Monday 29 September 2008

Socialist America

The ongoing economic crisis has prompted many comments from many commentators. Here’s Swaminathan S Anklesaria Aiyar in ToI (21 Sep 2008), in an article titled Is America becoming socialist?

Says he, “Leftists suspect the US takeovers aim to rescue rich shareholders. Not so. The government will acquire 79.9% of the shares of these companies at virtually zero cost, pushing down the share price close to zero. So, rich shareholders have been wiped out, and the bosses of all three corporations have been sacked. 

This is not a rescue of the rich. It is a rescue of ordinary people who need mortgages and a functioning housing market, which would have collapsed had Fannie May and Freddie Mac gone bust. The takeover of AIG will save millions of insurance policy holders from losing their coverage and annuities. The takeovers aim to prevent financial panic from spreading and dragging down the whole economy, as happened in the Great Depression of the 1930s. 

The usual procedure in a capitalist welfare state is to let mismanaged companies go bust, penalising the shareholders and managers, and then provide safety nets to those adversely affected. But when corporations are so large that their collapse would endanger the entire financial system, it’s sensible even from a capitalist viewpoint to have a government takeover before they collapse. This is a sort of pre-emptive safety net. Moreover, preventing distress wins votes (or at least doesn’t lose them), and that’s vital in a democracy.”
Hey, are we missing something here? “Size matters.” Is that what our great champion of the great free market (nee capitalism) has to say? Why is it ok for a lot of small companies to go bust all the time, and a lot of people suffer the resultant misery in ‘small lots’, but not ok for a few big companies to go kaput in quick succession throwing a great many people into the deep end in job lots of thousands? Because people will lose faith in the system? Does that mean the system runs on faith and faith needs gods like the giant corporations? 

And whoever thought the capitalism and socialism had anything to do with the bosses? In the former, the super-talented become CEOs; in the latter, they become commissioners. In either system, they can fend for themselves. It’s the countless small fry that economists worry about, don’t they?

Finally, if these shares are a bargain, why is Uncle Sam picking them up? Why doesn’t he let ordinary citizens gain from the opportunity? Because he has the money? In that case, shouldn’t uncle also be handing out loans to small entrepreneurs, taking shares in their companies as collateral, so that he can make big bucks - for running the welfare state – when these entrepreneurs grow big and string? Maybe he should be aiming for the commanding heights of the economy while he’s about it, using his tax dollars to dominate sunrise businesses and turn around sunset industries. What is he, really, state as capitalist? Or does he know things lay investors don’t? 

1 comment:

Anonymous said...

Hmm. Somewhere I read a US citizen wondering out loud, "How come losses are socialized but profits are not?"