Twitter
StumbleUpon
Facebook
Delicious
Digg
Newsvine
Google
Yahoo
Technorati'Too Big To Fail' Has an Easy Answer: Anti-Trust or Public Control
The one thing we are not hearing from Congress or from incoming president Barack Obama in the current economic crisis facing the country are the words "anti-trust" and "public ownership."
From the moment the crisis first struck, with the near collapse of AIG, the mantra has been that companies like AIG, Morgan Stanley, Merrill Lynch, Citibank, etc.--and more recently General Motors Corp. and Ford--are "too big to fail." That is, it is argued that these companies are so huge that if they were to collapse into the rubble they deserve to be, it would damage the nation irreparably.
The question is, if that is genuinely the case, why were they allowed to be that big in the first place, and why aren't we rethinking that policy?
It's not as though they got that way through organic growth by being successful at what they did. Hardly. GM was the quintessential result of a merger of smaller automakers. Ford grew too, by acquiring the competition, most recently Volvo. Most, if not all of those acquisitions were first vetted and approved by the Federal Trade Commission and found to be acceptable as a matter of economics and public policy.
In the banking industry, which is regulated, the picture is even worse, with the government first opening the door to the creation of national banking companies, and then routinely approving the gobbling up of one after another regional or even national bank by another. At some point we reached the point where the giants in the industry--Citibank, JP Morgan Chase, Bank of America, Wells Fargo, etc.--were able to say, when they ran into trouble, that allowing them to fail would have dire consequences for the national economy. This kind of extortion should never have been allowed to happen.
First of all, the argument for national banks never made sense for ordinary people, and wasn't necessary for large customers either. Large corporate fundings have always been done by bank consortia, and this could have been accomplished with the nation's banking industry fragmented into small state-chartered institutions. Meanwhile, small businesses and individuals always lose when a bank is national in scale. It is much more costly to handle the banking business of small enterprises and individual families than it is to handle the business of huge corporate clients, with the result that the major banks have made it costlier and costlier for small customers to do business with them.
The answer is clear. Bigness is fundamentally bad when it comes to capitalism. There is a point where any company in any industry becomes too big for it to be socially acceptable. Big companies not only attempt to behave in a monopolistic fashion by destroying or buying up the competition, both nationally or, as in the case of a retailer like WalMart or a bank like Citibank, locally, using their huge financial power to locally underprice the competition and drive them out of business (after which they are free to gouge the local customer base). They also ride roughshod over local political interests, demanding tax breaks, zoning waivers, etc. This being the case, the government should simply not be allowing corporations to achieve such scale and market dominance.
Companies, whether banks, car makers, or media companies, should never be allowed to grow to a point that they become "too big to fail." If that can be said about any company, whether because of the assets it holds, or because of the number of people it employs, it is time to break it up.
Think of GM. If GM were ripped up into six or seven competing companies, it is certain that at least one of those smaller entities would be producing electric cars by next year. The Saturn plant already made one, the Impact, that was wildly popular (see the excellent documentary "Who Killed the Electric Car"), and if left to its own devices to sink or swim, could probably be cranking those out in volume for the 2010 model year.
Some companies would certainly fail. But that's what is supposed to happen in a capitalist system.
This piece is not meant to be a paen to capitalism. But having said that, if you're going to have capitalism, which is the ruling ideology here in the US of A, you have to let it function as intended. As soon as the government comes in and starts encouraging the establishment of monopolies or quasi-monopolies, and preventing the failure of poorly managed enterprises or dying industries, as it is doing in the case of the banking and automotive sectors, it is no longer true capitalism.
That could work, too. Many democratic countries, including Japan, Sweden, France and Germany, have the concept of shared governance of corporations, in which large corporate entities are partially owned and run by government, and of planned economies, in which certain sectors are deliberately protected and promoted by government policy. The US has moved in that direction with the investment by the government in nine of the country's largest banks, and in discussions to provide $25-50 billion in financial assistance to the major US auto companies. But in the US case, the government is studiously avoiding demanding a role in running those companies. It is by design only a "passive" investor.
