I learned yesterday that the presidential election has renewed a conversation in America about socialism. It is good that none of the candidates are embracing the moniker of socialism, but you would be surprised how easy it is for a people to slip into a socialist mindset, regardless of what we call it. Even the most hard-bitten capitalists might lazily think in such a way. Even a blogger you know ...
In my last post, for instance, I wrote "Look, if it is in the national interest to save these companies [GM and Chrysler], then taxpayers should have a say in how the money gets spent."
Minutes after publishing the post, it hit me how easily I had fallen into the trap. Sounds a lot like socialism, doesn't it?
In socialism's purest form, the government would take outright ownership of firms, manage them, establish wages, and so forth. Few would be so brazen. We instead need to be watchful for the slippery alternative form of socialism wherein the government acts as a "lender" rather than an owner. You might recall this was the approach suggested by Bernanke and Paulson, initially, until numerous voices suggested the taxpayer deserved some upside (e.g. a sliver of ownership) in distressed assets. Or warrants - a fancy way of getting ownership with upside. I'm afraid this mindset may have become a default consensus framework. But it is the next step is where we get into real trouble.
The next logical step following taxpayer's role as lender/owners of distressed firms (or indeed any firms that "voluntarily" accept government rate funds) is this: conditions. It is exactly the logic I followed earlier. Take public money = take public conditions on how your firm is operated.
The trouble hinges entirely on what conditions the government should, could, and will establish. For many people, conditions include limiting executive pay, minimum wages for each occupation (i.e. privatizing Davis-Bacon rules), mandates for health insurance, dental insurance, and so forth. If the federal loans are to banks, one would imagine these conditions would be extended to all small firms borrowing from those banks. FDIC insured lenders? Sure, them too. How about rules that force firms to buy American components? -- very popular in some Republican as well as Democratic circles.
In the GM case, I think it is pretty clear that the conditions should involve bankruptcy-like realignment of unsustainable contracts with the unions -- including the infamous policy of paying workers to sit around and do nothing. In other words, the conditions I envisioned would lower costs, not raise them. But who is to say what policies will become part of the consensus rescure template?
Who is to say, indeed.
One final thought. You may notice that my initial statement calling for conditional lending included a qualifier. "... if it is in the national interest to save these companies ..."
That is a very big if. I will try to make it clearer next time.
I think that the danger is more fascism, which to me is government control or influence over business. In a fascist system, the nominal ownership remains in private hands and there isn't a formal national plan.
In a socialist economy, the formal ownership, as well as the control, belongs to the government.
I can't imagine the circumstances when a formal socialist system would be adopted in the U.S. The danger, as in your post, is a move toward a fascist system of even more government control/influence.
Posted by: John Bailey | October 30, 2008 at 08:30 AM