Sunday, May 3, 2009

The Epitaph of Nationalization – Not It’s Inception

Defenders of the free-market façades which have permeated the economic zeitgeist of the past two decades lamented and lambasted the Obama Administration’s intrusion into the automotive heartland of America’s industrial ego. How could the government (please sneer here, a little gratuitous boo, hiss – thank you) dare usurp the likes of Chrysler and GM - these bastions of iconic industrial supremacy? Militant faux alarmists decried this latest intervention as “socialist” (you may wish to boo and hiss again here) and a threat to the very core of American enterprise.

However, watching this scene unfold from my euphemistic utopian armchair from which I philosophize, pontificate, prophesy and do other things which start with my alliterative “p”, I was struck with the irony that this act represents the end, not the beginning of nationalization. And, given the delightful complexity of economic implicit codependence, actually accelerates the transition that I’ve been discussing since 1997.

Indulge the following observations.

Nationalization of property. For the not-so-informed, a lien on something means that you don’t actually own something. In fact, the lien holder is the effective owner of whatever is financed. So when, in 1938, the Federal Government created Fannie Mae (as part of FDR’s New Deal) and Freddie Mac (1968), it established, under the public guise of home ownership, what amounted to the largest nationalization of residential property in US history. Ironically, many self-described conservative free market advocates actually saw this as liberation and failed to read the fine print in the lien provisions. The Bush Administration, in its post-9-11 rush to stimulate the economy further secured the effective lien-holder status of the federal government by liberalizing capacity for higher debt limits, lower loan to value ratios, and greater unsecured credit exposure.

Tax deferred investments. Fair and Balanced™ defenders of “Truth” and the “American Way” are delighted to know that the “free market” was made accessible to American investors through contrivances like the 1978 market ruse launching the 401(k) and other tax-deferred investment programs. Ironically, these programs actually served to support, through fee income, those who allegedly managed programs who, in good times or ill, collected fees while the American investor was precluded – at pain of accelerated taxation – from following his or her instinct to exit a market that was tanking. By nationalizing retirement savings (and through the current administration’s on-going unwillingness to declare a tax holiday to empower the American public) the government insured that all retirement monies would enjoy the management monopolies created by tax policy which benefited institutional cabals – not the public they were supposed to benefit. And I can’t resist the impulse to remind you that your pension is “guaranteed” by the illiquid PBGC!

Nationalization of small business and US employment. Since the 1942 establishment of the forerunner to the U.S. Small Business Administration (which few remember as the Small War Plants Corporation), the engine of jobs growth in America has been dominated by the Federal Government. Through preferential federal procurement (1953) to loan guarantees (1958) to the Reagan administration’s venture capital inducement in the form of the Limited Liability Corporation’s propagation together with considerable venture capital tax incentives, the government has been inextricably integral to the formation, preferential selection of winners and losers, and instigators of small business across the country.

Nationalization of education. Spend any time in institutions of higher learning and you’ll find that the business of education long ago became the business of the federal government. The “socialization” of research and development throughout this country enjoys a long, colorful history of linking academic research to federal funding in its most recent incarnation dating to the Stevenson-Wydler Technology Innovation Act of 1980. Make no mistake. If you want to succeed in the grant funding which leads to tenure in the research institutions of this country, you will pass through the federal government.

These are but a few of the ways in which the recent automotive (and not so forgotten nationalization of the banking and insurance sectors over the past 16 months) “takeover” by the government should not be seen as a novelty but rather as the concluding footnote to a history where the private sector has become intoxicated on entitlements which are so cunning that they are labeled by cacophonous economist and pundits as “free market”. It's not the "end of American enterprise", rather its the conclusion of a process which will add impetus for a new process to emerge.

President Obama has injected a much needed call to action into our economic haze by calling for a renewed productivity in America. If only he took the time to listen to the overlooked facts below, we’d be in a better position.

1. On green jobs – America made a hubris-filled mistake in the late 1970s and early 1980s. By liberalizing patent laws, the US Patent Office allowed thousands of patents on hydrogen vehicles, fuel cells, wind and water turbines, biomimetics, biochips, alternative fuels and all other “green” technologies. These illusory inventions were never put into commercial use and now the patents that would, in a traditional sense, support Obama’s green industry are expired and in the public domain. Major innovations in “green”, much to chagrin of this Administration and to the detriment of “green funds” are not the exclusive domain of the US. In fact, most of the cutting edge is off-shore. Readers should remember that the Chinese government’s mandatory technology transfer programs of the 1990s mean that many technologies alleged to be owned by US companies are already licensed to China. So, we not only have to invent the technology of the future but we also have to invent the corporate structure that uses the “open source” technology recycling paradigm that our past excesses now demand. Proprietary is out – Innovation Recycling is in.

2. On environmental infrastructure – No pension fund is fully insulated from the 20-30 year bonds which pay for our oil addiction, or massive power grid infrastructure (generation and distribution). Those who would advocate for the adoption of environmentally aligned power and utilities must first confront the reality that accelerating the obsolescence of bond financed utilities will also accelerate pension and entitlement illiquidity. Therefore, the challenge facing the “green” infrastructure community is to not only innovate solutions but innovate how to factor the innovation futures of said innovations to offset the bond defaults their adoption will trigger. And after we deal with the obsolescence in the short-term, we will need to innovate entirely new investment vehicles to pay for the more rapid cycling adoption of frequently improved green innovations.

3. It’s a interdependent world out there – I was struck by the fact that a significant volume of the wind turbines which spin their vast arms against the generous celestial gradients have, in their blades, balsa wood harvested from Papua New Guinea. Huge stands of these generous trees are lumbered and laminated to create the green generators. Isn’t it ironic that we’re killing trees to go green? Now I’m not suggesting that we cannot use natural resources but I am interested in calling for what I’ve referred to as “Peace Trade”. What Peace Trade (a concept that we developed to help promote conflict free component and raw materials for consumer products) does is put the human and environmental face (literally pictures of who and where all components came from) on end products so that the consumer sees the all-in cost of consumption. As we look to the industrial transformation of America, we should acknowledge our abuse of resources – promoted by John Maynard Keynes in The General Theory of Employment, Interest, and Money (1936) as being “basically free” – and realize that innovation in supply must be inextricably linked to innovation in industry.

We’re lucky. The end of one cycle is here. If we take the time to embrace the agnostic realities of the compromises we’ve directly and indirectly accepted and see that our way forward will involve centralized leadership – not from Washington D.C. but not at its exclusion either – we have a shot at some really cool futures. We can redefine what "Washington" means and what the "economy" means if we collectively engage in creative alternatives rather than lament our nostalgia over a past that really wasn't what we thought it was. So, let’s enjoy the sunset because a new day is just about to dawn.



  1. Dear David,

    Who is among the "centralized leadership" not from Washington? Are you intimating a world government here?

    Happy Wesak!

  2. What part of the free market requires government to intervene with taxpayer funds? Please explain

  3. As long as the government controls both the flow of funds (and their devaluation) and the ability to render capricious determinations on what industry lives and what ones die, we don't have a "free market". Therefore, intervention is necessary when the government's spending is out of control (as it is now) and when the risk of social disruption infers a risk mitigation value that is assessed to the tax payer. If we really had a free market, this would not be required AT ALL.


Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave