Capitalism = equal opportunity to fail!

Realized fact: for real capitalism to exist, we must allow failure. Capitalism is about choices, risks, decisions, and consequences — wins and losses. Unrealized fact: prosperity becomes welfare when wins are for an elite group of big companies and loses for others — the masses, the small business owners and the average taxpayers.

As a capitalist, I suggest true capitalism is being strangled and will not survive unless we promote equal opportunity for risk and return and defend the true spirit of Capitalism!

Faced with a crisis a small business can go bankrupt. Poor management, excessive risk-taking, and bad planning can lead business owners (shareholders) to ruins. Mostly, businesses fail when they don’t navigate risk properly and do not have the financial means to support downturns. They fail when they chase profits for shareholders and bonuses for management more aggressively than prudent. The companies, their shareholders, and all their employees face the consequences of not being prepared and poor decisions. And well, that is capitalism — risk and return packaged together. And this is all fair and well understood.

What is neither fair and nor aligned with the spirit of true capitalism is when one class of businesses and shareholders are exposed to risk and the consequences of their decisions and another class is positioned to only realize the upside and is shielded from failure. This practice leads to consequence-based capitalism for the small business and a welfare-centric one for the elites, the big corporations, and the Fortune 500. Our largest companies and banks get bailed out each time there is a major crisis and an economic downturn — as they were recently during the pandemic, and as they were in the 2008 great recession.

A practice that removes incentives to adjust and adapt business models, and protects the elite larger companies, and their shareholders from failure. The shareholders have taken their share of dividends and stock appreciations and the executives have received fat salaries and bonuses when times weregood — which I have no issues with! However, their companies have been left vulnerable facing uncertain futures when faced with a crisis. Unlike small business and their owners (shareholders), If a big company fails, the shareholders and executives are not responsible for bailing out the company. There is no recourse that makes the people (shareholders) who took their money off the table responsible. We, the taxpayers have to pick up the tab for their lack of planning, preparedness, and short-term thinking — they get the prosperity, the wins, but not the losses. They own the victory but never the defeat. And that is NOT capitalism.

After the 2008 financial crash, American taxpayers paid $700 billion to bail out big banks and businesses. In the UK, the figure was an equally eye-watering $500 billion. During The latest crisis, Exxon Mobil secured $9.5 billion backdoor bailouts then paid its CEO over $10 million in 2020, gave shareholders $14.9 billion, and ultimately planned to cut just under 2000 jobs in US. Marriot International laid off thousands of workers and gave its CEO $8.9 million in 2020 all after receiving a $3.6 billion bailout. Boeing cut its staff by over 25,000 while getting a $25 billion bailout. The CEO got a whopping $21 million stock option package for his 2020 performance.

America has trained big corporates, the elites, to be irresponsible capitalists.

The logic of bailouts is to protect industries that play a key role in supporting our economy. While it is true that the economy would collapse without, for example, the airline industry, why did an industry that had such a profitable few years running up to the crash, need such a severe bailout in the first place?

U.S airlines spent 96% of free cash flow in the past decade on stock buybacks, which artificially inflated the price of their stock in order to buffer their investors. American Airlines, in particular, spent $12 billion on stock buybacks and then proceeded to be one of the most vocal companies when demanding a bailout.

It was not only the airline industries that did this; in the five years between 2012 and 2016, GM motors spent $16.8 billion on stock buybacks, and they were certainly not the only company in the S&P 500 to do so. The buyback bonanza isn’t confined to the US either; 30 major British companies have bought back a total £8 billion in shares to protect their shareholders from the pandemic, regardless of the £330 billion in state-backed bailout loans offered by the British government.

What gets rewarded, gets done. That is capitalism and we have twisted it to reward incompetence.

We can’t blame big businesses for acting this way, because they have no incentive to do otherwise. Who doesn’t want his cake and eat it too! They can always rely on the generous pockets of the taxpayer, and the government who under the disguise of too big to fail empties these pockets for them.

It seems like in an attempt to avoid socialism, our government has delegated its responsibilities to the elite. The government is not responsible for jobs or the health care or well-being of the citizens and the elites are the pseudo-government taking on the task. They have the social responsibility and as a result, we have to bail them out. The claim is either that the government is not capable or “we are not socialists.”

The question is why is our government not capable and why are we institutionalizing and camouflaged socialism by destroying true capitalism?

As a free-market advocate and a capitalist, it pains me to suggest that the solution is to regulate large businesses with liquidity requirements. Freedom is not free and capitalism cannot be without consequence. Since both big banks and big businesses are deemed too big to fail, they should be held to the same standards. The pandemic corporate bailout must be the last bailout, replaced instead with corporate liquidity requirements for blue chips, similar to what we already have for banks; which also should be improved! A more radical solution may be: if the big companies are accepting the role of being our social net and job providers in return for bailouts, we the citizens should have the right to vote who runs them since they are acting in a government like capacity!

Unconditional bailouts are unfair to everyone and pervert the course of true capitalism.

In short, if we want big businesses to behave responsibly, we have to make them responsible for their decisions and face the consequences. Otherwise, they’ll just do it again in ten years’ time — and we will pick up the cheque. In parallel, we should not accept the “government is incompetent” claim and make them responsible and accountable in a true capitalistic manner. Inefficient people and processes must be eliminated. And contributions and financial benefits are shared with those employees who help make government work better. Let’s make everyone responsible, the elite corporations as well as the government, and quit passing the buck!