April 26, 2019

More creative destruction and less regulation would help India

In this Mint article, Resident Senior Fellow, Vivek Dehejia makes the case for market forces to decide whether Jet Airways sinks or swims. Excerpts:


"It is salutary to remind ourselves that the essence of capitalism is not only the creation of new firms, but the destruction of old firms—indeed, a life cycle of firm birth, maturation, decay and death. The great Austro-American economist Joseph Schumpeter famously termed this a process of “creative destruction". Just as in the plant and animal kingdom death is a precondition for new life, old, moribund, value-subtracting firms must be allowed to die gracefully, rather than be perpetually kept alive through unwarranted regulatory forbearance or the injection of public funds that ought to be used better...


...The story of Jet Airways is a little different, being the first and most important new airline to be created after airline deregulation in India. The other difference is that Jet and other private carriers co-exist with Air India, a faltering public sector airline kept alive only through a steady flow of public monies. But the lessons of the US (and also European) experience remain no less valid. The travails of Jet Airways do not reflect some fundamental structural difficulty with the private airline sector in India that needs the heavy hand of government to come in and fix it. Rather, these reflect poor management decisions mixed with some bad luck (in the form of, for instance, fluctuating oil prices), along with intensified competition from new carriers nipping at Jet Airways’ heels. None of these are good enough reasons to warrant government intervention to save the airline. Indeed, intensified competition, abetting the process of creative destruction, is something to be celebrated..."


Read the whole article here.

Topic : State Capacity / In : OP-EDS
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