Wednesday, April 01, 2009

HBT - High Bloody Time

Just read on Bloomberg that the finacial markets are having a bit of trouble, which is not unusual in this economic climate but non the less the reason for today's troubles were interesting. The bond holders (debt owners) of General Motors are worried that President Obama will let the company go bankrupt. 

General Motors or GM has been for many decades one of the largest companies in the world and the idea of its bankruptcy is scary for anyone who is in charge of running any of the areas where GM has a presence. GM is a large employer, particularly of those in the "lower-income' range. Car making is probably the original "Hard" industry, with the men on the assemblyline doing "Manly" jobs. Unlike the service industries, manufacturing has a certain image to it - you can see the "tech" in it. 

I'm not the elected representative of the men who are about to be thrown out of work. I don't want the responsability and I think the idea of hard working men on the shop floor losing the only means they've known to make a living being flung out of work because of the incompetence of their management is wrong, especially when the financiers on Wall Street who's greed caused the current mess continue to get their bonus's - and get defended in the media for it (They had contracts, we need their talent etc). So, we come up with the idea that GM and other companies of its size are TOO BIG to fail.  

From a social perspective, I can see the practicality of helping out some companies. Nobody wants a mass of enemployed people on their hands straight away. Then again, I'm of the mind that letting GM go under is -'high bloody time.' In some parts of the world, particularly in Asia, there is a social stigma to being bankrupt, but bankruptcy is the kinder version of what nature ordained. Buddhist philosophy says that life and death exist together and it's true. In nature, the sick and the weak become food. It may dissapoint some people to realise that lions do eat cute little antalopes, but this is what lions are meant to do. You cannot tell the lion it's wrong to eat the antalope, for the lion not to do so, would be a certain death. So lions need to eat the antalope. A healthy antalope is able to run away and not get eaten but an unhealthy one gets eaten. In nature, the idea that one species has the given right to rule forever does not exist. Animals that don't face competition become extinct when their natural habitat changes. 
 
So why then do human beings get this idea that certain people do not need competition and are "Too Big to Fail," or that their markets are "Too Small for Competition." General Motors is facing bankruptcy for a very simple reason - it was incompetently run, making cars that nobody wanted to buy. So, the obvious has happened, the company is unable to sustain itself and as sad as it is that thousands will lose their jobs, that is the natural result of incompetence. I think my mother's old neighbour got it right - "It is sad that so many people will lose their jobs, but they have to find something else to do." 

Humans are adaptable and placing them in a situation where they have no need to adapt is an abomination of nature. I often refer to my former father-in-law who ran an egg distribution business but also got himself a taxi driver license and fork lift driver's license. Why? Because he knew that he may have needed to adapt to his situation and understood that it had to prepare for that reality. So, this gets me thinking, if Yong Koon, the uneducated egg seller understands that, why can't the highly educated politicians and executives get that. 

In Singapore, we have played this natural law in an interesting place. On one hand, the government rightly encourages people to upgrade and cross train. If people have more skills, they can adapt to the changing economy. If you can't work in a manufacturing plant but can work as a foot reflexologist, you have a job. Perhaps working in a foot reflexology shop may not have the cache of being in manufacturing, it's still a job and means of living. 

Unforutnately, the government is not using the same policy towards the better educated. We retain the "Iron Rice Bowl," in the civil service and it becomes more true as you go up the food chain. Certain companies get themselves placed in a situation where the government believes the line, "The Market is TOO SMALL" for competition. For some reason the eco-system in Singapore's political and business landscape is trying to be immune to nature. 

Let's see if we can apply this arguement to reality. Imagine if someone decided to keep the brontasorus alive because it was "Too Big to Fail." Can you imagine the largest creature of the Jurasic era surviving without the need to evolve? Then imagine what would happen to it in the 21st century. It would be slaughtered by everything else that was better adapted to the environment. 

Companies like General Motors do not deserve to be preserved no matter how much we sympathise with the workers. The same is true for banks like Lehman Brothers and those who bought their products. You cannot keep businesses alive for the sake of it when they have clearly lived their use-by date. Yes, sometimes you have to manage the process, but artificial preservation and preservatives are ultimately bad for the system

The American economy has dominated the global economy for the last two-hundred years for the simple reason that American businesses were allowed to follow the rules of nature. Businesses that were badly run or no longer relevant ceased to exist. Businesses that were relevant to every age thrived and so did the well run ones. With the exception of GE, the original members of the Dow Jones Industrial index have changed as some companies went down and others rose to replace them at the top of the pecking order. What a shame that the American government has been rather oblivious to this fact. 

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Maira Gall