This is the triumph of ideology over rationality and the public interest. I recently interviewed a number of investment strategists in the course of working on an article for an investment magazine. They all had the same advice for worried investors: invest in shares of the "magic nine" banks that are recipients of tens of billions of dollars in bail-out money from the federal government. As they all point out, the government's stake in these banks means that they will not be allowed to fail, and moreover, they are in a unique position to use their flush capital reserves to acquire, at fire sale prices, the assets of smaller banks that are being left to sink or swim in the current credit crisis and recession. That is not a free market. It's a government program to reduce the competition in the banking sector and hand all the business over to a favored few giant banks.
Now that would be okay if the government, in return for its investment, were taking a management role in those favored banks. But it is not. Congress, the Bush administration, and, so far at least, the incoming administration of Barack Obama, have not been demanding a management stake in any of the companies that are getting bail-out funding. If the government takes ownership positions at all, it is taking non-voting shares in those companies, solely in the hope of someday getting some of the invested money back by selling those shares.
This is not just a rip-off of the taxpayer. It is a craven program to enrich big investors in the bailed-out enterprises, while putting control of the nation's economic destiny increasingly into a smaller number of hands of people whose interests are not even aligned with the national intereest (these are, after all, all transnational corporations only nominally headquartered in the US).
There is, of course, another reason that companies should never be allowed to become "too big to fail." That is political clout. The US political system is already largely an owned-and-operated subisidiary of corporate America. When companies become as large as AIG or GM or Bank of America, they also gain a disproportionate influence over the political apparatus that is an order of magnitude larger than their share of the national GDP. It's not just that they have limitless money to donate to political campaigns. They also, by their size, are able to dispense political favors in virtually every congressional district, much as the Pentagon has been doing for the past half century, and also to threaten national havoc if they don't get their way.
Don't expect much in the way of scrutiny of this bailout process from the corporate media, by the way, which has been engaged in the same process of national consolidation for the past few decades. But clearly, the public needs to wake up and start demanding that if our money is going to be used to bail out these corrupt and horrifically managed enterprises, we the people need to have a controlling interest in running them, so that they are run in our interest. Better yet, we should be demanding that these bumbling colossuses be broken up into little pieces, and then left to sink or swim on their own like the rest of us.
36 Comments so far
Show AllI'm in the "lets work out a free market system, where no company is allowed to be, 'too big to fail'" camp.
Too big to fail= licence to steal! So much for 'winners and lossers' when these guys over here, can never lose!!!!
GM is a perfect example of the problem. Seven more or less homegrown divisions - Cadillac, Pontiac, Buick, Oldsmobile, Chevy, Saturn, and GMC. Six market at least one SUV line, at least two market full pickup truck lines, the rest - save for Saturn, and a niche vehicle or two, market their own version of essentially the same product with different engines and trim; all designed by design teams answering to the same senior executives, all built to the same cheap and shoddy standards.
Chrysler and Ford are more or less the same with only minor differences. Ford and GM both build and have always built better cars in Europe for European markets than are available here. I find it interesting that most homelanders seem to want to preserve three (failing) major national car companies but are happy with only two (failing) politcal parties - though I would argue we have only one political party - the business party - represented by whoever is president. But that is another issue.
The American carmakers are still making the kinds of vehicles that were problematic in the '70s after the last oil scare when they should be building more efficient higher-quality cars. In many ways, they're better cars than they were in the '70s, but they're still far behind European and Japanese vehicles in efficiency and quality. We're wound up in that 'quantity not quality' thing that works so well in the homeland (why we buy so much cheap junk from China and why the fast-food franchises are so successful). I haven't bought an American car since I bought a SAAB in 1990 and never will again. Ironically, SAAB was purchased by GM a few years ago but they were smart enough - so far - to keep their hands off the product because compared to European and Japanese cars GM products are generally junk.
As a condition of getting any more federal dollars (they just split $25B in taxpayer dollars with Ford and Chrysler) GM should be broken up into at least seven companies and let them actually compete with each other and the rest of the world and see how fast they change and produce competitive products or how soon they fail. Isn't that what the meaning of 'competition' they claim to worship is all about? If nothing else, it will reveal the hypocrisy our corporate friends have been enjoying and hiding for so long to the homelanders - everybody else in the world already knows.
