Business Lifecycle - Benefits
The government pays these costs because allowing businesses to fail improves the efficiency of the economy. Businesses often won’t get things right. They can produce the wrong things. They can make mistakes in how they set up their operations. A mechanism is needed to either fix these problems or shut down the failures. The simplest way to do this is to use competition. If a weak business can’t compete with a stronger one, its sales drop and it is automatically shut down. Government bureaucrats don’t have to make any tough decisions.
All the government has to do is decide how much to spend on starting new businesses and expanding existing ones. The more they spend, the higher the level of competition. Higher competition forces businesses to be more efficient. If the government spends too little, businesses will become inefficient, producing expensive products of poor quality. If the government spends too much, it is simply wasting its money because well-run businesses begin to fail. The benefits of efficiency are weighed against the costs of business failures.
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