age of equipment in use rises steadily. The untrained observer, seeing the
industry’s plight, is likely to blame it on the old equipment.
The antiquated equipment in a declining industry is typically the effect rather than the cause
of the industry’s decline.The Response of Governments
Governments are often tempted to support declining industries because
they are worried about the resulting job losses. Experience suggests,
however, that propping up genuinely declining industries only delays
their demise—at significant cost to the taxpayers. When the government
finally withdraws its support, the decline is usually more abrupt and,
hence, the required adjustment is more difficult than it would have been
had the industry been allowed to decline gradually under the natural
market forces.
Once governments recognize that the decay of certain industries and the
collapse of certain firms are an inevitable part of a changing and evolving
economy, a more effective response is to provide retraining and
temporary income-support schemes that cushion the impacts of change.
These can moderate the effects on the incomes of workers who lose their
jobs and make it easier for them to transfer to expanding industries.
Intervention that is intended to increase mobility while reducing the
social and personal costs of mobility is a viable long-run policy; trying to
freeze the existing industrial structure by shoring up an inevitably
declining industry is not.