Where Did My Capitalism Go?

General Motors is now back in business, albeit as a diminshed version of its former self. The company is still largely owned by the American and Canadian governments which means that the taxpayer is footing the bill when it comes to GM’s operating expenses. One of the stipulations that the Obama administration has for GM is the expectation that the company will increase their efforts to build more fuel-efficient vehicles and become a
technological innovator. I don’t see how a government owned company could ever innovate like a private entity can, and I certainly don’t expect GM to become a technological innovator that out-performs their non-government owned competitors.

Government sponsored innovation will never produce results equivalent to those bourne out of market driven competition. GM’s main source of funding is more concerned with creating and maintaining jobs than they are with improving technology and finding new solutions for more fuel-efficient cars. Keeping those jobs was the primary driver for the government takeover of the company, so why would it be any less important to them moving forward? The ability for GM to innovate will be hindered by the fact that they know the government will not let them fail. This comfort does not produce a more efficient company; it breeds laziness. Just look at how innovative GM was before the government bailout. You might say that they were one of the least innovative companies on the market, and yet the US and Canadian governments decided to keep them afloat. These governments have set a precedent that GM will surely take advantage of as they continue to fund their research
and development operations with taxpayer money. The government will surely not be as hard on GM as they say they will be when there are jobs at stake, a fact that gives GM license to become a bloated beauracracy where nothing gets accomplished.

Another issue to consider is that if GM actually does stumble upon some new technology, or new method of manufacturing that improves efficiency or reduces costs, who will own the rights to that idea? At any other company, a new product or idea is patented or copyrighted to ensure the ownership is retained by that company for their exclusive use. At GM, a new idea is essentially a government funded initiative that the government may see as their property. This new product or idea could then become public domain that GM’s competitors may use in their own operations, possibly even improving upon it and beating GM at their own game. The fact that the government has control of GM because of the funding they provide makes GM less able to compete in the marketplace through innovation. A government controlled by special interests and beauracracy cannot competitively control a company in the marketplace and expect to win.

The fate of GM is still unraveling. It will be interesting to see how the government performs in the vehicle manufacturing business, and even more exciting to see how GM’s competitors will win out over the taxpayer funded entity in the market. I see GM’s ability to innovate severely limited by this takeover, but perhaps it’s better to still be in business, unable to innovate, than to not be in business at all.

Maybe someone does, but not I.  Who knows…there might be some venture capitalists out there willing to shell out the money to fund GM through its failure, but at this point we won’t get the chance to find out.  Under the lead of President Obama, the US and Canadian governments will assume a “70% equity stake” in the company during and after it emerges from the bankruptcy it declared on Monday.

And here’s the kicker:  Obama has said that he has no interest in running GM!  Anyone solidly grounded in capitalistic principle would insist as the majority stakeholder in a company that not only should their views be heard, but as the majority, they should direct the business of the company.  Well Adam Smith help us if the US government gets in the drivers seat of the largest car manufacturer in the country.  And that’s what’s already happening…the administration is appointing personnel to handle the restructuring of GM, and demanding that the company support its subsidiary Chrysler.

I would be fine with private investors rallying together to fund GM through its time of crisis.  They could pool their own money or the money of additional willing investors, and prop up the company in an effort to get it back on its feet.  What’s happening now is far from that.  This decision to fund a bankrupt company isn’t even being routed through Congress (in effect, the US taxpayer isn’t being consulted on the use of their money).  What’s happening now is the execution of a Presidential order directed at funneling taxpayer money towards salvaging a failure.

It was always my belief that the role of the US government was to allow the free market to ebb and flow on its own.  If a business achieved success it wasn’t due to some political influence, but rather the effectiveness of the business and their ability to compete in the marketplace.  If a business fails at its aim, that entity doesn’t deserve a place in the market under its current structure, and it must redirect/reorganize itself if it wants to succeed.  The US government has no place saving a failing company from its ultimate fate because its role is to remain neutral and absent from the free market.  This move sets a dire precedent for future “bailouts”, or as we should call them “takeovers”.

While some will argue that such a takeover of a company needs to happen in order to save jobs, this sentiment, echoed by intrusive politicians everywhere, goes against all that the capitalist system is founded on.  The value of your work is proportional to the value of the product you create.  Once demand for your product reduces in the marketplace, the need for the skill to create that product also reduces, driving down  demand for the worker in that given job.  This may seem cold-hearted, but this same principle also drives the ingenuity of the capitalist, specifically American businessmen and women as the US has historically been the country where the independent thinker has had the opportunity to thrive and prosper economically.  Whether you’re the CEO of a car company or a worker on the factory line, you have a mind that allows and pushes you to see the complexities of the world and determine what the market needs. To not see the failure of one company as a spark that ignites new ideas (and new ventures) is to let the brilliant fire of capitalism extinguish.