While I don't like the idea of anybody losing a job, I think it may be a necessary consequence if we are to fix some of the systematic problems in the auto industry. In every economic system some people's economic welfare is always sacrificed for what is determined to be the public good – that is, the rest of us. I think that is unavoidable. I do think that an ethical nation takes care of those it sacrifices until they are able to participate in one way or another in the system the nation has decided it wants - and not the paltry '39-week then you're on your own' system we have in the homeland. Investment in future-oriented or 'green' industries would be a way to mitigate the dislocation and address some of our most pressing problems. If we want to focus on the future instead of the past, it makes sense to me. Which is why it won't be done.
Finally, why should these 'too-big' enterprises be broken up? Good public policy for starters. They more heavily influence governmental decisions than they should. If they were small enough to fail, they wouldn't have the power to compel taxpayers to bail them out (what happened to the sainted 'market system' all these guys honked about?), they could better compete against other, let's say leaner, enterprises in their industry. Even if you worship the ‘market system’, the bigger the company the greater the inertia, therefore, the harder it is for it to respond to market changes. The bigger the company, the more 'conservative' and generally risk-averse it becomes since it becomes more of an effort to move a large enterprise to do anything. Ironically, (witness the financial sector) big companies also become more 'bad-risk' oriented - the hubris of being the 'biggest' often leads them into making unsound decisions knowing that big-brother will not allow them to fail. If a company is too big to fail, it's too big to allow to exist for economic as well as national security reasons. I view 'national security' as more than a military/security thing. Having an educated and thoughtful public, good educational, justice, and health systems and a sound economic model are all essential for national security. If comparisons with other 'western democracies', in most of these areas, are any measure we aren't even close.
"This is not just a rip-off of the taxpayer. It is a craven program to enrich big investors in the bailed-out enterprises, while putting control of the nation's economic destiny increasingly into a smaller number of hands of people whose interests are not even aligned with the national intereest (these are, after all, all transnational corporations only nominally headquartered in the US)."
Keep in mind that many of these U.S. headquartered corporations are owned by Private Equity Firms (http://en.wikipedia.org/wiki/Private_equity) which are not "publicly" traded. I recently read that Cerberus Capital Managment, a private equity, not only owns Chrysler Financial Corp., but also owns "51 percent of GMAC". According to wikipedia, John W. Snow, Bush's "second" U.S. Secretary of the Treasury, was named Chairman of Cerberus in 2006. And......former U.S. Vice President, Dan Quayle, runs one of its international units.
Hmmmm.....
'twill be sad, five or ten years from now, when critics will say that now, the present time of crisis, was the best opportunity to step back, have asked and examined such a basic issue as raised by Dave Lindorff. As always, the Big Boys are in control, now abetted by the lately appointed community organizer.
Here's another recent article by Lindorff, one that you probably won't be reading on CD--
http://www.counterpunch.org/lindorff11122008.html
Too Rich To Fail?
WASHINGTON (Reuters) – The Bush administration on Wednesday largely abandoned its plan to buy up toxic mortgage assets and said it will focus its $700 billion financial bailout fund on making direct investments in financial institutions.
Ane we thought that the Hyper Rich CEOs would be stuck with their worthless stock options.....now the pour and muddled crass will be forced to buy them at the point of a gun.
Is this a Great Country, or what?
Is this country Too Great To Fail?
Has anyone considered that if these laissez faire corporate behemoths cannot survive without massive infusions of public capital, they have ALREADY failed?
In addition to doing away with regulation, Republicans have been undermining anti-trust and anti-monopoly laws for decades.
It's time to put teeth back into them.
The stunning success of the Internet as a system is that even if you knock out a large number of nodes that route traffic, the entire Internet doesn't go down with them. Because it isn't designed with some sort of critical, central controller.
It may not be a precise analogy, but that's exactly a part of what anti-trust and anti-monopoly laws are intended for -- to prevent a business getting so big that if it fails it takes everyone else down with it.
PhilQ
Great article. During the development of this debacle I have been watching in amazement as the treasury is looted by these jokers. Does anyone else remember all the talk of "welfare queens" back in, what was it, the 1980s? I have not seen the term used of late, but it certainly comes to mind with respect to these corporate shenanigans, and I'm thinking perhaps it should become reintroduced as part of the public dialogue. What say you, fellow readers?
