Bailouts: Capitalism Is Not Survival Of The Fittest
As the world's Governments clammer to deal with an inevitable pandemic shock, the money printers have been sent into overdrive. Seemingly from nowhere, great companies are now teetering on the brink of collapse. Only a month ago, these companies were rolling in the sweet seas of cash and record stock market valuations. Now, amour propre be gone, their feeble hands are reaching out like Indian beggar’s on the streets of New Delhi, asking for nourishment to survive as the world collapses around them. Deja vu?
This week Virgin Australia entered a trading halt due to speculation that it may receive a $1.4 billion loan from the Australian Government. Among shareholders is Richard Branson, a tax-dodging billionaire who uses his residency on his own private island to avoid tax. Like Branson, Virgin Australia does not pay tax. Furthermore, their British counterpart, Virgin Atlantic is asking for £500m to avoid bankruptcy. If investors aren't willing to risk their money, why should taxpayers burn theirs?
Around the world tax-dodging, environment polluting, share buying back behemoths are requesting hardworking taxpayers to subsidise the stupidity and greed of ill-equipped multi-millionaires. If this was the “wild”, they would be eaten. This is not the wild, this corporate coddling daycare, brought to you by the lobbyists that will benefit from it most.
Corporate bailouts are only the beginning.
The money machines are whirring as Government’s and Central Banks around the world collude to prop up asset prices and devalue the currency. This is not a conspiracy theory that the explicit goal of quantitative easing. To put a floor on asset prices and increase inflation. Such a scheme involves printing money from thin air and using it to buy the debt of poorly run companies that carried junk ratings through the longest expansion in US history. On the 27th of March, junk bonds had there best day since 2009. The Federal Reserve has now made a habit of rewarding those who were stupid enough to finance the risk that has now blown up in our face. How long can stupidity and greed keep being rewarded without long term damage to the incentives and structures that allow for the effective flow of credit and resources? One might argue we are already well past this point.
It abundantly clear that such foolish government backstops amount to corporate socialism². Many who argue that “survival of the fittest has failed” are missing the point. In this case, corporate socialism is a direct consequence of the survival of the fittest. It is the job of capitalism to stop it from happening.
Capitalism is a human construct; an idea pertaining to the capacity of one’s selfish interests and energy to be funnelled into “a system” such that the outcome is beneficial to all. In this idealisation, agents acting in their self-interests, innovate, invest and improve their productivity for-profit, and in turn deliver superior outcomes to the market, causing a tide that lifts all boats.
Survival of the fittest is not a human construct, it is the foundational structure that underpins our interpretation of the world. Survival of the fittest is a misleading term. “Survival”, infers action and agency. A tiger has to eat, a person needs to mate, and a company needs to make money and be productive to survive. This hides the far more elegant truth that surviving simply requires existing.
Everything you see exists. Because it exists, is by definition the “fittest”. The new phone you got is “fitter” than your old one. On the contrary, your old car that just won’t give up is “fitter” than the new one that you haven’t bought yet. In his book “The Selfish Gene”, Richard Dawkins quipped that Darwin’s ‘survival of the fittest’ is really a special case of a more general law of survival of the stable.
Philosophically, it is the reoccurring patterns that we classify as objects that survive. Even though 98% of the atoms in your friend's body are replaced each year, you don’t hold a funeral for your disintegrated mate. The reason we don’t is the same reason that natural selection occurs. All dodo’s and lions eventually die, but only lions (or their descendants) managed to send close copies of themselves into the future. It is the “stability” of your friend and the species we named lion that enables these things to survive.
People often interpret the meaning of “fitness”, with synonyms such as “strength”, “robustness”, “vigour”, “competency”, “proficiency” & “preparedness.” This obscures its true meaning when it comes to the art of survival.
Nobody would use these words to describe a leech that dies without a host to suck blood from, yet leeches persist. In order to survive, a system only needs to be “fit” with regard to the environment it inhabits. Today co-operations inhabit a system they have co-opted for their survival. They are leeches to the system they inhabit and taxpayers are the host.
In 2009, General Motors and Chrysler were not robust, competent or prepared yet they survived thanks to bailouts. Today highly leveraged companies around the world have once again been revealed as weak. Airlines and cruise companies have been the first to feel the pinch. Many others will follow. It comes a time to draw a line in the sand and make our priorities clear.
What happens when hospitals go broke? Should cancer patients suffer because the airline industry needed a bailout?
Many argue that allowing airlines to go broke will cause thousands of job losses and hurt us more in the long run. This is a lie. Companies will undergo structured bankruptcies, speculative investors learn their lesson and the planes will eventually fly with someone else. In its place will rise a better, more efficient company with a new generation of corporate culture to match.
Capitalism is often preached as the natural continuation of the “survival of the fittest” when it is, in fact, the opposite. Capitalism ultimate purpose is to work against the forces that govern the “survival of the fittest” and create an environment that eradicates the leeches from strangling on the weak. Despite purporting to protect us all in the short term the Federal Reserves multi-trillion-dollar splurge only provides more blood to the leeches, nourishing them for years and perhaps decades to come.
Capitalism once meant competition that leads to efficiency and productivity. Short term policies such as QE have prevented the system from stress tests that reveal the robust and innovative companies and allow for sustained productivity growth.
If the stock market is to be believed, millions of asset poor young people, saddled by education debt and a high cost of living, having lost their jobs and seen the real economy tank may emerge from the crisis only to see the price of the shares and property that they don’t own at record highs. QE and corporate welfare are robbing the young and powerless of a unique opportunity to innovate their way out of a crisis. Dynamism is dead. Instead, the young will be left to foot the multi-trillion bill of maintaining the old guard who will soon retire and stop paying taxes. The populism caused by the GFC will only redouble.
These policies are experimental and we are the guinea-pigs. There is little certainty to what the future holds. What is certain, however, is that the enduring legacy of both the GFC and the COVID-19 crash will not be the price of the stock market in 6 months time. The cogs have been set in motion. Predicting the social and political consequence of these drastic policy experiments is impossible. One day though, you will read about them in the history books.