Capitalism's Critics Are Intellectually Bankrupt

Melanie Sturm | @ThinkAgainUSA

Publish Date:

Thu, 01/19/2012

When Paul Simon sang “Mama don't take my Kodachrome” in 1973, he claimed he'd “read the writing on the wall,” but he couldn't have foreseen how a transformative technology — making photos from digits — would render obsolete his precious color film. The global brand icon that revolutionized photography, making it affordable and convenient for ordinary people, now teeters on the brink of bankruptcy. Unfortunately for Kodak workers and the residents of Rochester, N.Y., consumer choice — not Mama — vaporized Kodachrome.

Because election season coincides with economic stagnation, lost jobs and defunct companies are political hot potatoes, putting capitalism on trial. Before joining free-enterprise bashers who bemoan investors who find opportunity in “the gales of creative destruction,” Think Again. As Kodak's ascent and decline demonstrate, this tenet of capitalism is what sparks entrepreneurship, innovation, growth and continuous progress, improving everyone's standard of living.

Preoccupied as we are with economic hardship, it's hard to appreciate the upending phase of “creative destruction.” But without disruptive transformations and the financial capital they attract, the entrepreneurial innovation that fueled America's economic preeminence — and job-creators like Boeing, Apple, Amazon, FedEx and Intel — couldn't have occurred. To paraphrase labor leader Samuel Gompers, the biggest enemy of the worker is an unprofitable, poorly managed company.

We'd also be saddled with outmoded horseshoes, floppy disks, typewriters and eight-track tapes. By reallocating scarce resources to better businesses such as automobiles, digital memory devices, laptop computers, CDs and online retailers, consumers realize previously unimaginable conveniences and value as obsolete products end up in the dustbin of history.

Capitalism is like cancer surgery — though risky and unpleasant to watch, it's a life-enhancing, regenerative process allowing productive cells to flourish where unhealthy ones once permeated. Since not all practitioners are well-trained surgeons, the process can be messy and imperfect. Sometimes the patient weakens before recovering vitality; sometimes he dies, making room for the healthy.

What's worse is when government subverts free-market capitalism by rescuing the suicidal from the consequences of their own errors. When they connect the nearly dead to life-sustaining “bailout-IVs,” governments play Dr. Frankenstein — creating economic zombies who dwell malodorously in our midst, suck up scarce resources and prolong everyone's suffering. What's protest-worthy are the prolonged and expensive hospital stays as government gets to appear beneficent with other people's money! This is “crony capitalism.”

In free enterprise, companies must reinvent or bear the consequences. Consider Smith Corona, the world's leading typewriter manufacturer, whose consumer breakthroughs included the automatic carriage return, electronic dictionaries, grammar checkers, word processors and the PDA. This reinvention process stopped in 1992 with the classically ironic shortsightedness of its CEO, who dissolved the company's joint venture with Acer Computers, saying, “Many people believe the typewriter and word-processor business is a buggy-whip industry, which is far from true.“ By 1995, Smith Corona was bankrupt, and Acer was the world's fourth-largest computer company.

Smith Corona learned the hard way that maintaining one's practices can be a formula for obsolescence. In contrast, Apple Computer, now the world's most valuable company, faced bankruptcy in 1996 before its reinvention accomplished the greatest turnaround in corporate history. It took rehiring founder Steve Jobs — whose reinvention followed being pink-slipped a decade prior — to reposition the company, its product line and marketing strategy.

Struggling companies whose shortsighted and complacent management fail to reinvent can be attractive to private equity investors who believe their risk capital (not taxpayers) and expertise can enable small and sometimes-troubled companies to profitably reincarnate. Though risky and uncertain, corporate turnarounds involve losing excess weight, consolidation and the injection of new ideas and fresh money. Successful ventures yield returns commensurate with the risk and “smart money” reputations; failure assures the reverse.

When opportunistic politicians cherry-pick failures in order to compare “turnaround capitalists” to rapacious corporate raiders or “vulture capitalists,” they're themselves birdbrains whose intellectual honesty is as compromised as their intellectual capacity. Where is the advantage in stealing from yourself? That's the implication when “turnaround capitalists” are accused of looting the companies they own.

As Mr. Eastman spins in his grave and Kodak struggles with its own death spiral, ambitious politicians prey like vultures on our economic insecurity, luring votes with tales of government-insured utopia. Real leadership involves explaining that in a world characterized by constant change and where status quos lead to obsolescence, Americans have historically prospered, often in the wake of adversity, chaos and even failure. Considering the scores of American companies founded during recessionary times, Americans should be reassured that the free market on which innovation and economic dynamism depend is the key to renewed prosperity.

Unfortunately, expecting intellectually bankrupt politicians to Think Again may be futile since, as Upton Sinclair observed, “It is very difficult to make a man understand something when his salary depends on his not understanding it.”

Printer-friendly version

Submitted by Anonymous on Wed, 03/07/2012 - 11:52am.

"....ambitious politicians

"....ambitious politicians prey like vultures on our economic insecurity, luring votes with tales of government-insured utopia." How true! Just look at the ridiculous new government mandate for insurance companies (even catholic ones)to provide free contraceptives!

Submitted by Anonymous on Thu, 02/02/2012 - 10:02am.