Capitalism in the Age of the Bailouts

The events of the cruel autumn of 2008 have made me wonder more than ever whether capitalism may be too important to be left to the capitalists.

Not content with handing Wall Street a $700 billion get-out-of-jail-free card, it seems, Congress is now contemplating drawing America’s bumbling auto industry into Uncle Sam’s warm, loving embrace. Years of mismanagement, engineering mediocrity (at least as far as my gearhead friends are concerned, and I am happy to defer to their infinitely better-informed judgement), and labor union avarice have combined with the recent financial meltdown to bring Detroit’s age-old woes to the boiling point. True to recent, demoralizing form, the managers who have finally run America’s Big Three auto manufacturers into the ground are now going to Uncle Sam on bended knee, fairly begging to be hoisted out of the wreckage—and given a stipend with which to purchase a new ride.

It was perhaps inevitable that the recent Wall Street rescue package, once approved, would spawn countless demands for similar disbursements of public funds to other struggling constituencies. Hard on Detroit’s heels now follow a slew of fiscally foundering city governments also braying for handouts from the federal government. Apparently, those who run these budgetary basket cases can no longer be counted on to take responsibility for their own failures, as grown men and women are normally expected to do. Perhaps worst of all, these stumblebums show not even the slightest shame at having to beg Washington politicians to rescue them from the consequences of their spendthrift ways.

This disgraceful spectacle is most galling coming from the same business class that spent decades lecturing Americans and the world about the inefficiency of government and the supremacy of free markets. Mind you, they were correct on that score, in my view; but in so doing they obviously forgot the timeless admonition to “preach by example”. Businesspeople are often the worst violators of the principles of self-reliance, personal responsibility, and survival-of-the-fittest that underpin the capitalist system at its best. While the current bailout brouhaha is the most egregious recent betrayal of free-market values, even it is only the tip of the iceberg. Corporate elites the world over have almost always been attached to their governments by unpublicized fiscal umbilical cords, ingesting copious amounts of state largesse in the form of subsidies, grants and tax breaks. (This, of course, is not to mention the occasional trade-strangling tariff or quota to protect the tenderest corporate feet from international competition.)

This political-industrial racket flies in the face of a basic home truth: that freedom entails responsibility, and that therefore, if enterprise is to be free, it too must be responsible. More specifically, companies that are unable to compete effectively on their own merits must be allowed to fail, so that more competent merchants can take their places in the market, providing consumers with goods and services of higher quality. When government intervenes to prop up inefficient or obsolescent firms and industries, it wastes taxpayers’ money and risks subjecting consumers to more expensive and/or lower-quality goods and services than they would otherwise be able to purchase. In short, such meddling distorts the market in counterproductive ways.

In the real world, however, these failing firms are unsurprisingly reluctant to join the dinosaurs in the annals of extinction. They are thus willing to go to remarkable lengths to get the state to tilt the playing field substantially in their favor. That this suggests an inability to stand on their own feet in the business world appears not to faze them. Generations of corporate apparatchiks—in industries from steel to utilities to the infamously subsidy-dependent agricultural sector—have maintained, straight-faced, that society benefits from pampering them. The funds they donate to politicians’ election campaign war chests serve to grease the wheels of this corrupt system of corporate welfare. Invariably, taxpayers and consumers—the vast majority of any country’s population—end up shouldering the lion’s share of the resulting burden.

This sordid circus has never been lost on capitalism’s most learned defenders. No less an authority on the free market than the late economist Milton Friedman has noted that the business community simply cannot be counted on to consistently observe the principles of free enterprise in toto. As Friedman wrote in an article in the libertarian Reason magazine thirty years ago: “Business corporations in general are not defenders of free enterprise. On the contrary, they are one of the chief sources of danger…Every businessman is in favor of freedom for everybody else, but when it comes to himself that’s a different question. We have to have that tariff to protect us against competition from abroad. We have to have that special provision in the tax code. We have to have that subsidy.” As Friedman understood, too many businesspeople themselves rely on busybody government to be credible defenders of a system that demands that individuals and businesses pull as much of their own weight as possible.

This is how we end up with a scenario in which auto company executives can fly into Washington on private jets to beg Congress to save them from the consequences of their own managerial ineptitude with taxpayers’ money.

The principal argument advanced in favor of the proposed auto bailout is that the automakers employ far too many workers, and generally take up too much space in the US economy, to be allowed to go bankrupt, especially in the midst of the necrosis the economy seems to be undergoing at present. This begs the question of why the $25 billion that Washington policymakers—primarily Democrats—are contemplating pouring down the Detroit drainpipe cannot be reallocated to the task of helping the automakers’ employees themselves. Of particular use would be programs to help retrain these working stiffs—to build up their skill sets so as to enable to them to qualify for more secure jobs in more viable companies and industries. Now there’s one form of government intervention all of us—small-government conservative and libertarian as well as centrist, liberal or even socialist—should be able to support. I have in mind the kind of government intervention that truly empowers ordinary people, helping them help themselves—one that teaches a man how to fish, thereby feeding him for a lifetime, rather than giving them a fish and feeding him merely for a day.

What seems utterly lost on both Congress and the Big Three themselves is that allowing these firms to go bankrupt needn’t be the end of the world—or even the end of the automakers. As any expert on these matters will tell you, a company that files for bankruptcy does not necessarily cease to exist. A company that is hemorrhaging cash and yet still has valuable tangible assets can use corporate bankruptcy to reorganize its operations, renegotiate its contracts (particularly the $70-an-hour wages and bloated benefits which the Big Three lavish on their workers), restructure its debt and ultimately emerge stronger and more profitable then ever before. Perhaps Congress should do whatever is in its power to facilitate and expedite this process. One key element of that process should be the requirement that most, if not all, of the Detroit automakers’ current management be jettisoned immediately, without debate, delay or negotiation. It is high time that incompetent executives pay the price for ruining the businesses they are hired to run, rather than their hapless workers.

I am far from the first to propose such a scheme. Yet the odds of Congress’ adopting so creative an approach to this crisis seem rather svelte. And the incoming President-elect has yet to announce whether he plans to stand up to the relevant special interests—mainly the union that has bedeviled Detroit for so long, the United Auto Workers—to put the kibosh on this latest boondoggle. Only time (another two months, to be precise) will tell; and indeed, even should Obama wish to send Detroit’s malefactors of great wealth packing, he may not even get the chance, as the Pelosi-Reid Congress may cave in before January 20. I suppose I, and all those who prefer their governments small and minimally intrusive and their individuals and businesses maximally self-reliant, will have to content ourselves with daydreaming about a different New York Daily News front page spread that, alas, may never be printed: OBAMA TO BIG THREE: DROP DEAD!!!