Sunday, 23 November 2008

The Failout

Anyone who has paid any attention to anything over his or her lifetime will no doubt recognize the fact that anything the government touches ends up being wrapped in so much red tape that it resembles a poorly wrapped gift that is so hard to unwrap that you end up breaking it before you get inside. Many have been rubbing their hand in glee at the recent financial crisis, claiming that is a deathblow for the Free Market, but when you look at the details of the events in the financial market in the run up to the crisis you will see the fingerprints of government all over the place.

To be fair to the government, they are trying to fix the fuck up they’ve created, although they’re doing it with borrowed money, so government debt has gone sky high, debt that the taxpayer will only have to pay off later.

But the purpose of today’s blog is not to have another go at the financial mess; instead I want to turn to another plea for government intervention coming from the States. The so-called ‘Big Three’ carmakers in America: Ford, GM and Chrysler, lobbied congress for over $25 billion of bailout money. This bailout won’t work, it is against the principle of the Free Market and is typical of the governments we have both in America and Britain. Fortunately the bailout has not yet been accepted by congress.

The sign of a strong company is not that I can be profitable in good times, but that it can survive through bad times. If Ford, GM and Chrysler cannot remain economically viable in the current climate, they should not be propped up by a government that claims to be in support of the Free Market. Pumping unconditional funding into companies that are no longer viable gives then no incentive to become viable; if the ‘Big Three’ know they can rely on government bailouts, they will not make as much of an effort to become more efficient. The Bailout may keep these companies in business for a few more months, but it will only delay the inevitable failure of these companies. To say that they should be allowed to fail would be to imply that we have a choice in the matter, we don’t. Unless Ford, GM and Chrysler make an effort to change their business structure to one that will be profitable they cannot survive, any attempt to change that is ultimately doomed to failure.

The reason that they are not able to compete with the Asian based companies like Honda and Toyota is that that are making inferior products. If they made cars better than their rivals, they would be fine because people buy the best that is on offer at the price that they are willing to pay. The basic principle of the free market is that companies succeed or fail depending on the quality of the product produced. To distort this by pumping money into inferior companies is to fly in the face of all the rules of the Free Market. Indeed any government intervention is anti-Free Market.

But why does the government do it? Isn’t the free market a good thing? Many would say that it isn’t, but I disagree. The worlds past adventures into the deep dark realms of Socialism should be more than enough evidence to prove that it doesn’t work. The government intervenes in the Free Market because it thinks its job is to cater for the needs of its citizens. This implies that need is a qualification for rights. It isn’t. The government is constantly providing its citizens with something they don’t deserve; why does anyone have a right to anything they haven’t worked for?

Had the US Government given this bailout to the ‘Big Three’ it would have been protecting the employees of the companies. But protecting them from what? Unemployment? Well yes, but this implies that the employees of the ‘Big Three’ have a right to a job. They don’t, they only have a right to get a job. The reason the bailout fell through was not a sudden realisation that it would be immoral, but the fact that there are plenty of other companies making cars in America who would quickly scoop up the former employees of the ‘Big Three’. Those companies are economically viable; they can replace the ‘Big Three’ very easily and no doubt will.

I think ‘Big Three’ will come crawling back to the government to beg for more money. Let us hope, in the name of the Free Market, that the government sends them packing again.

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