If Capitalism were a religion I’d be its clergy. What would I wear? A white collar of course. In a nutshell capitalism is the belief that private industry can drive progress and the economy much better than public entities (I’m talking about government here). The motivation for profit seems to be more powerful than that whole “greater good” thing. But sometimes capitalism fails, it can’t be perfect like The Weakonomist. I’ve compiled a list of industries that just deteriorated as a result of capitalism. The reasons are various, but the result is the same. We all lose.
5) Steel
Andrew Carnegie created the steel industry in the United States. He knew Americans could make it cheaper and better than those darned Brits, and he did. Then we got comfortable. But after he died, the rise of the Germans in the 1930s was partially attributed to their steel production. High tariffs in the United States kept us from important the “gooder stuff”, but the rest of the world had no problem giving it up the soon to be Nazis. Once Hitler decided he should take over the world and we slapped him around a bit, Germany was left in shambles. We literally destroyed their steel industry. Next in line was Japan, which we did not obliterate. The new rise of power for Japan that created all the fine electronics you love was started by steel. We were left in the dust with no motivation to innovate. Eventually the tariffs were lifted, and everyone started buying Japanese steel.
4) Automobile Manufacturing
The Japanese were not content to rob America of their steel industry. In the late 70s, driven by high gas prices, they started exporting their cars to the US. Like what’s happening now with the American companies and their desperate attempt to get a bailout, we were caught off guard. When you get to the top of your food chain, it is not a time to sit back and suck in profits. Google doesn’t, Microsoft doesn’t, and even the failing banks don’t. Once you get to the top it’s a fight to stay there. Our American car companies forgot this.
3) Commercial Airlines
In 1978, the peanut farmer was in charge of the country. Jimmy Carter, despite being a Democrat, signed into law the Airline Deregulation Act. Since before WWII, commercial flying was highly regulated. Prices could be fixed by the government, and certain areas even subsidized fees. The airline companies loved it, mainly because their profits were guaranteed. But with a bloated regulatory agency, skyrocketing fuel prices in the 70s, and customer/citizen anger, the government let the airlines loose to market forces. It was a disaster. The heads of airlines got comfortable in their roles. The market killed them once competition was necessary. Every airline from the 70s has either filed for bankruptcy or gone out of business, the only exception being American Airlines. Today the industry still struggles to be profitable. The attacks on 9/11 have only added to the complexity and cost to fly. Stay away from this industry for the next few decades.
2) Web 1.0
Web 1.0 was the tech boom of the late 90s that burst in the early 2000s. There is an image that always comes to mind when I think of the .com boom of yore: The was an episode of The Simpsons where Lisa and Bart are were for some reasons at the office of a tech startup. Because the stocks in all these companies became worthless, Bart and Lisa used stock certificates for napkins, toilet paper, and other uses of disposable paper. Why is this funny? Because it’s true. In the late 90s, all you had to do was start a company that ended in “dot com” and you could get funding. The idea was any business on the internet was going to take off. Many did, and went public. This is when you sell your company to investors by issuing stock. Amazon.com went public during this time and remains to this day one of the few successful businesses to survive the tech bubble burst. With tons of money being pumped into worthless assets, eventually people panicked and the industry collapsed. Sound familiar? Which brings me to…
1) Mortgages
Like I really need to review the mortgage industry. It wasn’t so much as problem with mortgages, it was a false idea that real estate was a risk-free investment. Coupled with our elected officials pushing everyone into houses and allowing Fannie and Freddie to buy riskier debt with our over-consumption habits, we were due to fail. No one organization can be blamed; everything was done in the name capitalism. Capitalism failed the mortgage industry, and then our economy.
It’s important to note once again I have not lost faith in capitalism. The quest for profits created the light bulb, the fixed rate mortgage, the Honda Accord, Gmail, the iPod, and many other wonderful services and devices. What should be learned from this is capitalism might not be the way EVERY business should be conducted. The finance industry needs new regulation, the autos need to compete against foreign companies and not with eachother, and if the out of work laborers want to still manufacturer, they need to figure out a way to make steel cheaper than our friends in Japan. Carnegie did it cheaper than the Brits, you don’t want to lose to another island nation do you?
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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