If you observe traffic in India long enough, you’ll arrive at the conclusion that there are no road rules in India. But this is not true. There is one rule that dictates driving behavior: Might is right. To Westerners, this is a discomforting thought, because it bypasses the systems of social justice that we are used to in the West. Shouldn’t you, as a small car, have the same rights on the road as a mammoth SUV? Shouldn’t you, as a pedestrian, be able to cross a crosswalk without fear of being flattened by a speeding vehicle?
Most Westerners probably think so. Fairness and equality is ingrained in our outlook on the world. We look for courts and governments to level playing fields for us. If someone smashes our car in an accident, we use the law to restore ourselves to the situation we were in before the accident. We call that justice.
The ideals of social justice, fairness, and equality are lofty; it’s hard not to get upset when you hear stories of unfairness (persons being wrongly convicted of crimes, people losing all their money in elaborate frauds, etc.), and it’s even harder not to demand justice when something like this happens to you. Yet, I have recently begun to understand the sorts of costs that this has had on our society, both in an economic sense, but also in a psychological sense. I fear that despite the high-minded ideals of social justice, it does not always serve us well as a society to rectify every injustice leveled against us.
I wonder about how the concept of justice fits into an evolutionary context. Does it fit in it at all? Evolution would suggest that some individuals (organizations) are better suited for prevailing conditions than others. The weak and frail will be consumed by the environment, and the strong will soldier on, and grow. Evolution is the law of nature for all beings, and it is a law that is the supposed lifeblood of capitalism. Despite this, our system (at least in the U.S.) continually ensures that those who cannot compete— fairly or not— can be sustained artificially by a system that will nurse them regardless of their strength or potential to compete effectively in the future. This is not true for all firms, but it’s true for many. Think of GM and Ford, think of AIG, think of the ridiculous amount of subsidies given to industrial farms.
You might be wondering where I am going with this. What does bailing out companies have to do with social justice? Remember why the government is currently bailing companies out; it has very little to do with the companies themselves. It has everything to do with the idea that some people unfairly lost their life savings in them, and hundreds of thousands of people will unfairly lose their jobs, and the resulting economic meltdown will unfairly ripple throughout society and affect people who had nothing to do with it. So what is the solution? A lot of people feel that ‘investing’ billions of dollars into these organizations will re-establish justice to not the auto company, but people who might have been impacted by their problems. All those hapless investors won’t lose their hard-earned money. All those dedicated auto-workers who labored at GM for 35 years won’t lose their jobs. And all those bystanders won’t be leveled in the narrowly-averted nuclear winter.
I can’t help but anthropomorphize this situation a bit by comparing it to the way a parent welcomes back the proverbial prodigal son with open arms despite the kid’s waywardness. At least to some degree, we expect this from good parents. Madonna’s song “Papa Don’t Preach” has the narrator begging her religious father for support instead of judgment despite what in his eyes is her grievous sin of becoming pregnant as an unwed teenager. But we’re talking about supporting wayward organizations here, which will have broad social impacts. Welcoming back companies that recklessly screwed over investors and their own employees should not necessarily be supported in return, though it’s tempting to do it because of the other parties that might be affected by a failure to do so. So let’s start with why it may not be a good idea to bail out these companies, and then move on to why it’s even bad for the related parties.
There’s a good chance that Madonna learned her lesson and won’t get pregnant again, but the guys at GM are more akin to heroin addicts than teenagers who made some bad decisions. They’ve been supported by government money so long, are so far from market-orientation, and so incapable of the sorts of organizational change that are necessary for detoxification that it seems impossible to give them any sort of support without tacitly feeding their addictions. Sure, you can give GM money to go rehab, but there’s absolutely no indication that they’re interested in rehab. They want to stave off the looming disaster on the horizon for one more day. If perhaps they showed the least bit of interest in market orientation and willingness to be innovative, it might be different. But that’s not the case at all. They simply expect to be saved because they always have been, and the government plays into their hands largely out of habit.
Despite this, no amount of money given to the company is going to restore the lives of the victims of corporate irresponsibility, and no amount of money alone will prevent the threats of insolvency from being constant and recurring events. Of course, we are often victims of the sunk-cost fallacy, which suggests that because we’ve already wasted so much money on these companies and they’ve already created so much chaos, that we should escalate our commitments to them to hoist them from the tarpit from which they’ve carelessly driven into (again)— which is precisely the wrong tack in this situation. The best thing to do is to walk away and never look back, despite their anguished screams.
I know that many people would be affected negatively by this course of action. I realize that many retirements will be ruined, many workers will hit the skids, and their kids may never be able to attend college. I understand and empathize with this hardship. But what worries me is that trying to correct these unfairnesses actually set us up to create exponentially more of them, and make us more susceptible to future crises of the same or greater magnitude— and it has nothing to do with the actual transfer of money, and everything to do with economic incentives.
Put bluntly, these organizations are drains on the system, and further feeding them and the people who they have hurt is an even bigger drain on the system. That said, I understand that we live in a society, and we can’t always think about things in these terms. I don’t advocate, for example, that we stop all social services, which many perceive as drains. But it’s damaging to the business environment and ultimately consumers to support businesses just because we always have. It not only encourages organizations to be reckless about their management habits, but it encourages those who work for them and invest in them to behave carelessly and greedily. Aggregated over a nation and over decades, it’s primes us perfectly for future disasters of equal or greater magnitude.
Put the right incentives in place, and you can avoid this sort of thing. If you knew that no one was going to bail you out, your company would probably act in a much more controlled manner. If you were investing your life or your live savings in that company, you might spend a bit more time scrutinizing the management practices of that company. Which is what these organizations and people are supposed to be doing in the first place.
Consider this: a herd of antelope will never try to nurse or save an injured antelope, regardless of whether it was maimed by a predator or by another antelope. To do so would jeopardize the future of the rest of the herd. Standing around and attending to the injured puts them all at risk. And indeed, some antelope will need to serve as fuel for the predators. These predators probably aren’t viewed positively by the antelope (if they have such a capacity), but in a way, they are actually protecting the antelope society as a whole because they enable a systematic checks-and-balances that promotes a balanced ecologic sphere that keeps the antelope’s environment stable. Without this, the antelope would overpopulate and eat themselves to famine. Then all of a sudden, the seeming prosperity would reveal itself to just be an elaborate illusion, and they’d see that actually there wouldn’t be enough food or resources to go around. Does this sound at all familiar?