In this, the land of eternally capitalistic motivations, companies have learned that to be dominant, or at least competitive, it’s better to be big. Big gives you economies of scale. Big means you’ve bought up your competitors and, by default, now command more market share. Big apparently also means that you are unnaturally immune to the detrimental aspects of taking extreme risks or incompetent management.
Yes, today the new corporate nirvana is reached when your company has been deemed to be too big to fail (TBTF).
Looking at the current economy and the behemoth players flailing for rescue I understand the mutual benefit that necessitates saving them. We as a country cannot function without their continued existence. I get it. I understand we are backed into a corner on this and that we (and of course by “we” I mean our government) must save these companies from their own excessive greed and criminal negligence.
However, if a company has been deemed “too big to fail” and we are required to rescue it I would like to suggest the application of one of two mandates.
- Any TBTF company receiving government bailout money must be divided into two or more smaller economically non-critical corporations.
- If it is not feasible to divide the TBTF company then it is apparent that the company in question has grown so large that it can no longer assume ultimate responsibility for its own actions. Since that responsibility by default falls onto the shoulders of the American public such a super critical company must, by necessity, become a part of the federal government.
These sort of sanctions would solve the TBTF problem but would also serve to act as a deterrent to companies (*cough* auto industry *cough*) from looking for free handouts just because the government looks like it’s in a giving mood. Additionally all government regulatory bodies that review corporate mergers (like the FDIC, FCC, FTC, SEC, etc.) be required to consider future deals with the TBTF test in mind.
Maintaining healthy competition among equals would go a long way towards strengthening our economy and would inspire new innovations. It would also encourage companies that feel they are above the laws of capitalism to rethink the risks they assume knowing now that if they fail their company will be divided or absorbed into the federal government.
What do you think? Do you have a better idea?