Where Did My Capitalism Go?

The last article generated a great response so I want to continue along the same general topic: whether or not the government should be charged with protecting the people from themselves, specifically pertaining to the recent tobacco legislation signed into law. The legislation places heavy restrictions on tobacco marketing, primarily to thwart the youth of America from becoming smokers, but also to raise general awareness about the hazards of smoking.

While in the past the tobacco lobby was a definitive wall against such legislation, this time around Philip Morris USA, the nation’s largest tobacco company, turned the tables and seemingly supported the legislation outright. This drew heavy criticism from other cigarette makers with lesser market share that said this new legislation would hinder them from winning a greater portion of the consumer base. Honestly, I have to hand it to Philip Morris…they saw an opportunity and took it. Who needs marketing anyway when you already have the customer addicted to your product? But I digress…

The question is: Does the government really think that covering 50% of a cigerette package with warning labels will deter people from smoking? The health hazards of tobacco are quite well known among the American public. We know that nicotine is addictive, so if you get into the habit, it will be very hard to stop. We know that smoking often leads to cancer, and ultimately reduces one’s life expectancy. I don’t think it’s the label on a package of cigarettes that entices the buyer. The product is what people want (and in a lot of cases, need). I don’t see tobacco sales drastically declining due to this legislation, just for that reason. If the government wants to continue to protect its people from the harmful habit of smoking, they should expect a long term, generational fight; one that should base itself on a new way of thinking rather than reactionary deterrents to the industry.

The most effective thing that the American people (government included) can do to curb the habit of smoking is to educate the youth of the nation. This already happens to a certain extent, but obviously our country (among many others) still has an issue with underage smokers. Banning the sale of candy-flavored cigarettes is a lame solution. A better idea would incentivize good parenting practices; for instance, a program that would give a tax-break to parents that kept their kids from smoking for a set amount of time. Truthfully, I’m against anything like this idea or the new laws since I don’t believe parenting or the tobacco market are any of the government’s business. But if the government’s going to intrude anyway they should address the root of problem (lack of attention when parenting) and not punish tobacco companies for diversifying their product line by reducing their marketing capability.

Well I’m sure that most have already heard about the new regulations over the financial system the Obama administration is proposing. Increased programs for consumer protection, more power delegated to the Federal Reserve when they’re faced with institutions deemed “too big to fail”, and increased federal oversight on certain types of products within the financial system are some of the hallmarks. Don’t mind me if I get a little philosophical here but, what is the purpose of government? Is it to protect people from themselves? To protect them from ignorance? Do we need the government to tell us what the risks are when buying stock, or how much we can truly afford when we’re considering a home mortgage?

At what point did people stop thinking for themselves, and start relying on the government for protection from their own mistakes? I can understand a government that provides services and functions to the taxpayer like interstate highways, and civic education, and even a standing military, but do we really need our government in the business of determining financial risk? I’m sure that this whole idea of government as its brother’s keeper got its start with FDR in the Great Depression (talk about seizing a great opportunity).

Think about social security and the federal deficit at the exact same time: Do you really think the US government is better at managing your money than you are? I, for one, do not, and now we see that more of the money promised to the government by the taxpayer is being spent on further public and private oversight. Still, every working American is forced to contribute a portion of their earned money to a program that protects them from an ill-prepared retirement when in its essence social security defeats the forward-thinking mind by rewarding the poor financial planning of the non-saver. The more power we vest in the government, the weaker we become.

I believe this weakness is what drove us to where our economy and understanding of governmental purpose is now. Did we expect the person selling us a house to say, “Maybe you can’t afford this…”? Did the buyer expect a federal agency to verify that each of the loans delved out to first-time buyers were appropriate for their level of income? Maybe some people were expecting that kind of protection. Either way the “security” that some seek may soon become a reality. What we’re seeing proposed is a patchwork of reactionary oversight aimed at strengthening the federal government’s role as the central network through which business transactions are processed. The role of government is shifting further away from its purest purpose as a servant of the people, and becoming more like a savior. I hope I’m not the only one that doesn’t want to be saved.

