Do Bailouts Suppress the Creative Class
by Adil Dhalla (@CreativityKTR)
The news of the agreement made between GM and its Union workers to slash salaries, which would enable GM to obtain bailout money has been treated quite favorably. To speak in the most general of terms: it’s saving the economy, right? But this announcement comes at a time when many people are questioning the value or point to bailing out sinking corporations and for very good reason. Why should our tax dollars save corporations from their own incompetence? Exactly who needs who here?
But another important thing to consider is how bailouts impact the creative class. I believe that the two – bailouts and creativity – are inversely related. So as bailouts increase, creativity is suppressed and it’s not hard to figure out why.
If we save GM, not only are we propping up a company which has shown a tendency to avoid being creative – which is one of the reasons why its where it is right now – but our lifeline is accompanied with a short leash on what they do. They are more likely to consider how to fix their old errors than open up into a territory that they are unfamiliar with. They are, in other words, very adverse to creativity.
If GM was left to face its inevitable decline, on the other hand, it would create a vacuum for new industries to emerge that are ultimately better suited for today’s economy. Take the airline industry as a good example of this. Almost all Canadian airlines (except, for some inexplicable reason, Air Canada) are not provided with the same lifeline that we are currently dishing out and accordingly, almost all of them have failed. Because of this, WestJet was created with a creatively divergent business model (which they can actually credit SouthWestern Airlines for) and has comparably flourished in this airline-hostile market. They haven’t been without their own problems but the point is that the death of one corporation means that many others will follow until the right formula is found.
I’m not particularly an advocate of the Austrian School of Economics which argues that we should just let everything fail and re-start again. I’m also not particularly a fan of complete and utter government intervention (i.e. rampant socialism) that seems to be going on right now. I am a fan, however, of the idea that we don’t bailout for the sake of bailing out and really consider where we put our lifelines. I wonder if rather than giving GM 6 billion, what that money could do if it was up for grabs for entrepreneurs and small business owners in the auto realm. Would this not create the same job creation that we are fearful of losing? Would this inspire more people to think creatively about building companies for tomorrow and not saving companies from yesterday?
Creativity is a risk, I’ll admit it. But at some point we all decide that what we have isn’t worth fixing. I think this is one of those times.
2 Comments
1 Taylor wrote:
I personally think the idea behind letting everything fail and re-start again is not a bad one. Why are we bailing out companies whose main goal is ridiculous profit? Companies who are putting people out of work for this exact reason and in turn are ironically losing more profit because their potenial buyers are now unemployed. Corporations are not humane, they are not creative, they are destructive. The key is small business, more community and locality. The GM workers making $75 an hour should split that pay and employ a friend,.
[Reply]
2 Jonathan wrote:
@Taylor: I think it’s less about bailing out greedy companies than about bailing out the victims (e.g. workers, retirees). The younger people are probably going to be alright and can transfer their skills to another corporation, but it’s the retirees that are going to have the hardest time, many of them depend fully on GM to live the rest of their lives. I suppose there is the government backed pension guaranteed corp. to act as a safety net, but in no way does it guarantee to cover everything.
As for whether putting the money into small businesses and entrepreneurs will help, I’m sure it does and Obama knows it.
http://www.dailypress.com/health/sns-dc-obama-small-business,0,4486626.story
I’m sure he recognizes the role small businesses’ play in innovation, but he probably also understands the huge negative consequence of not bailing out big companies, that’s why he’s trying to seek a balance. I’d think in the long run, smaller businesses will fill in the gaps of bankrupt corporations if they are not bailed out, and everything will be just fine, but in the short run, things are going to get very messy. Small businesses are not going to generate the same amount of revenue large corporations do and replace the jobs lost in one day or anytime soon. It’ll be a long process, and maybe that process is just too painful to bear for a lot of people.
And it’s not like economics is the only thing that fuels creativity and innovation. Like you said in your other article, true entrepreneurs and true inventors will start their own businesses and invent regardless of the economic conditions. The extra money will definitely help motivate those that are on the fence, but creativity will happen regardless.
If innovation is going to happen no matter what, then this is not really about choosing one over the other, it’s more about whether you want to speed up one and neglect the other. And if you think about it that way, it probably isn’t worth the pain.
[Reply]