Our simplest and best answer to the whole bailout issue, it seems to me, is that creative destruction has to be allowed to take place. But creative destruction is destruction, and hurts a lot of people. When Mrs Thatcher closed down the horrendously inefficient mining and shipbuilding industries in my native North-East of England, huge numbers lost their jobs. In my home town there was 50% adult male unemployment. “Thatcher,” not the names of people who propped up the failing industries for far too long, is the dirty word there. The Conservatives, who had a presence in northern municipalities dating back to the merger with the Liberal Unionists, were wiped out north of the Trent. There was a considerable political price to pay for allowing a much-delayed creative destruction to go ahead.
So my question is, how do we have creative destruction in things like manufacturing centers without hurting people? It’s no good saying they’ll actually get better-paid jobs in the long-run, because sometimes that is a very long run (it took the North-East about a decade to recover) and the present value of suffering is not alleviated that much. Obviously, we would avoid welfare plans, make-work programs and subsidies to get new businesses in. There is probably a deregulatory approach that would soften the blow. If so, we need to outline some of the elements of such an approach. Mrs T created enterprise zones that had reduced regulation (exemptions from planning laws, for example) and Heritage’s Stuart Butler introduced the idea here, but I am not sure how successful they have been or how they can be improved.
When we talk about creative destruction, we are often dismissed as uncaring. A “bankruptcy plus real enterprise zone” package, on the other hand, might be salable as an alternative to the auto bailout.
Thoughts in the comments section welcome.