At just about any time in the past decade, people in metalcasting and other basic manufacturing sectors of the global economy could have explained a fundamental truth of business to the finance wizards: some businesses fail. Their leadership may be weak, or their products may be inferior, or their practices may be questionable. They are destined to fail.
When they fail, it’s best to let it happen rather than to start wasting resources trying to prop it up. Despite the effort, a bad business nearly always fails anyway, and a bad business that lingers around makes conditions worse for all the others.
This truth is inescapable, but at some point in recent years business and finance grew separate identities. Their purposes changed. While businesses tried to keep up with rising costs and changing standards, financial interests worked just to avoid setbacks.
Rather than seek the insights of people who design and manufacture things, and market products and deliver them to customers, the decision-makers of our economy sought the wisdom and influence of lawmakers and regulators. Rather than turn to Washington, these Wall Streeters ought to have gone to Birmingham or Milwaukee. When they ought to have been learning how new capital is developed, they tried to find new ways to manage and control it. As financiers dreamed up new techniques for multiplying capital without making anything new, politicians aided their efforts by changing banking regulations, resulting in a widespread misrepresentation of equity.
That’s the quick review of the financial chaos that can only be resolved by U.S. taxpayers acquiescing to a trillion-dollar rescue plan for banks and investment houses — the places that we assumed were chartered and licensed to lend money to us, in a move forced by officials elected to represent our interests.
Countries where the center of finance and the seat of government are in one place are rarely prosperous, dynamic places. One of the virtues of American democratic capitalism has been its diffusion of influence. Financiers, investors, legislators, and regulators each remain obligated to the broader society from which they draw their powers. The emergence of a global economy has thrown this structure off balance.
Wall Street and Washington staged a merger, resulting in a financial sector that cannot capitalize itself and a government that cannot execute its duties faithfully. The dubious efficiency of this deal is that Americans’ disgust with unscrupulous executives and cynicism at elitist politicians may now be consolidated into one outrage.
Late last year, financiers were frantically seeking foreign capital to shore up big investment houses and money-center banks. Once it became clear that federal money would be available if the circumstances were dire enough, potential rescuers stood aside. So, through 2008 we’ve seen the slow embarrassment of the federal government unable or unwilling to strengthen the currency so that investors would want to place their resources in U.S. equities. At the same time, federal officials overcame every inhibition about nationalizing assets and industries. Nor were the targets of these nationalizations hard assets: they are piles of paper with no clear value. It’s been failure of responsibility and of purpose.
As this financial debacle developed there have emerged two broad criticisms. The more liberal view scorned the decline of U.S. competitiveness and demanded protection. The more conservative view decried the rising cost of capital and the expansion of government regulations. Now both criticisms are valid.
But, for all the financial trouble we face, there remains a simple and effective solution that any businessperson will understand: growth. Encourage new ideas and enterprises. Allow them to access resources, and don’t inhibit expansion. Produce things. Grow.