LESTER THUROW
Head to Head: The Coming Economic Battle Among
Japan, Europe and America ISBN 0-446-39497-1
June, 1993 p. 18-19
Left to itself, unfettered capitalism has a tendency to drift
into either financial instability or monopoly. Tulip mania, the
South Sea Bubble, numerous nineteenth-century financial
panics, and the stock-market collapse of 1929 were all forerun-
ners of the current mess in America's deregulated financial
markets. The current consolidations in the U.S. airline indus-
try are not unlike the great monopolistic trusts of the last half
of the nineteenth century.
If government had not come to the rescue, finance capital-
ism, as it is practiced in the United States, would now be col-
lapsing. Most of America's savings and loan banks (S&Ls) are
in government receivership. Large numbers of commercial
banks have not yet gone broke but are broke in the sense that
they could not be liquidated to pay off their depositors if that
should have to be done. The ultimate cost may not end up
being as big as that for the S&Ls, but it is going to require a
lot of the taxpayer money. If the banking system had not been
bailed out by government, panic would have set in as individ-
uals lost their savings accounts, and a repeat of the Great De
pression would probably now be under way.
Paradoxically, as Eastern Europe privatizes, America na-
tionalizes. With the collapse of much of its banking sector, by
early 1991 the American government had been forced to take
over two hundred billion dollars in private assets and was ex-
pected to end up owning_ three hundred billion dollars in pri-
vate assets before the hemorrhaging stopped.' A government corporation, the Resolution Trust Corporation, has become by far the largest owner of property in America. To these totals
must be added the large sums that will be needed by the Pen-
sion Benefit Guaranty Corporation, the government fund that
guarantees pensions, to fulfill its obligations to protect private
pension funds. Pension funds hold 30 percent of those dubi-
ous junk bonds, and the bankruptcies that are flowing from
the financial excesses of the 1980s will require billions in gov-
ernment aid to insure that the private pensions that have been
promised are in fact paid. The pension funds of the airlines
that were already in bankruptcy by mid-1991 will require more
than two billion dollars in taxpayer money all by themselves.'
The same, problems afflict the insurance sector. Here the
guarantees have been given by state governments. Forty-
seven states guarantee life-insurance policies, most up to
$300,000 per person. In early 1991 the states of California and
New York took over the management of Executive Life, a
company with thirteen billion dollars in assets, two thirds of
which were invested in junk bonds.' By midyear three other
large insurance companies (First Capital Life, Monarch Life,
and Mutual Benefit Life) were under state jurisdiction. To pre-
vent the feared bankruptcy of an out-of-state holding com-
pany from bringing down an in-state insurance subsidiary,
Massachusetts stepped in to start running an insurance com-
pany that had not yet gone broke.
In the industrial sector America has just seen the tip of the
iceberg of the corporations that have loaded up with too much
debt and gone broke because of the merger and takeover
wars. Airlines and large retailing firms lead the parade into
bankruptcy, but there is a lot of the parade yet to come. With
these industrial bankruptcies will come the need for even
more government (taxpayer) help (unemployment insurance
for those who end up unemployed, deposit insurance to cover
the banks that go broke because they have lent to companies
that go broke, and pension insurance to pay the pensions of
those who were owed pensions by bankrupt corporations).
Unfettered Anglo-Saxon capitalism is finding it difficult to
cope with the present and may, not be the unstoppable wave
of the future that pundits on the political right like to extol.
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