23 Things They Don't Tell You About Capitalism

Unfortunately, proponents of this logic say, this obvious argument was not widely accepted during much of the twentieth century. One can understand why communist regimes were against the private sector – after all, they believed that private property was the source of all the evils of capitalism. However, between the Great Depression and the 1970s, private business was viewed with suspicion even in most capitalist economies.

Businesses were, so the story goes, seen as anti-social agents whose profit-seeking needed to be restrained for other, supposedly loftier, goals, such as justice, social harmony, protection of the weak and even national glory. As a result, complicated and cumbersome systems of licensing were introduced in the belief that governments need to regulate which firms do what in the interest of wider society. In some countries, governments even pushed firms into unwanted businesses in the name of national development (see Things 7 and 12). Large firms were banned from entering those segments of the market populated by small farms, factories and retail shops, in order to preserve the traditional way of life and protect ‘small men’ against big business. Onerous labour regulations were introduced in the name of protecting worker rights. In many countries, consumer rights were extended to such a degree that it hurt business.

These regulations, pro-business commentators argue, not only harmed the large firms but made everyone else worse off by reducing the overall size of the pie to be shared out. By limiting the ability of firms to experiment with new ways of doing business and enter new areas, these regulations slowed down the growth of overall productivity. In the end, however, the folly of this anti-business logic became too obvious, the argument goes. As a result, since the 1970s, countries from all around the world have come to accept that what is good for business is good for the national economy and have adopted a pro-business policy stance. Even communist countries have given up their attempts to stifle the private sector since the 1990s. Need we ponder upon this issue any more?

How the mighty has fallen

Five decades after Mr Wilson’s remark, in the summer of 2009, GM went bankrupt. Notwithstanding its well-known aversion to state ownership, the US government took over the company and, after an extensive restructuring, launched it as a new entity. In the process, it spent a staggering $57.6 billion of taxpayers’ money.

It may be argued that the rescue was in the American national interest. Letting a company of GM’s size and inter-linkages collapse suddenly would have had huge negative ripple effects on jobs and demand (e.g., fall in consumer demand from unemployed GM workers, evaporation of GM’s demand for products from its supplier firms), aggravating the financial crisis that was unfolding in the country at the time. The US government chose the lesser of the two evils, on behalf of the taxpayers. What was good for GM was still good for the United States, it may be argued, even though it was not a very good thing in absolute terms.

However, that does not mean that we should not question how GM got into that situation in the first place. When faced with stiff competition from imports from Germany, Japan and then Korea from the 1960s, GM did not respond in the most natural, if difficult, way it should have – producing better cars than those of its competitors. Instead, it tried to take the easy way out.

First, it blamed ‘dumping’ and other unfair trade practices by its competitors and got the US government to impose import quotas on foreign, especially Japanese, cars and force open competitors’ home markets. In the 1990s, when these measures proved insufficient to halt its decline, it had tried to make up for its failings in car-making by developing its financial arm, GMAC (General Motors Acceptance Corporation). GMAC moved beyond its traditional function of financing car purchases and started conducting financial transactions for their own sake. GMAC itself proved quite successful – in 2004, for example, 80 per cent of GM’s profit came from GMAC (see Thing 22).[1] But that could not really hide the fundamental problem – that the company could not make good cars at competitive prices. Around the same time, the company tried to shortcut the need for investing in the development of better technologies by buying up smaller foreign competitors (such as Saab of Sweden and Daewoo of Korea), but these were nowhere near enough to revive the company’s former technological superiority. In other words, in the last four decades, GM has tried everything to halt its decline except making better cars because trying to make better cars itself was, well, too much trouble.