Let's go back in time, way back to a time when things were much simpler. A time in the mid 1800's, before there were automobiles. There was a thriving industry making saddles, wagons, and buggy whips for the transportation system of the day. Even street cars were pulled with horses. There were areas in some houses where the horse could be cared for. Even a place to place the pollution of the day (before you put a foot print in it). There were people who put shoes on the horses, delivered hay, and repaired buggies. But none of those exist today, especially in the numbers of then. Why? The automobile was a more efficient means of transportation. Even the early versions with the crank start on the front were overall faster and cheaper than maintaining a horse and buggy. And easier too. No barn needed, no need to find a hitching post so that your ride would be there when you returned. And cars smelled better. So what happened to the over flow of horse shoers and buggy repair guys? Some went out of business, some converted to the new system, and some stayed around to care for the dwindling horse and buggy industry. There are still a few today. The black smith was replaced with the tire store. Buggy repair became body repair, and buggy whips pretty much disappeared.
So what happened to those employees? Did they starve to death, or lose their houses? Some, I'm sure, did. But overall humans are adaptable. Most learned a new trade, perhaps working with cars. What would have happened if some big wig government type decided that the buggy whip industry was too important to fail? Would we still be making thousands of whips a day? Would there be a warehouse somewhere loaded with unused whips? Or buggy parts, or even horse shoes?
So what makes GM or Bank of America special? They pay a lot of taxes, right? Nope the larger a business, the more likely it is that they have a bunch of accountants minimizing taxes. There are multinational corporations like GE that can move money around the world to avoid taxes. So they employ a lot of people, right? Of course they do, but the income level is lower for these people because of the scale of the firm. It's not risky working there, so the pay is lower. What about the unions? Of course the unions do what they can, but if (see if you remember this) the rate of pay gets too high, factories start opening outside of the US (like north Mexico), then the unions are out, and so are their members. Auto parts are sourced all over the world. Once I had a Mustang, a nice car with a manual transmission. The clutch went out. I was not a rich man, and auto repair was always scary then. I called a shop and asked how much they thought it would cost to repair. They asked, "Do you have the West German clutch, or the American clutch?" So those who make clutches, are competing internationally, and the company will buy from the least expensive source, to maximize profit.
But if a company like GM were allowed to fail, what would happen? Their workers would be absorbed into the economy eventually. Perhaps a new company would fill the void, maybe even with an eco friendly idea for the future of cars... hmm. They would have seen what happened to GM and tried to avoid those problems. And maybe one day would be a player in the auto industry.
Consider now the banks. This blog comes from St. Louis, MO. A few years back, the pride of the south side, Anheuser-Busch was taken over by a Belgium company, InBev. They were the largest brewery in the world at one time, at the merger they were not too much smaller than InBev. If we went back about 25-30 years, and the same thing happened, the then current owner, August Busch, Jr, would have called his friend at Boatman's Back, or another at Mercantile bank, and turned the tables by buying InBev. The merged company would have been here in the states, paying taxes and hiring people. Instead, profits go to Belgium, I'm sure AB-InBev pays taxes to Belgium. Many executive positions moved to Belgium as well. So why didn't August Busch IV call his banker friends? For one, Mercantile is now owned by US Bank; and Boatman's was bought by Bank of America, they didn't care about St. Louis, or AB, they figured to do business who ever owned them. Local banks would have been more receptive, on a matter of pride, but there were no local banks, a great American Company is now from Belgium. If Bank of America had been allowed to fail, there would have been a vacuum filled by smaller banks, or new start ups. Perhaps that would be better for our American businesses, what do you think?
Now I just want to talk about large companies in general, through a personal story. My wife and I own a small business. We compete with a large company everyday. Our prices are better, our service is better, and if a customer has a problem, they don't need call an 800 number and push buttons until their fingers are numb, only to find out that the warranty is expired, or doesn't cover this or that. We are in a position to really understand the problem, if indeed it is something that isn't right, and the vendor refuses to cover it, I can. There is more versatility. The big company says, your parts have been shipped, just climb under and install, we say the parts are here, can you install, or do you need help?
I think Washington has it backwards. It should not be "too big to fail", but rather "too small to fail." It is smaller companies that will react to their community. It is smaller companies that have something to gain by sourcing product closer to home, rather than going to places like China, to save a few cents per item. It is local companies that compete most effectively. You see, if they wanted to, they could drive us out of business in just a few months, and their bottom line would not show much effect. But because of their size relative to ours, they control most of the sales in town, they seem unworried about us. But look at the package, more of their product says made outside the US, ours is sourced as close to St. Louis as possible. Which company should our neighbors be supporting? When smaller businesses exist, our economy is much more nimble, and competitive. After all, in small towns where the competition is gone, Walmart is aggressively pricing their goods, right?
Think about it...
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