If pop psychology has taught us anything, it has taught us that individuals go through five stages of grief – denial, anger, bargaining, depression and acceptance.
Governments do, too. Presented with the biggest economic crisis in 50 years, the Federal Government first tried to ignore it and then angrily blamed it on greedy capitalists. Now having reached the bargaining stage, Canberra has convinced itself that it can fix the crisis if it applies just the right sort of stimulus and bails out just the right sort of companies.
Already the number of industries being prepared for bail-outs is large. Car dealers have been bailed out. Commercial property investors look to be bailed out. Banks are being bailed out with the fluffy blanket of a government guarantee. Deputy Prime Minister Julia Gillard appears to have spent the past few months moonlighting as the liquidator for a chain of child-care centres. Now the dairy industry wants a bail-out, presumably because of the importance of marinated fetta to economic growth.
We could also add to that list the car industry, but I’m not sure that we can blame the global financial crisis for that – propping up this sector with piles of cash and legislative favours is sort of an Australian tradition. We were probably going to do it anyway.
All of these are dwarfed by the strong possibility that the Federal Government will have to eventually bail out the state of NSW. Collectively, the NSW Government is far worse than the most reckless, hard-partying, due-diligence-ignoring Wall Street CEO. When NSW inevitably goes into receivership, its citizen-shareholders will wish they could sue.
Seriously, who isn’t eligible for a bail-out? Your guess is as good as anybody’s. None of the traditional policy justifications for propping up failing companies – whether you agree with them or not – seem to apply to our great bail-out bonanza.
For example, child-care organisations are clearly not “too big to fail”. Car dealers are clearly not “too important to fail”. If there is a formula governing which industries are eligible for a government bail-out, it sure is an obscure one.
But the sad reality is that the decision about which companies deserve a bail-out – and which companies should join whale oil merchants and abacus makers in the cemetery of dead businesses – is entirely arbitrary, dependent only on the political winds in Canberra.
So there’s a certain hypocrisy about a Government that on the one hand is deeply concerned about the influence of lobbyists and donations on the political process, and on the other is making it more and more attractive for businesses to seek political favours. Own a company? You’d be stupid not to try for a guarantee, or a loan, or any other trick that transfers money from the Government to you. Bail-out lotto is a surprisingly easy game to win, and it offers big prizes.
Of course, bail-outs are extraordinarily unfair to those who aren’t on their pleasant receiving end. Shareholder capitalism should be pretty simple. People bet their money in the market on businesses that they think might be a good thing. They profit when they are correct and lose when they aren’t. The companies that make bad decisions, or make products that no one wants to buy, fail. And the good ones survive.
While government bail-outs are no doubt well-intentioned – nobody likes to see companies collapse and jobs disappear – they dramatically alter this basic formula. They undermine the certainty that is so important to economic confidence – investors have no idea how the Government will react to a business heading south. Bail-outs mean that people aren’t financially punished for their bad financial decisions. They keep companies afloat that probably should sink – if your business model isn’t working, do something else with your time.
And bail-outs are expensive. There’s no clearer example of corporate welfare than the Government taking money from taxpayers and adding it to the revenue spreadsheets of Australia’s biggest businesses. Bail-outs are paid for by everybody, but they’re not available to everybody.
Does anybody doubt that if the Government was presented with the imminent collapse of Ansett that it would have quickly ponied up the cash? At the time, the Howard government resisted the howls of Ansett executives and the unions and let Ansett die the death it deserved. Nearly a decade later, flights have never been cheaper and it is safe to assume that most of those who were laid off at the time have been able to find work in a more productive enterprise.
The political eagerness to bail out failing companies just reveals that they – like a lot of us – don’t quite understand what is going wrong with our economy.
It’s actually a bit misleading to describe our economic woes as a crisis.
If anything deserves that title, it was the asset bubble that was burst in the crash last year.
All the downsizing and unemployment that we face over the next year is not the crisis, it is the correction.
So when the Government tries to stimulate the economy with big spending and tries to resuscitate dying companies, it isn’t resisting the crisis, it’s resisting the correction. And preventing the economy from healing itself isn’t doing Australians any favours.
Things fail. Napoleon failed to conquer Russia. Baz Luhrmann’s Australia failed to be the nextTitanic. And companies fail. In fact, building a successful business is an extremely hard thing to do.
The sooner we get to the last stage of grief – acceptance – the quicker our economy is going to recover.