Too Big Not To Fail?

The mantra of the apologists for government bailouts of big business is “Too Big to Fail” but things might be better if the chant were “Too Big Not To Fail.”
The simplistic logistic behind government bailouts of Detroit and Wall Street is that some businesses are so big that their collapse will hurt the entire economy. A classic example of this thinking is the auto industry bailout, we were told if we didn’t handout money to GM and Chrysler tens of thousands would be unemployed, hundreds of dealerships would close and dozens of companies that supply parts and raw materials to the auto giants would go down.
Well, guess what, Uncle Sam bailed out GM and Chrysler, tens of thousands autoworkers got laid off, dozens of factories shut down, and hundreds of auto dealerships went out of business. Interestingly the only American automaker that didn’t take the bailout money, Ford, just showed a profit of $1 billion. The bailout didn’t help and GM and Chrysler are still failing.
The question we need to ask ourselves here is are some businesses “Too Big Not To Fail?” That is are some enterprises just so big and complex that they are doomed to failure? Perhaps there are size limits for companies that need to be enforced or at least observed.
Take a look at all the innovation that’s come along in the past couple of generations. None of the big advances in computers, software, the internet, and related technology came from a really big corporation. They came from smaller more efficient firms such as Apple, Google and Microsoft. These firms grew into giants but they did so after starting small. Perhaps part of the reason why the auto industry is so lethargic is that it’s dominated by big companies.
Business experts tell us that the most successful companies succeed by concentrating on their core businesses. Think of Wal-Mart it’s gotten big by doing one thing discount retailing. Or Sears instead of retailing Sears fooled around in insurance and travel and got burned. Giant corporations expand into dozens of businesses many of which they know nothing about and fail miserably.
This means that Companies are like people if they get too fat they become slow and unhealthy and need to be put on a diet. The mechanism for putting companies on a diet is called the Free Market. When companies get too big and flabby the free market knocks them down, the healthy ones go on a diet and recover, the unhealthy ones die off.
Government bailouts don’t stop this process or make it less painless they simply prolong it. Indeed they make it worse by rewarding incompetent management and financing destructive business practices. Companies have no incentive to change their ways they keep up the bad old ways until they fail completely.
A better solution would be for government to simply let companies like GM and CIT collapse. The bankruptcy courts can liquidate them and somebody will buy the profitable assets. After all Americans will still need cars and business credit after those companies are gone, some other business will simply step in and meet the need.
Yes there will be misery caused by the collapse, government can ease that misery by providing things like unemployment insurance and healthcare coverage for the unemployed rather than finance incompetent management. This would be a cheaper and more efficient use of our tax money. It would also help the people really hurt by the tragedy rather than those who engineered it.
Now I’m not promoting antitrust legislation here, antitrust trust or laws against monopolies simply don’t work. Big corporations always find ways around them as the case of GM shows us. A better solution is to let the market take care of monopolies which it always does.
As a nation we have to learn that some businesses are simply Too Big Not To Fail and let those corporations die off like the dinosaurs that they are.