Corporate failure

Updated: 15 September 2008, 21:06

Originally written: 15 September 2008

Surprising as it may seem, corporate failure is one of the things which socialists and capitalism’s most ardent defenders agree upon.

This strength is that the strong — well managed, in the broadest sense — survive and the others fail. So companies which supply a product which is not salable with a sufficient profit, fail. Companies which overcharge, fail. Companies which don’t correctly judge the market, today and tomorrow, fail.

For example, a company which wants to sell horse-drawn buggies in Canada and the U.S. is likely to fail. There is very little market for the product. Companies which don’t realize that the market has shifted or is shifting away from their product and therefore do not switch products, fail.

Similarly, capitalists who invest incorrectly, may fail.

This is all part of capitalism and given that capitalism exists globally, with immense popular support, it is reasonable to say that these failures are desirable. And the most ardent supporters of capitalism’s theoretical strengths do agree that such failures are desirable. If a government props up a company which fails, it is distorting the market — distorting the very thing which is fundamental to capitalism. Distorting the very things which the defenders of capitalism’s theoretical benefits and strengths say are fundamental and fundamentally good about capitalism.

So, it is interesting that so far this month, the U.S. government has stepped in to distort capitalism by interfering with the failures of Fannie Mae and Freddie Mac, both involved in mortgages, and Lehman Brothers, an investment bank. And American International Group (insurance) is asking the Federal Reserve for assistance.

The U.S. government — normally very supportive of the market — has signalled that the market has failed. And failed very seriously — threatening the U.S. financial system, according to capitalism’s experts.

Capitalism’s Gravediggers asks the obvious question. If some of the most basic structural attributes of capitalism are so unsound that capitalism needs to abandon its strengths (even if only temporarily), why is the very nature of capitalism so strongly defended by capitalism’s apologists?

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