A DELICATE BALANCE
May 11, 2009
A lot of folks are concerned because the federal government has “taken over” GM, Citibank, and other major firms that have asked us for huge amounts of money just to stay solvent, never mind make a profit. The concern is that government can’t run a business—ruin, yes; run, no—and that it’s another step on the way to a “socialist” America.
We only need to point to the Soviet Union and the other failed socialistic and communistic countries that quite frankly, couldn’t run a government, let alone a business.
But the starting place for this particular discussion is why are companies nationalized in the first place. Cuba, in 1960, nationalized—without payment—foreign companies by the bucketload in order to control the economy, their Marxist ideology being that the people should own the means of production; but the reality being that a totalitarian government ran them.
There is a significant difference between America and those countries that have seized profitable companies; except for during World War I, when the operation of railroads was temporarily nationalized, and Truman's takeover of the Steel industry in the Korean War, America has never assumed control of a going concern; they have all been companies in such bad shape that investors wouldn’t invest in them and banks wouldn’t loan to them. No company making a profit has ever come to Congress asking to be government run, and Congress has never taken over control of a profitable concern (Congress did not agree with Truman’s actions on the steel industry). The outfits that were taken over by the feds either asked for help or were so vital to the nation they could not fail (heard that before?) and had to be taken over for national security, and most significantly, the American government got them back into the private sector as soon as possible.
Think back, if you can, to the early 1970s when seven railroads in the Northeast, including the nation’s largest railroad, Penn Central, declared bankruptcy almost simultaneously. Taken together, these roads represented almost the entire rail transportation network from Chicago and St. Louis, to Washington, New York, and Boston. Penn Central threatened to cease all operations if they did not receive federal money, and if they had it would have caused an insurmountable obstacle to the delivery of goods in the Northeast, with nationwide repercussions. The eventual plan, developed in the Nixon administration, was to merge six of those railroads and form a government corporation called Conrail. In February 1976 the plan was signed into law by President Ford, and a couple of months later, on April 1, 1976, the first Conrail trains began rolling.
Conrail was at first a giant sinkhole for federal dollars as the railroads’ terminally neglected infrastructure was rebuilt and rolling stock and diesel units replaced. Management, recruited from the private sector, sold or abandoned duplicate and unprofitable routes and cut labor costs dramatically in spite of union pressure. And, lo, in 1981, at five years old, Conrail began turning a profit. By 1986 it had achieved a state of viability where it could succeed without government help, and President Reagan signed the Conrail Privatization Act into law. In 1987 the federal government conducted what was then the nation’s largest Initial Public Offering by putting up $1.9 billion of Conrail stock at $25 a share. Eleven years later, in 1998 a furious bidding war began between CSX and Norfolk Southern railroads for a Conrail takeover, and Conrail shareholders with as few as 100 shares were repeatedly called and asked to sell their shares to one of the two railroads, driving Conrail stock to $125 a share. That’s the success story of a government run business.
Every successful government has some element of what could be called “socialistic entities.” In fact, Lincoln felt that the purpose of government was to do for the citizens what the citizens alone could not do. Hence we have a government-run defense system, government-controlled court systems, highways, public safety, and on and on. These are for the benefit of both citizens and business, and without them economic growth is virtually impossible. Businesses need governments to provide infrastructure, and governments need private enterprise because it is the driving force behind a vibrant economy.
There has to be a delicate balance, a tension, if you will, between the two to prevent one or the other from getting the upper hand. We have witnessed the fall of communism because the government controlled everything, and we have witnessed economic catastrophe in the private sector because the government didn’t control anything. But when that delicate balance is achieved, boy oh boy, do things perk right along.
Montana Viewpoint© is carried by 20 Montana weekly newspapers, including those in Helena and Billings, with a combined circulation of over 60,000.
Jim Elliott is a former state senator from Trout Creek. He served in the Montana House 1989 to 1996 and the Montana Senate from 2001 to 2008. Elliott has distributed his opinion column statewide since 1992. There is no charge for publication.