With all the policy emphasis on too-big-to-fail, let’s not forget one thing: Our future prosperity depends less on the lumbering behemoths who have stumbled so badly, and more on the small firms that are job-creators, and on firms that are still only a gleam in the eye of some entrepreneur.
That is not to say that in the current crisis the Fed chairman Ben Bernanke and Treasury Secretary Hank Paulson have got it all wrong as they try to cope with the danger of a collapse of the financial system.
It would have been risky indeed to allow egregiously managed Citigroup to follow Lehman Brothers into capitalism’s graveyard, or to let AIG collapse.
Sometimes a policymaker has to save the system even if it means saving some really bad managers from the consequences of their ineptitude.
But we should remember that when Franklin Roosevelt chose to gut the antitrust laws to permit significant cartelization of the American economy — early in his administration collusion to raise prices and divide markets was considered a very good idea, indeed — he set the recovery back by several years.
Implicit in such a policy and in too-big-to-fail is the creation of barriers to the entry of newcomers, and it was not until after the New Deal and World War II that a reinvigorated antitrust policy came to play a role in unleashing the post-war prosperity.
So when making policy, it might be a good idea for Bernanke, Paulson, Pelosi and company to invite the guys from the antitrust division into the room.
They could at least remind everyone that a policy that keeps interest rates as low as possible — which means be careful that wild spending does not set the stage for higher interest rates — makes it easier for fledgling enterprises to survive, and new ones to get that vital start-up capital that has launched the companies that historically have driven productivity and living standards up.
If we reserve resources to industrial dinosaurs such as General Motors, pump cash into their geriatric structures in the hope of restoring their vigor, we deny it to the tinkerer in a garage who might, just might, develop the battery that has eluded the automotive giant for decades.
In short, we need to integrate competition policy into anti-recession policy. That means giving at least a second thought before handing out the next billion or so, which would sooner or later force the Fed to keep interest rates higher than they would otherwise be to damp down inflation.
After all, a few points on interest rates matters more to a potential entrant or a tiny competitor than it does to a large, established corporation. And if you doubt that inflation and interest-rate increases will follow all the hand-outs take a look at Robert Samuelson’s new “The Great Inflation and Its Aftermath.”
We should worry as much about the inability of new firms to raise venture capital as about the inability of existing giants to finance their inflated legacy costs.
We should worry as much, or more, about the ability of small rivals to survive the credit crunch and this downturn as about the ability of industry giants to maintain their executive bonuses.
We should worry as much, or more, about pressure on antitrust authorities to give a wink and a nod to cartel behavior and anti-competitive practices during this economic downturn as about the survival of companies that in the end are anyhow due to shrivel in the face of competition from companies offering better products at better prices.
Which also means avoiding the sort of protectionism that Barack Obama is about to inject into American trade policy. Protectionism is the best friend of inefficient companies.
Competition from abroad is necessary if companies at home are to be pushed to serve consumers efficiently. American consumers would be poorer if foreign car companies had been denied access to our markets.
And American workers would be deprived of the 113,000 direct jobs provided by the investment of foreign-owned car companies in many of our southern states.
So save those we must to ease the current crisis and fight the current recession. But do so in a way that minimizes discrimination against smaller rivals and potential entrants.
In the longer run, it is competition, not anti-competitive practices; it is firms that challenge giants, not the giants themselves, that will enable our economy to do what it does best — increase the material quality of life.
Examiner columnist Irwin Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Studies.
