part of a functioning economy. Market logic dictates that unproductive, unprofitable firms will fail. In a crisis, this phenomenon is expected to accelerate: weaknesses are exposed faster and magnified, and some companies can no longer scrape by.
While the human costs of business failure cannot be dismissed, the loss of an unproductive firm per se may not necessarily be cause for regret. It frees up resources, including manpower, that can be put to better use elsewhere. In theory, by shedding obsolete firms, an economy might emerge from a crisis leaner, fitter, and more productive. Firms that can innovate and transform will be the ones to thrive.
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