August 12, 2014

Too big to succeed

Too big to fail should not only not be applied to big business, but to government as well. The very notion that something is too big to fail is of course laughable. From the Titanic to the Lehman Brothers, examples abound - bigger does not mean indestructible. Alan Greespan once said, "If they are too big to fail, they are too big." Given the miniaturization effort that prevails in many electronic devices, smaller can be better. Some companies grow too quickly or grow beyond what is efficient and then they implode. RIM, with it's Blackberry devices is one example. Just when is too big, actually too big? The answer varies from industry to industry, company to company. But what the free market does with a wicked efficiency is take care of that problem. A company that develops irrational hubris, or a disrespect for the marketplace, will soon be replaced by more responsive customers.

 At least that's what would happen minus market distortions, often imposed by government. Which brings me back to the government aspect of too big to fail. Governmental agencies, from the EPA to the IRS have developed that hubris, and have managed to insulate themselves from the consequences. They are too big to fail, but failure is what culls inefficiency. Government doesn't hold itself to accountability the way the market holds private industries accountable, so they have become not too big to fail, but rather too big to succeed.

That's what the real problem is - too big to succeed. Think of the real estate bubble and the tech bubble - bubbles get too big and they burst. The same can be true for a business or an institution. When something becomes so large that it's primary motivation becomes itself rather than those it was intended to serve (customers, citizens, veterans, etc.) then it has become too big to succeed. Some companies have avoided that by remembering that they succeed because they serve a purpose for others. WalMart keeps prices low. FedEx focuses on fast delivery. Maximizing shareholder wealth does not come from price gouging or cutting corners on cost, it comes from consistently delivering at or above customer expectations.

Governments are not immune from such notions. History is full of revolutions and civil wars that have come from the populace's distrust or disgust with the ruling class. Even coups by militaries are enabled by an under-served constituency, even when personal ambition plays a leading part. Castro would not have become dictator for life had the people not supported his notion that the government was not serving the people.

The American government has in many areas become too big to succeed. The 10th Amendment was a clever solution to "too big": dispersing rights to states and people, diffuses the centralization of bureaucracy. But the American government has shamefully outpaced many Constitutional constraints on the federal government.

If the American government has become too big to succeed, or is nearing that point, then there are only too possible ways to correct the situation: (1) the government chooses to willfully restrain itself and rethink what does. Scale back in other words. Or, (2) the problem will be solved by a locus external to the government itself. Either from within America or from without, it will fail.

Don't view that latter outcome as a threat, but rather as a prediction if change does not come. The potential for that change is built into the Constitutional voting cycle. It is not built into anything else - party ideology, government bureaucracy or personal political ambitions. Government and the media have so twisted the one thing they cannot control (voter understanding and intent) that perhaps that recourse in no longer a viable option. If that is the case, then the ruling political class has only succeeded in delaying the inevitable. Too big to succeed is not sustainable forever.

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