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Capitalism without bankruptcy is like Christianity without hell.
- Unknown Author
I hold three college degrees, including a Master of Business Administration. My specialty is accounting, with 25 years of experience in the area. I’ve worked for the government, a non-profit, and for the past 20 years at a manufacturing company.
If a business makes bad decisions, a product that is obsolete due to advancing technology or poor design, or a service provided that is not carried out in a timely and efficient manner, then it very quickly suffers the consequences.
The consequences can ultimately be an economic hell known as bankruptcy. The rubble of the company is then swept away by a competing business or businesses that provides a better product or service.
The warning signs before you reach the point of no return are very noticeable.
It starts out with falling revenues and then smaller profits as consumers vote with their wallets and purses and buy their products and services elsewhere.
If that fails to get the attention of the company’s leadership, then the borrowing costs for the company will go up as lenders perceive greater risk in the organization and worry about their ability to repay their loans.
If the response to the situation is weak, indecisive or just plain wrong, then the continued decline of the organization could ultimately result in being unable to repay its debts, and that is where bankruptcy comes into play.
So, in most cases, businesses will take quick and often drastic action to right the corporate organization when changes are needed and survival is at stake.
Let’s also be very clear here.
Survival of a business in the private sector is always at stake. It can never rest. It must be relentless in cutting costs and staying relevant in the marketplace. Why? Because other competitors are quite willing to “eat your breakfast” and beat you to a pulp if they can.
That is capitalism.
Then there is the environment that government operates under.
Government frequently operates as a monopoly.
Government lacks the major tenet of business, competition from multiple sources, by which they must live or die.
Lack of competition means there is no driving force causing them to innovate and improve. A steady source of revenue from a captive audience, namely taxpayers, who can’t go elsewhere, will make everyone “fat and happy” with no desire or reason to change. This doesn’t just happen in government. It also happens when government allows a monopoly to develop in private enterprise.
Government organizations also seem to have a way of hiding massive problems that businesses can’t due to financial reporting requirements by that same government. For instance, the one recurring nightmare for most states and the federal government are the massively unfunded pension obligations accrued over the past few decades that will burden all taxpayers for generations. A good example is my own pension from 39 years of active and reserve military service. I’m not going to get rich when it kicks in at age 60, but it is extremely generous in comparison to what I will eventually receive from my private-sector, full-time job at age 65.
How can government afford what private industry cannot? This is an especially good question as private industry and citizens pay for government.
The short answer is, it can’t.
My honest-to-goodness feeling is that all these pension obligations can’t be paid off without making my children and grandchildren economic slaves. I know I was promised this money, but the cold, hard facts are that so were a lot of other folks, and taken together, it will destroy the country if we make the rest of society pay in full.
Why would I believe this? Because of my work in private industry and my current employer.
My company was a premier leader in its industry and a part of the S & P 500. We may still be a leader in our industry, but the industry is in the midst of long-term decline, and within 10 years, will be a shadow of itself. Unfortunately, poor strategic decisions years ago coupled with this long-term decline put us in a very precarious situation. So my company did what government probably will never do and took drastic action for survival. Most costs revolve around personnel, so they cut our benefits, shipped jobs overseas and did away with any sort of contributions to our pension plan. Our pension plan, which was very small to begin with, was done away with years ago and now is how much each individual can save on their own. Our medical insurance is now very expensive compared to what we get in return and our raises have been non-existent or way below the inflation rate for years, as well.
The above probably sounds very familiar to a lot of other folks out there.
But the fact is, without all these drastic cuts, we would not have survived and this is, as our company president once said, “the new normal.”
Government is starting to do some of the above, but the plant I work at has reduced its workforce by about 36 percent since 2005. I don’t believe our civil servants have been hit that hard. Let’s not forget that pensions are just one of the problems facing our government and nation.
Now you might think I am on a rant against government and have nothing but praise for capitalism.
You’d be wrong.
China has almost unfettered capitalism working hand-in-hand with a corrupt government. One result is a country where 20 percent of its farmland is now polluted with heavy metals from unregulated industry. That was a recently revealed survey taken by the Chinese government nine years ago and then promptly declared a state secret. Where was the government when all of this happened? In the back pocket of business. It sure hasn’t gotten any better when you look at the massive air pollution in all of their major cities, where it looks like a thick fog on most days. Couple that with abused and frequently poorly paid workers and you have an almost hell on Earth for the average Chinese citizen.
The fact is we need a strong, honest and efficient government to “blow the whistle” when business gets out of control, which is whenever you let it go unwatched. It’s just human nature to do so.
I think our government is strong, and for the most part, honest.
It’s the efficiency part that I’m concerned about.
If we had that combined with our capitalism, then we’d continue to blow the rest of the world out of the economic water for the foreseeable future.
But it is a very hard goal to achieve and would take a lot of guts to implement.
Let’s pray for and support strong political leaders at all levels of government in the upcoming election season. Let’s also pray we will recognize these leaders when they are before us, even if we are told things we don’t want to hear or hardship that we will have to bear to right our government.
It’s the least we can do, especially for our children.