Since the begging of this crisis I have been dealing with some questions. The main question I am asking myself is: why is capitalism abandoning its main characteristic? I am talking of course about bankruptcy.
I grew up in Romania and in 1991, two years after the Romanian Revolution, I left for the US to do my undergraduate and graduate studies. Throughout my time in the US, more than decade, I observed how well the institution of bankruptcy worked when applied to small businesses and individuals. I saw people that made an investment that did not work out were not ostracized and actually were given a second chance. I saw organizations that over-invested and became too rigid to compete with younger more flexible ones. Sometimes the big clumsy ones decided to break-up and sometimes they just went bankrupt.
My point is that when you made a bad decision you were made to pay for it but were also given a second chance. In the same time by going out of business you were freeing-up resources that were kept locked-up by your loss-making company.
This was a revelation for a guy that lived until 18 years old in a system were all the decisions were “good” and everyone was always a winner. The main difference was that, in communism you never felt like a winner.
Now I get to my issues. What has happened that we are scared to let go of those organizations that made bad decisions? They are not profitable, they are big and clumsy, they do not allow others to enter and they keep resources that could be used more efficiently by the economy.
One of my readers was asking me if I really meant when I said that it would have been better to let more big banks fail in 2008. I do believe that. The reason is that by doing that than we would have not had to do more today. A stitch in time saves nine is a great Anglo-Saxon saying. The world was given a disaster story and had to agree with a big bailout. Unfortunately, since September 2008 all the world is doing is bailing out someone. In fact this is not entirely true. Since 2008 the world is bailing out someone big, because capitalism works just fine for smaller companies and individuals. Both categories have plenty of members going bankrupt everyday but only in the US. In Europe this is not happening.
I do not want to fall into the conspiracy theory trap which says that one reason for lack of bankruptcy is that debt is a powerful weapon. Instead of allowing someone (individual, country, organization) to go bankrupt it might be better to keep them indebted to you (individual, country, organization) forever. Historically, this is how landlords kept control of their cities. I hope as civilizations we have moved past that.
So, what is going on? It is obvious that keeping alive Zombie institutions or forcing austerity measures on countries without real potential has not worked. Then why do the only solutions presented to the public are: bailout (i.e. more debt) and austerity measures?