Good idea! In my view if eight years of George Bush doesn't kill off the republican party, what will? Yes, I recall the Reagan rhetoric about welfare queens driving Cadillacs.
The USA's actual welfare queens can usually be found clad in gray, three-piece pinstripe suits. And they don't drive anything. They have people for that.
My point exactly
The notion that GM is too big to fail is as bogus as George W. Bush's college degree.
The argument is that if GM fails thousands of jobs will go down the drain, and even more when the thousands of support industry jobs are considered. Well, wait a minute...
It seems to me that auto industry jobs depend on demand for the product, and GM's product line isn't one with a high demand and that's the real problem GM has. If the government doesn't bail out GM, Ford, and Chrysler, and they fail, but demand for cars and trucks is still good, then the Japanese, Korean, and European brands built in U.S. factories will fill that demand. Hense, jobs will transfer from one factory to another and that's just the way competition works. To bail out the big three is to reward incompetence and that's antithetical to the capitalist system. The thing to do is let them flop, and the guys wearing the suits and ties get to flop too because they deserve it.
Of course, given the state of our economy it could be that demand for cars and trucks in general will continue to falter, and if that's the case what's the point of bailing out the big three if they're destined to fail anyway. Isn't that just throwing good money after bad?
I say forget bailing out GM, Ford, or Chrysler.
While we stand by, the US treasury is looted by Bush & his cronies.
But I could be wrong !
Right On ! I've been saying this for Decades. Too big to Fail - too Big to exist. If Capitalism IS the best system, let it Exist. 500 Trillion dollars in Derivitives. Ok, so you are a poker player and some gangster holds your Mark...
Better pay up buddy or your kneecaps ain't worth diddly.
I have absolutely no empathy for these crooks at all.
This is why I advocate a tax Revolt. It is the only way that is non-violent. Take away their Money $$$$ what could be simpler and more effective???
Thank you Dave for this article. I have said this same thing for years. If the corporations get too big to fail, then why do we allow them to grow so large. I understand that growth is important, but then corporations rule, not the Government. It is high time to cut the "too large to fail" companies down to manageable sizes!
Our government just gave AIG more of our tax money so they could throw another posh party for their top executives. And now GM wants in on the plunder. Detroit has been disfunctional since the 60's and more money just delays the inevitable. Much of the 'Big Three' is built elsewhere. Will the Japanese and Koreans who actually make their cars in America feed at the Federal trough too?
Commie, pinko, thespian, socialist, 'spread the wealth' librels!!!!!!!!
John Lewis-Dickerson, Atlanta
George Wanker Bush is also a thespian as he is the Impresario and leading actor of The Mission Accomplished Theater located on an aircraft carrier just off San Diego, California. Like Reagan and Cheesedick Cheney, he believes that "deficits don't matter" which makes him a Commie and a Pinko and a Socialist. If he's a conservative, I'm the Chief Rabbi of Vatican City.
LOL!!!! By the way, I left out "Lefty, Leftist, Marxist, Leninist, Trotskyite".
John Lewis-Dickerson, Atlanta
DICKERSON3870 November 12th, 2008 6:39 pm
Thats very colorful. Thanks!
PS. Russ Feingold for Chairman of the U.S. Senate Committee on Foreign Relations (replacing Biden)
John Lewis-Dickerson, Atlanta
Excellent article.
What Lindorff infers, but does not explicitly state, is that most people conflate lassez faire and free (competitive) market when they are not the same thing - in fact, they are contradictory. Lassez faire will inevitably lead to concentration which stifles competition. In a competitive, or free, market, the price is determmined by market forces. However the conditions required for a truly competitve market have never - indeed, can never - exist in the real world on a meaningful scale. Regulation is necessary in order to approximate those conditions. Anti-trust, as Lindorff emphasizes, is a critical piece of the necessary regulatory matrix.
One other point, the problem of concentration is even worse because it becomes - and clearly has become in this country - a self-enforcing cycle with the powerful writing regulations to benefit themselves and accrue ever more power.
Too big to fail = socialism for the rich.
"The one thing we are not hearing from Congress or from incoming president Barack Obama..."
