Armen Sedrakian makes a good point in a letter to the San Francisco Chronicle: Don’t let companies grow ‘too big to fail’:
Whatever happened to breaking up large corporations so they don’t dominate the market? Instead of the Treasury Department bailing out corporations, why doesn’t the antitrust division of the federal government break up corporations? At the very least, the bailouts should come with breakups rather than mergers to prevent these “too big to fail” problems in the future.
I can’t see an argument against this. That isn’t to say that an argument doesn’t exist, but it strikes me as a good basis for policy. Mergers already have to meet regulatory approval, and a company that’s too big to be allowed to operate in an unrestrained marketplace.
There’s another alternative, though. Some industries really are more efficient when run by a monopoly, and that benefits consumers (assuming honest management). Insurance gets cheaper the more people you get into the risk pool, and letter delivery is cheapest for everyone when one organization is responsible for delivering every letter to everyone’s door. The latter example is enshrined in the Constitution as a responsibility of the federal government for a reason. If a corporation must be allowed to grow to monopoly size in order to accomplish its goals, and if that corporation’s failure would put vital national interests at risk, maybe it should be run as a government monopoly, regulated and managed by elected officials to prevent abuses of monopoly power.
This analysis leads inevitably to the argument for a national single-payer health insurance system. But I’d say that insurance of that sort is a special case. I’m not (enough of) a socialist, and am not calling for widespread nationalization of industry.
However, this is absurd. In discussing plans to bail out Citigroup from its incompetent management, Steve Benen writes that:
The mismanaged company is worth $20.5 billion. It’s already received $25 billion from the TARP rescue plan, and the Treasury is poised to inject another $20 billion, on top of generous asset guarantees.
In other words, for the cost of the bailout, we could’ve bought Citigroup outright, along with AIG. And we currently own large stakes in the rest of Wall Street, and are poised to spend amounts of money approaching the market capitalization of GM to keep it in business.
If it’s really in the national interest to prevent these businesses from ever ceasing to exist, we should just nationalize them. If we won’t make that commitment, we should break them up into smaller entities, and let market competition make them stronger, and drive the bad businesses out. The monopolistic policies of the last 8 years (and of Rubinomics before that, and Reaganomics again before that) are coming home to roost.
The government has to do one of two things for the market. Either regulate things so that the marketplace actually does what it’s supposed to do (by blocking monopolistic power and other unfair or abusive practices) or else nationalize the monopolies so that they can be operated in the public interest. So long as we do neither, we’ll have more disasters like this down the road. And since the latter option is unlikely to lead to a better banking system (let alone to an improvement of the entire global economy/financial system), I’m going to hope we choose the former route.