So far this blog has talked a lot about what is wrong with the most recent steps taken that are dismantling the free market capitalism we have enjoyed. In this entry I’d like to diverge from the negative, and focus on what we can do to let the key players know that their moves away from pure capitalism are highly inappropriate and unhealthy. Let’s focus on two basic ideas for now:

1) Boycott companies that have received federal “bailout” money. Make it known that you are not buying products from those companies, or banking in those institutions, for that specific reason. One of the most powerful ways to make your voice heard within a capitalist system is to use your money. A purchase from one company over the other says that you chose that seller consciously over their competitor. If you publicly express why you entrusted your money to a competitor (or just didn’t buy from a bailed out company) your “money-used-as-a-statement” becomes even more effective. Whether you tell your friends by word of mouth, write an editorial in your local paper or publish your opinions in a blog …anyway you’re able; let the world know your opinion regarding who deserves your dollar the most. A good list (mostly of banks and auto companies) that received federal money can be here.

2) Express your sentiment to your local, state and federal representatives. Talk to the government officials that supported the doling out of taxpayer dollars to failing companies, and let them know that they did a disservice to your community. Let them know that what they did was not in the best interest of their constituents, and that their actions do not represent the values and principles of the US Constitution which they are charged to uphold. Tell them also that come election time, they will not have your vote and that you intend to rally others to vote against them. Then, back your words up with actions.

Tell your representatives that did not support these federal aid packages that you agree with their decision, and admire their willingness to stand up to political pressures in order to preserve the values that we hold dear. Assure them that come election time, they will have your vote as long as they continue their stance upholding the free, capitalistic nature of our society. Then, take action and spread the word that this representative did what was right and voted down the bailout legislation.

This page has a comprehensive list of the US congress votes on the initial bailout package, though I would encourage all to seek out more information regarding any additional legislation recently passed that is of the same ilk.

I’ll be posting more about what an individual can do to get their opinions on the state of capitalism heard in the future, but consider this a good start. If anyone has more ideas feel free to start a discussion on the blog by commenting or email andrew@wheredidmycapitalismgo.com with ideas.

Two more steps in the wrong direction occured today within the current US administration.  First Treasury Secretary Timothy Geithner announced that the administration would seek to have the SEC force public companies to hold shareholder votes on compensation packages for high-level executives.  And second, the administration appointed an overseer to set executive pay at large companies receiving US bailout funds.

The problem with this second issue of a single point man charged with deciding salaries for some of the nations largest companies, is that he is a total outsider.  Nothing against the guy, but what does he know about the companies he’s making these important decisions for?  Aside from the fact that the US government has already poured billions of taxpayer money into these firms, this move is further solidifying President Obama as the ultimate CEO of these companies and Geithner as their CFO.  The president is making strategic decisions regarding these bailed out companies (see my previous blog on GM), dictating who can loan money to whom, and which parts of which companies will be saved, and which will fail.  Geithner is busy deciding where all the money goes.  If US citizens are still expecting a government takeover of private industry…surprise!  It’s already happened!

The administration’s reasoning for this latest intrusion is to preserve accountability for the tax payer.  But this is government at its worst:  patching up past failures (the initial bailouts, followed by the “excessive bonus” hullabaloo) with reactionary regulations and increased oversight.  The people of America would be better served if instead the government began accepting more of the bailout loan repayments that some financial institutions have initiated in the past few weeks.  Even in this repayment process, the government has been a thorn in the side of industry.  For whatever reason, the administration is only accepting repayment from certain companies, under certain circumstances.   These firms are trying to get the tax payer’s money off of their books, and the government won’t have it…and now Geithner intrudes further on their day-to-day operations by installing some random lawyer to manage their payrolls.

The first issue of forcing publicly-held companies to put compensation packages to a shareholder vote is equally reactionary.  The current adminstration somehow does not understand the public market…or they think the tax payer doesn’t understand it…or maybe it’s both.  What the government doesn’t get is that the most powerful vote a shareholder can make is with their dollar.  If you, as part owner of a publicly traded company, disagree with the compensation packages received by the executives at the company, you can sell your shares…you don’t have to hold on to them.  You can also persuade fellow shareholders to do the same in protest if they agree with your opinion on excessive bonuses and high salaries.  If you think that reason alone is not enough to justify the sale of your shares, and you still expect to make some profit if you stay on as part owner, congratulations:  you just reasoned your way to a business decision!

It’s not the non-shareholding public’s or government’s responsibility to set rules for the payment of company employees.  If a company wanted to factor in shareholder voting when deciding executive pay, that’s their prerogative, and if not, that’s okay too.  That’s the beauty of a free market system.  Businesses are free to decide how best to run their organizations, and when all businesses reach these key decisions on their own, without government influence, the market benefits.

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.