Vulture Capitalism?

Newt Gingrich and Rick Perry have decided that it's politically expedient at the moment to attack their primary opponent, Mitt Romney on the grounds that he and the company he once ran, Bain Capital, engaged in "vulture capitalism". That is, they bought companies, closed them down, laid off their workers and sold off the assets for a profit. It's a shame they've decided to go down this road, and equally disturbing that Romney's defense is fairly tepid at best. It illustrates that the candidates either don't understand the principals of capitalism and free markets or they don't really believe in them. Neither one is a good scenario.

Let's first go to the fundamental issue. Companies are not created for the purpose of creating jobs. Successful, growing companies do tend to create jobs, but that's not their primary function. They're created to make money for their owners. That's not only a selfish pursuit on the part of the owners, it's essential for the survival of the company. Proponents of a government based economy don't relate to this because it doesn't apply in that realm. Our federal government takes in $2 trillion a year and spends $3.6 trillion. No problem in their minds. In fact, they'd like to spend even more. So far, no consequences, no worries. That's not the case in the private sector.

The "vulture capitalism" scenario stems from a company who's business model isn't working. The company does, however, have assets. If you can buy the company for less than the value of the liquidated assets, you can make money. To do this, you have to win a bidding war against others with either the same idea or who believe they can make the company work. In any case, it's up to the seller who's bid gets accepted, and up to the new owners what happens next. Kmart was purchased in bankruptcy by a group of investors who sought to profit from the company's real estate holdings. Shortly thereafter, the real estate market plummeted. The government did not step in to rescue the investors and the public did not clamor for such a rescue. There is only an outcry when such moves are successful.

The basic truth is that capitalism is based on selfishness. That's why it works. The net result of free market capitalism is that more people experience more benefit than from any other economic system ever tried. The reason is that people will pay you to help them, whether it's through the provision of a useful product or a service. To pursue ones selfish goals, one must figure out how to help people profitably, not because your aim is necessarily helping people, but because people aren't going to pay you for nothing (unless you're in government). The uncomfortable part about free market capitalism is that in some cases, bad things happen to good people. People make mistakes or just experience bad luck. Of course people can and do come to the aid of other people who are down on their luck. Problems arise when they try to get government to prevent bad luck and poor decisions from happening in the first place. They continue to believe the market can be controlled. If we just add the right mix of rules, regulations and limitations, we can have orderly prosperity. We can't and we wont.

Free markets are based on parallel processing dynamics. They express the cumulative result of billions and billions of individual decisions made by freely associating individuals in the absence of force. Central control destroys that dynamic. Out of the box ideas are not tried because they are not allowed. Big chances are not taken because the punishment for success exceeds any possible reward. Ideas are evaluated by a handful of pre-selected officials rather than by each individual according to their own judgement. Capital doesn't flow to innovation. It flows to the proverbial mattress, a.k.a. Treasury Securities.

If you believe in free markets you have to let them be free markets. If someone buys a company and decides to close it down and sell of the assets, for whatever reason, that's their prerogative. The trade-off in being an employee is steady paycheck, no liability. The downside is that the company you work for does not belong to you. If we continue down the road of holding up decisions about how to use private property, including companies, to government scrutiny and approval, "vulture capitalism" will be all we'll have left. Because the economy will be littered with the carcasses of ideas that had nowhere to grow.