The economic miracle that has been the United States was not produced by socialized enterprises, by government-union-industry cartels or by centralized economic planning. It was produced by private enterprises in a profit-and-loss system. And losses were at least as important in weeding out failures, as profits in fostering successes. Let government succor failures, and we shall be headed for stagnation and decline. – Milton Friedman
As our government continues to bail out big corporations, a pattern is emerging. The current bailout targets the big auto manufacturers, and just like with the banks, the government is saying that the companies are failing due to poor decisions. This presents the government with a dilemma. If it does nothing, the economy could continue a steep decline. If it bails out the failing companies, it risks the loss of the additional money, and encourages other large corporations to play dead for a handout. In order to avoid the appearance of rewarding and subsidizing failure, the government is attempting to get a share in the companies and regulate their decisions. This presents a host of difficulties.
- With no fear of failure, the company doesn’t feel the hunger to optimize and make a better, more competitive product, they just throw their newfound weight around.
- Domestic competitors who were not failing now have the problem of a rival who has an artificial advantage. This actually serves to increase monopolistic tendencies. This is illustrated with our bailed out banks taking the opportunity to buy out competitors rather than loan money.
- As the company attempts to find loopholes to wriggle free of its new bonds, the government counters with additional regulations, thus digging us deeper.
If we follow this to a logical end we see American car companies being given a global competitive advantage by having their cost of doing business artificially reduced. This has the same effect upon foreign competitors as the kind of corporate bullying you see when a Wal-Mart arrives in a small town and drives all of the local businesses under. Foreign governments will then have a choice. They can either let their auto manufacturers die because America played dirty, or they can subsidize their own auto manufacturers. What this could lead to is a new cold war in which we have a race towards socialism in order to conquer the global market.
Do Superpowers Inevitably Degrade Into Socialism? Well, I suppose there are other ways to fail, buy it certainly looks like the default for inexorable decline. And each step along the way is paved with good intentions.