Bailouts beget corruption, history warns

Obama’s attempt to save America’s failing financial sector, automakers, etc., perhaps by nationalizing them, is classic socialism. It will result in failure not only of those industries but of our entire economic system. It will also produce the same massive societal corruption found in former states of the Soviet Union. I served as a Fulbright scholar in the former Soviet republic of Moldova about a decade after the end of the Soviet Union and observed how this culture of corruption continued to suppress freedom, initiative and economic growth.

f corporations are inefficient, they must either be made to be efficient or they must be allowed to fail. According to Joseph Schumpeter, destruction can actually be creative. If there is a need for the product the failing company produced, someone will step in the gap and produce to meet the demand. The fresh start provides the new company the opportunity to be free of the burdens which caused the inefficiency of the failed corporation.

If the government props up the inefficient corporation, it perpetuates the inefficiency and passes the cost on to the taxpayers and the entire economy as well. Like a communicable disease, this spreads the inefficiency from the corporation to the general economy and entire populace. Those not responsible for the inefficiency are now burdened unfairly, and that burden brings down more efficient businesses, who become burdened with the increased taxes necessary to prop up the inefficient businesses.

In this situation corporations are no longer seeking to respond to the needs of consumers to insure their viability, but to government which props them up. This is corporate welfare at its worst. The consumer loses his power to influence the market and is instead forced by the government to consume what is offered by mediocre, propped-up providers -- a situation artificially imposed upon them by politics.

Corporations find it more advantageous to cooperate with government than with the market. This close relationship between business and government elites, is akin to fascism in its truest sense which was how Mussolini attempted to run Italy in the 20s and 30s. It also corrupts both our economy and our government.

Access to government becomes the top priority of corporations, as they become more dependent on government than on consumers. Government officials began to manipulate the corporate sector and corporate executives begin to manipulate government.

This develops into a symbiotic relationship of corruption and inefficiency reminiscent of what resulted in the collapse of communism. It began with supposed noble and benevolent aspirations, and resulted in the worst of tyrannies and inevitably a far more profound collapse.

William Watson is a professor of modern history at Colorado Christian University.