Sunday, December 14, 2014

Free Market Capitalism - The Good, The Bad & The Ugly

As someone who has worked in business, most of the time, as a Senior Manager for 35 years, I have seen the good, the bad and the ugly of Free Market Capitalism.   As a Senior Manager at publicly traded companies and as the Founder, President and CEO of a privately owned company,  I have successfully managed through three Recessions, the lowest and highest interest rates in American history, three real estate downturns, 9/11 and the Fiscal Mess in the last 6 years.  I have worked through the boom and bust cycles that are inevitable with Free Market Capitalism. 

That said, Free Market Capitalism has produced more wealth for more people and the highest standard of living in human history with all of its downsides.   Certainly, when compared with Socialism or Communism, there is no comparison.  However, all is not rosy because democratic government is a source of corruption that is often used by Free Market Capitalists to gain advantage.   Even though 70% of Americans actually work for small companies, the 2,000 largest global companies in the world have a special relationship with governments around the world.   They all use high paid lobbyists to gain advantage.   And, since local, state and federal governments in the United States spend about $6 Trillion a year, big companies in particular do Billions of dollars of business with government.  While smaller companies may also have government contracts, by comparison as a result of the complexities of working with government, the vast majority of the spend is going to very large companies.  This inherently breeds corruption since these companies could care less which party is in power, which is the reason they give money to all political parties to buy influence.

Crony Capitalism is alive and well in all major countries in the world.  We saw it in the bail out's during the last six years.   While this Blogger supported the bank bail out's because I know from personal experience how close we came to global financial collapse, the end result, which is even bigger banks too big to fail, is not good.  The bail out of General Motors, which filed for bankruptcy anyway, should never have happened.  The Billions of dollars going to green companies, much of which is money down the drain, should not be happening.   These are nothing more than pay-off's to donors to the party in power; in this case the Obama Socialist Party; but to be clear this happens under Republican Administrations, as well.  This is nothing more than big companies buying influence.  Smaller companies do not have this ability, since money talks and they don't have the money to buy influence. 

Every year, there are many mergers and acquisitions making big companies even bigger.  Many of these "deals" turn out to be bad deals for shareholders; but it is the nature of Free Market Capitalism where there are frequently winners and losers.  In many instances in these deals, the Senior Management of the company are the big winners.  And, in some cases, some companies are so big that they are unmanageable, which again plays out in the marketplace.  What is worse are monopolistic tendencies that can occur when there are only a few companies that are prevalent in an industry.  This is not good for the consumer, our country, or democracy.  And, though in general this Blogger is a Free Marketeer, I do believe monopolies should be prevented by government.  Finally, the notion of too big to fail is really a test.  If a company is too big to fail, meaning that the government must step in to prevent failure to protect the economy, or the American people from financial chaos, then maybe that company should be broken up.  Free Market Capitalism does not mean there is no place for government. 

For the most part, government should allow market decisions to prevail; but every once in a while government must step in to prevent economic chaos.  The problem is that many times it is government actions that cause the economic chaos.  The best example is requiring mortgage companies to make loans to people with bad credit, which was the basis for the recent financial collapse.   Even so, no matter the pain that can come from the boom and bust cycles that are inherent in Free Market Capitalism, it is still the best economic system ever devised in human history.               

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