Anti-dismal argues that companies such as GM which are in trouble should be allowed to fail.
What is it about auto makers that makes them
think that taxpayers, worldwide, want to pay them to produce stuff no
one wants? The whole point about falls in profits is that it signals
that companies should change what they are doing and how they are doing
it, or cut back on production or exit the industry or some combination
of these things. Government handouts just delay this necessary
This is basic economics but also common sense. Taken to an extreme, imagine that GH (General Horses) still breeds horses for urban transport and a young and vibrant GM is trying to make cars. Should the US government pay GH to keep breeding horses that no one wants? At what point does a government say that 'enough is enough' and companies should exist to make useful products and profits, not just to soak up huge numbers of staff? How many people want to work for a company which limps from one crisis to another anyway?
Removing this market discipline is just bad economics and
bailouts by the government gives businesses a reprieve that the market
wouldn't give them. Within free markets a firm has to be able to pay
the ultimate price for bad decisions or products. But when the
government interferes, that discipline is removed. At least it appears
that the Swedish government has acted (more) correctly.
All of this is very relevant to another Anti-dismal post about the important of educating the population in basic economics. Perhaps all this talk of bailing out private companies (as distinct from lending banks which have their own special function in capitalism) would fall on deaf ears if people had a bit for respect for the creative destruction of a free economy.
[long aside: The fact is that capitalism works by allocating capital (people, effort, focus, etc.) to the right areas. By 'right' I mean the ones that we want it to. How do companies tell what we want? By our willingness to pay, by the price they can obtain. General Motors is well aware of this: witness the great run they had with SUVs when they were popular. Did GM refuse to produce them and continue with its all-car (and truck) line? No, it listened to the market, and made a lot of people very happy, and a lot of money for itself. Well some, anyway.
But what about when the market simply says 'less vehicles', and you are a vehicle company? Well, the same applies but on a whole-economy scale. GM does not need to continue in existence at the same level as currently. If people want less cars, GM must close factories and retrench. In the limit if people decide that GM cars suck and refuse to buy them at all, then GM must fold. The decision is ultimately down to the shareholders of GM.
Those staff and shareholders funds (as are left) will then find their way into other endeavours, perhaps in luxury vehicles, perhaps in farm machinery, perhaps in nano-technology. Whatever people want.
If you think about an economy where all the companies are producing products that no one wants, you can imagine our wealth slowly slipping year after year, as the new companies (which should be formed, funded and staffed) are starved of capital and people which are needed to keep the old 'subsidised' sector going.
The only remaining argument for bailing out GM is for short term reasons, perhaps because people cannot quickly find jobs. Not even that holds water in my view as it just makes the adjustment more painful. But I'm certainly not close enough to it to know.
Our short-term society gets alarmed with the weather is unusually cold one year, when a housing bubble collapses, when our supermarket runs out of a particular brand of bread. 'Why?'' we ask. 'What is going on?' We expect consistency and continuation. But capitalism has to balance this with the next big thing. It is constantly searching for new promising areas which people might want next week, next year, next decade.
A dangerous trap that some people fall into is to try to get the government to pick what people will want next. This often appears to work for a few years, but actually governments don't have the incentives (reward and pain) that are needed to really get to what the market wants. Also governments often try to make people change their wants (witness recycling and public transport). end of long aside]
Just like the demolition of a building to make way for a new one, we need to understand the importance of the demolition of a company, or a whole sector. It is sad when old buildings go. But without the destruction, creation is severely curtailed.