The other thing we're not hearing from BO or Congress is the need to cut and re-prioritize the Fed budget. When "we," as in, the people, are faced with new expenses, we must make SACRIFICES - less movies, less restaurants, less new clothes, etc - while deciding where to spend what's left. Yet, every plan put forward is based on the same premise: print more money/create more debt and argue over who gets it.
Now is the time to demand responsibility from "our" reps. Does the Pentagon need another trillion-plus, or can half of that be spent better elsewhere? Is the "war on drugs" an efficient use of taxpayer dollars? Does Monsanto really need subsidies? If this is truly an emergency, wouldn't that demand the collection of all outstanding oil lease revenues, and the closing of all off-shore tax shelters, and the intense auditing of Big Corp everything?
Before new money is printed and gifted, we must demand that "our" government act like the rest of us adults, which means re-budgeting in the face of a crisis before accruing more debt, which should only be a last resort.
First off, great article by Lindorff. frank1569-yes, "re-prioritze the Fed budget." Slash defense spending, but INCREASE overall spending to create jobs and create those jobs for alternative energies, a revamped national power grid, plug-in cars, assorted infrastructure upgrades, and a sensible health care system.
Ah yes, Capitalism.
"This piece is not meant to be a paen to capitalism. But having said that, if you're going to have capitalism, which is the ruling ideology here in the US of A, you have to let it function as intended. As soon as the government comes in and starts encouraging the establishment of monopolies or quasi-monopolies, and preventing the failure of poorly managed enterprises or dying industries, as it is doing in the case of the banking and automotive sectors, it is no longer true capitalism."
Capitalism, as so often incorrectly defined, is the problem, and as long as we keep insisting we are a truly capitalistic society the right will be able to once again push to the exteme that has gotten us into this mess.
I believe that Communism and Capitalism are polar extremes of socio-economic systems. Communism is a totally egalitarian system in which no one owns anything, and everyone works for the good of the whole society. Capitalism, incorrectly defined so often in conversation, on the other end of the spectrum, must be defined to be completely lassaize-faire and totally free market, and EVERYTHING privatized.
Neither of these systems has ever been implemented on a large scale. The “communism” that was practiced in Russia was hardly true communism, as seen by the excesses of those in power. Nor was the free-market capitalism that has been so widely touted of recent in this country been true capitalism. In true free-market capitalism everything would be privately held. The problem with capitalism is that generally there must be a government operating in any society, in order to keep the law if nothing else. Therefore taxes have to be levied, and that necessitates a tax code and tax structure. How these taxes are levied changes the market. Are taxes levied in a progressive fashion? A flat rate base on percentage of income? A flat rate based on amount per individual? And what of corporate taxes? And then once those taxes are levied, how are the revenues spent? If the revenues are spent by paying privately held corporations or private citizens, then the application of those funds artificially sways the market. If the revenues are strictly used by government entities, those entities still effect the markets, and multiplier effects ripple through the economy. Add to this the fact that people will always game the system, means that neither of these "pure" isms can ever really work. I've always thought that socialism was somewhere between these two extremes, and could be adjusted to find what works and what that particular society happens to find acceptable. Perhaps what we need is to come up with a new word for the particular variety that we find works for us, and declare ourselves followers of it. It needs to be well-defined at the beginning so that drift can be closely observed and monitored.
I do agree with the article on almost all other aspects. But he contradicts himslef by saying free market on one hand and then calls for application of anti-trust on the other. We need to stop insisting that we are a free market, invisible hand type people. We need to be a hisotrically minded intelligently guided market society. The freer the markets are the more we the people are chained to negative freedoms -- free to get up and spend 18 hours a day working for the free market in any slave wage field you want. Free to negotiate our way to the bottom in order to claw for a piece of bread.
"Communism is a totally egalitarian system in which no one owns anything, and everyone works for the good of the whole society."
Could some one remind me please as to what the motivation is that inspires one to work "for the good of the whole society" in a Communist system? Thank you.
Well let's see. In countries with socialized medicine, where docs work for moderate salaries, people still go to med school to become doctors. They do it because they like to cure people.
I work as a journalist, usually for just more than a pittance, sometimes for free, because I enjoy the work and feel it is important, ie that I am making a difference.
