Failure Is …. An Option

When the ‘experts’ speak in clichés about being “too big to fail” or “we simply failure had to step in” they attack the whole idea behind the American entrepreneurial spirit, free markets, and the essence of a capitalist system. Let me say it another way; discounting or ignoring the survival spirit of the small business entrepreneurs in a capitalist, free enterprise economy disregards the very foundation on which it is built.

 I was listening to NPR talking up the hoopla surrounding the Obama administrations’ first 100 days when the commentator said something that annoyed me. The subject of the on-air commentary had to do with the economic situation and all the things that were being done in Washington to bring the crisis under control. He then went on to address the Big Three automaker mess and remarked without any sort of hesitation, “what was the administration to do but to step in and assume control”?

Unfortunately, we’ve heard this perspective so much that no one seems to think there was ever another alternative. The Bush administration gave birth to this purview by using the phrase, ‘too big to fail’. Somehow we have come to believe that if a company bigger than a certain size bread box were to go under that American society as we know it would come to an abrupt end. The raw material and parts supply stream would be irreparably broken, dealers would go bust, the free market icon that we invented would bring us to our knees, and there would be wailing and gnashing of teeth in the streets by throngs of jobless workers.

I get it; the illusion at least. Nobody dismisses the fact that times would be difficult for that enterprise and it’s workers. It’s tough for any business to declare failure and set about to retrench. But that is what bankruptcy procedures and laws are for. They were designed to regulate a struggling enterprise through a difficult time in an effort to get it back on its feet and successful again. It is a recovery tool. Period. It only becomes a death knell if the process is exercised hastily without caution and wisdom, and with an eye for short term survival without the requisite pain.

Bankruptcy is painful and still, the medicine does not guarantee survival.

I know. I survived two bankruptcies in the airline industry with all the associated fallout. As a result of those experiences I saw how the process produced ultimate demise in one case and revitalizing success in another.

How did I wake up one morning as part owner in GM, Chrysler, AIG, and Citibank; four companies in which no sane person would have ever invested knowing what we know about their assets, practices, and leadership? Why a taxpayer bailout instead of bankruptcy protection for these failing companies? .

The basic mind of BasicMan says let GM and/or Chrysler fail. Let them legally admit what the public already knows; that they have been crummy business models for a long, long time and don’t deserve federal (mine and yours) largesse until they fix the model. Let them exercise the appropriate bankruptcy and restructuring procedures that were enacted precisely for their predicament.

When the ‘experts’ speak in clichés about being “too big to fail” or “we simply had to step in” they attack the whole idea behind the American entrepreneurial spirit, free markets, and the essence of a capitalist system. Let me say it another way; discounting or ignoring the survival spirit of the small business entrepreneurs in a capitalist, free enterprise economy disregards the very foundation it is built on.

If Wendy’s, Macy’s, or United Air Lines were to go belly up tomorrow would it create a long term void in the marketplace or would McDonald’s, Nordstrom’s, or Delta clamor to get their clients. In short time those failed entities would become distant memories. Does anyone remember Boston Market, Roasters, Montgomery Ward, Circuit City, People Express, or Eastern Air Lines? All are either gone or were successfully re-engineered through the bankruptcy process. Their customers did what consumers do, they quickly found other places to eat chicken, buy stereos and TV’s, and get cheap seats to Orlando. And their former suppliers delivered more sellable goods to their competitors that survived.

When Delta and Northwest Air Lines entered federal bankruptcy protection people didn’t suddenly stop buying tickets on those airlines? Sure, bookings went down but the managements of each entity were determined to stay in the game with lower fares, re-branding, and focused marketing efforts. Interestingly enough, within a few months most passengers forgot the companies were even in Chapter 11 proceedings. In the meantime every contract was renegotiated, salaries were slashed, union pension plans were discarded at one airline, and spending was micro managed to the penny. Not ironically, both companies created leaner structures that led to an opportunity for a mutual synergy to be created. The bankruptcy process worked for two multi billion dollar global companies and their combined workforces.

Capitalism creates opportunities. Would GM or Chrysler’s demise not trigger an opportunity for Ford? It could spawn an opportunity for Toyota or BMW to build more cars in their US factories. Better yet and more to the heart of free enterprise; it could open the door for another auto entrepreneur like Preston Tucker or John DeLorean to enter the fight absorbing technology, skilled workers, and ready made manufacturing complexes idled from failed enterprises. The market of car buyers doesn’t shrink because a vendor gets voted off the island.

I have incredible faith in the spirit of the American worker that is faced with adversity. More so than those in Washington that look at a bad economy as a way to gain a political toehold.

In light of this subject an interesting postscript came to light over the last few days as President Obama pronounced that the pending Chrysler bankruptcy would be fast and surgical, perhaps lasting only 30-60 days. Really? Such confidence coming from someone with no background in any business whatsoever and no time on the bench as a bankruptcy judge. One would have to think he intends to use his presidential elbows to prod the principles along seeing that the typical time for a business to restructure and emerge from bankruptcy is 12- 18 months. Short circuiting this complex process won’t do anyone any favors for a long term solution to Chrysler’s endemic problems. But then again, the phrase ‘long term’ means something quite different to a business person or labor group than it does to a politician whose horizon is only a 2, 4, or 6 year election cycle away. Good luck Chrysler; my money’s on you, literally.

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