Depressed industries

Decline may stem primarily from the emergence of a cost-effective domestic substitute, in which case it is questionable whether any efforts should be made to modernize the outmoded industry or to protect it from foreign competition. In the case of trade-impacted industries making undifferentiated products in which costs alone determine sales, major declines inevitably resulted when the industries lost competitiveness. But the chronic adjustment problem for threatened industries is not a failure to move resources out of declining industries but rather that of adjustment within sectors and firms.

There are two extreme views of the structural adjustment process. That typical of economists sees changes in comparative economic advantage as being permanent, suggesting that once competitiveness is lost it is rarely, if ever, regained. That typical of the political perspective assumes that government policies can restore almost any industry to competitiveness. In practice neither process is entirely applicable.