I know car mechanics who love working on cars. I know carpenters who love building houses.
There are fishermen and fisherwomen and lobsterers working from ports in New England who scarcely earn enough to pay for their fuel, but they love the work of going out on the open sea and catching fish. There are farmers who toil away in PA and NY, barely ekeing out enough to keep the banks at bay, yet they don't quit, because they love to farm.
You don't get it, because you don't understand that most people do what they do because they get satisfaction out of it, until some bastard capitalist turns it into an alienation process of rippiing off as much profit as he or she can get out of the person, by routinizing the job, taking away the worker's freedom of expression and of creative in put, and turning the person into a feudalistic cog in the machine. THEN you've got to pay the guy, or if he gets a chance, he'll quit.
This notion that people only work when they can profit from it is a fiction that came into being in the mid 18th century.
DAve Lindorff
www.thiscantbehappening.net
Lots of people love their work.
Visit Dave Lindorff's website at www.thiscantbehappening.net
"There are farmers who toil away in PA and NY, barely ekeing out enough to keep the banks at bay, yet they don't quit, because they love to farm."
In the above example, how can you be sure that it is "love of farming" that motivates the farmers? How do you know that their primary motivation is not the betterment of themselves and their families? I am also curious that you seem to assess this on them collectively and ignore them as individuals.
"you don't understand that most people do what they do because they get satisfaction out of it, "
I think they often persue one thing over the other for the reason you cite, but not always. You OTOH don't seem to get that people also want to better their lot in life and get rewarded for their efforts.
On the contrary, I've lived up there and know them as friends and neighbors. They are people who love what they are doing. Of course they'd like to make a go of it, but it is very hard to do, given the corporate contol of commodity prices. It's very hard to make a buck with a 100-herd dairy farm. I've also learned that it is almost impossible to start a farm. You have to inherit one. Starting requires so much borrowing you could never make it. Running an inherited farm is hard enough.
But my point is that people still keep doing it, because they love the life and the work. With human beings, it is not all about the money. That is the mistake that most modern, and especially American economists make. They assume that all human decisions are rationally made based on maximizing financial reward. It simply isn't so. If it were, I wouldn't be a journalist. I'd be working as a PR exec for a big corporation.
Visit Dave Lindorff's website at www.thiscantbehappening.net
"But my point is that people still keep doing it, because they love the life and the work. With human beings, it is not all about the money."
Thank you for you response. I think the above may very often be true but would be independent of the underlying economic system. My original question stems from what I feel is the fundamental problem with communism in particular and to some degree socialism, and that is that it does nothing to motivate workers and is arguably a discouraging factor vis a vis the compensation issue.
I agree with both of you, kind of. I think often people start down a path and it becomes the only path they know. They maybe love it, maybe incredibly, maybe not so much, but it is what they know. And so long as they can survive doing it they are fine with that. Most would love to be comfortable doing what they love, many would like to be more than comfortable, but they do what they know. There are also people working cleaning toilets that go to work everyday for a myriad of reasons, from they can't get anything better, to they don't believe they can get anything better.
As for communism, I personally think it has it's merits, but I know there are many who don't, and this is a case of "one bad apple spoils the whole bunch." However, we in the west also can't conceive of arranged marriages, but it still goes on in much of the world and many many people will attest to its effectiveness.
What I'm really trying to get across here is that for years the right would almost spit everytime they said "liberal" and now they've done the same thing with "socialism," even though so much of the civilized world is socialistic, even us, it's just a matter of degrees. So much of the problem is that they still control the debate through their mouthpieces like Rush, Fox, etc. I'm glad to learn that the term liberal is coming back into vogue, even though it's a bit of a misnomer; at least we're taking back the discussion to our side and it's about time. We need to do that with the economy and its defining language or it's going to be a long slog through to the end.
Excellent article.
Ditto. A perfectly good word that I am trying to ressurect after its been sullied and misused by Rush L.
Good article, especially because Lindorff remembers to identify the true obstacle to economic - as well as social and political - progress in the US: the corporate media.
The first institutions which need breaking up are the media giants. The media ownership rules need to be redefined to be as restrictive as possible.
q