The View From 1776

The collapse of Solyndra and Kodak’s bankruptcy filing illustrate the difference between a socialistic planned economy and capitalistic free enterprise.  Under state planning, uneconomic companies can be created and failing ones propped up by the state.  Under free enterprise, only companies that have a good chance of prospering will be bankrolled by investors, and those that don’t prosper will be left to fail.

Kodak for generations was an international icon of private technological success.  Solyndra never even got off the ground.

In the first decades of the 19th century, when the doctrines of socialism were being codified, the concept of social engineering emerged.  Belief in the possibility and effectiveness of a planned economy is the central economic doctrine of liberal-progressive-socialism.  Presumably disinterested, state-appointed managers would do a better job delivering a more abundant supply of socially useful goods and services than putatively greedy, profit-oriented businessmen.

President Obama’s administration is firmly rooted in that early socialistic vision, modified by Lenin’s Gosplan 5-year programs.  Examples are take-over and re-structuring of the banking system and imposing a car czar and labor union ownership on General Motors. 

Obama’s penchant for socialistic state planning is particularly evident in federal financing for economically unsustainable “green” energy companies, none of which could survive without direct subsidies, tax breaks, and punitive regulation of private business competitors.  More than $1.5 billion has been funneled down the rat hole of green energy projects, of which Solyndra is one of the more notorious.

Contrast Obama’s state-planning with a free-enterprise system in which companies must satisfy consumer desires, while supporting themselves and making sufficient profit to finance equipment replacement and growth.  State-planned investment is channeled by political favoritism for special-interest groups and by ideology disconnected from the real world.

Under our original constitutional government, individuals were permitted to keep as much as they could save from the fruits of their labors and to invest their savings in any way they chose.  Most people, having worked hard to save some money, are careful about where they invest it.  The intermediaries in which they invest their savings — banks, mutual funds, life insurance companies, and pension funds — have a fiduciary duty to invest their depositors’ funds in prudent business ventures that can be reasonably expected to grow and prosper. 

The critical point is that the capital necessary to start and to run a business is separated from the business people.  Businessmen want money to create or expand their ventures.  Lenders and investors want to lend money to businesses only when they can be reasonably sure of getting it repaid, plus a profit reflecting the risk incurred in lending and investing.  Capitalism thus has a built-in regulator, a system of internal checks and balances.

To get money, businesses must first convince hard-eyed lenders and investors that a market exists for their products and that they can satisfy that market’s demands.  Lenders and investors have strong incentives to avoid bad loans and investments: they lose their jobs and their own money if they don’t. 

In liberal mythology capital and business are lumped into one evil mass that is dominated by a single-minded lust to plunder society.  Liberal-progressives picture a massive power bloc called Big Business and The Rich who can do anything they want and can force you to buy their products, most of which liberals think are bad for you. 

In reality, you as a consumer are the final boss of every business.  If you and enough of your fellow consumers don’t like the company and don’t buy its products, the financial intermediaries stop funding it, and it goes out of business or declares bankruptcy.  That, unhappily, was Kodak’s fate.

Contrast this with liberal-progressive-socialism.  Businesses approved by the state-planners don’t have to compete with rival businesses to get funds.  They get funding directly from the National State, in accordance with a master plan for the economy. 

Consumers play no role at all in the process, since their product preferences have no effect (e.g., tungsten light bulbs).  Planners make all the decisions about what is produced, how much of it, and where it is to be delivered.  Grossly inefficient and outmoded business enterprises, for that reason, survive decade after decade in a socialist economy.

From 1917 until 1987, liberal-progressives in the United States praised the Soviet Union as a society in which every aspect of life was better for all citizens than in capitalist countries.  When the Soviet Union collapsed, all the world finally were compelled to swallow the plain facts: apart from military armaments, Soviet businesses were operating at below third-world levels of productivity and their depredations of the environment had been wrought on a colossal scale.  The average Soviet citizen had a lower standard of living than the poorest of American welfare dependents in the inner cities. 

The Democrat-Socialist Party has done its best to move us along the Soviet path, never losing blind faith that success is just a matter of sufficiently huge deficit spending.