Supply Chain Management Review

Robert A. Rudzki

Is the U.S.A. Becoming a Social State?
September 22, 2008

In view of the recent distress in the financial markets, I thought it best to interrupt the series on How Do You Show Value in order to comment about current events. 

In the last week or two we’ve seen a number of foreshadowing events, including the partial meltdown of U.S. financial institutions such as Lehman Brothers, Fannie Mae and Freddie Mac, AIG, and the weekend marriage of Merrill Lynch to Bank of America. In addition, as last week ended, there was the proposed creation of a new government-sponsored agency, vaguely reminiscent of the Resolution Trust that helped the Savings and Loan industry to buy distressed mortgage-related securities and help return confidence to the financial system in general. 

As events unfolded, I listened to a host of TV commentators, including some very insightful guests on MSNBC. Perhaps the most intriguing perspective offered–by more than one person–was that the United States was rapidly becoming the largest social state on Earth. 

The best example of capitalism becoming the largest social state? 

The logic was actually fairly straightforward. And, it has a large amount of irony attached. 

Think about it this way (this is the short version):

• Social states typically involve lots of government oversight, government control, and government ownership of major institutions.
• The U.S. had led the way–after the Great Depression–in creating a system of regulatory oversight, particularly of financial institutions, to prevent another Great Depression from occurring.
• Over the past few decades, there has been a systematic disassembly of that regulatory system in the U.S., as “deregulation” gained favor.
• That deregulation, in large part led by Sen. Phil Gramm (note: he has been a top economic advisor to presidential candidate John McCain), succeeded in creating a free-wheeling and, obviously, risky environment.
• The excesses of that deregulated environment have triggered serious issues, and resulted in aggressive government intervention and the likelihood of significant government “investment” in various financial institutions.

As a result, with the prospect of U.S. government direct involvement and ownership of major institutions, some commentators have noted that the U.S. is heading toward becoming a social state. 

The additional irony in all this is that the U.S. taxpayer is now faced with the likelihood of paying to fix the bad judgment of Washington and of financial institution senior executives–at a time when other national priorities (health care, infrastructure, to name a few) should be receiving our attention.

Reminds me of the famous line by Peter Finch in the movie Network: “I’m mad as hell, and I’m not going to take this anymore!”

Posted by Robert A. Rudzki on September 22, 2008 | Comments (0)