A widely endorsed view of markets holds that “capitalism without bankruptcy is like religion without hell.”
Thus, as new research notes,
[B]arriers to firms exiting the market, such as the costs of bankruptcy, laying off workers, and selling or repurposing assets, can stifle firm creation and weaken an economy.
The authors then note that
… exit costs in India are high: The annual exit rate among Indian manufacturers is 3.1 percent, one of the lowest rates in the world, and voluntary closure typically takes at least 4.3 years—2.8 of which are spent securing clearances and refunds from government departments.
The research then
… estimates that increasing the exit rate of Indian manufacturers from 3.1 percent to 4.5 percent (half that of US manufacturers) would increase the number of manufacturers and their contribution to gross domestic product by 14–19 percent. Additionally, their average productivity would increase by 3.23–3.85 percent.
Thus, again, one cannot limit the downsides of free markets—such as layoffs—without also limiting the benefits—a dynamic and innovative economy.
This article appeared on Substack on August 27, 2025.
