Sunday, 22 May 2011

Capitalists who fear free markets

There are reasons why we want a separation of business and state. Businessmen want to use the government (taxpayers) to cover their loses. Floyd Norris writes in the New York Times about Capitalists Who Fear Free Markets.
Capitalism is supposed to produce losses on bad investments.

But all too often it has not.

In Tokyo this week, corporate executives were outraged when a Japanese government official suggested that banks might have to take losses on loans to the company that produced a nuclear catastrophe.

Yukio Edano, the chief cabinet secretary, had the temerity to say “the public will not support” the injection of government money into Tokyo Electric Power, also known as Tepco, unless banks share in the pain. Tepco says it would like to pay compensation to victims, but needs government cash to do so.

The president of Japan’s largest bank, Mitsubishi UFJ Financial, was shocked by the very idea that a bank should lose money if it lent to a company that could not meet its obligations. Mr. Edano’s remarks “came out of the blue,” said the executive, Katsunori Nagayasu. “I felt there was something wrong about them.”

To Yasuchika Hasgawa, the chief executive of the Takeda Pharmaceutical Company and chairman of the Japanese Association of Corporate Executives, the idea violated basic tenets of society. Mr. Hasgawa said he “cannot help but question how this country’s democracy can be made to work with free-market-based capitalism.”

His definition of “free-market-based capitalism” seems to assume that lenders should escape without pain, at least if they are lending to major institutions.
Reality check for these statist-businessmen. Capitalism involves profits and loses. If you make a bad investment you suffer the consequences. This is, in part, how you get the incentives for businesses right.

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