A Philosopher's Blog

Should the Government Bail Out Businesses?

Posted in Business, Ethics, Politics by Michael LaBossiere on November 20, 2008

There is a great deal of debate about what the government should be doing about the economic crisis. Coincidentally, in my ethics class we’ve been discussing the legitimate role of the state.

Most thinkers take the minimal obligations of the state to be protecting the citizens and enforcing the laws. Most states take on a multitude of other tasks, but those are the most basic. Naturally, people disagree about what else the state should be doing.

Classic Conservatives hold that the state should be minimally involved in the free market. This includes both regulating it and bailing out businesses that get into trouble. The purest form of this approach is that laid out by Adam Smith. Of course, experience shows what happens in such “pure” economies (the Great Depression, for example). Hence, even conservative thinkers tend to see a role for the state in regulating and perhaps even bailing out businesses.

The “new” conservatives (aka “Bush Conservatives”) hold that the state should be minimally involved in regulation but should support business financially and bail them out. This can be seen as a form of socialism in which the state funnels tax revenue (and loans) to certain businesses. As the economic disaster of today indicates, this approach does not work that well.

The liberal view has been that the state should regulate business but should not be significantly involved in supporting businesses (except certain ones-such as those owned by women or minorities). This is the sort of view often atributed to Democrats. In reality, they seem happy to support businesses that donate to their campaigns, that they have a stake in, and those that are owned by friends.

I believe that government should regulate business for the same reason that I believe that government should regulate other aspects of our behavior: regulation is needed to prevent people from doing harm to others. While most people would probably still behave decently without being compelled, the fact that a significant number of people are willing to behave very badly even in the face of compulsion indicates that a lack of regulation would be bad. If this is true of human behavior outside of business, then it would certainly seem to apply within business as well. After all, why would a selfish and evil person stop being that way simply because he became a businessman?

As far as bailing out companies, I have mixed thoughts. On one hand, this could be justified in terms of the protective role of the state. For example, it could be argued that by bailing out failing banks, the state is protecting the citizens from the harm of financial disaster. Of course, this certainly opens the door to a rather broad interpretation of this role and this might prove problematic. For example, every failing business harms someone-does that mean the state should try to bail them all out?

On the other hand, I consider responsibility to be rather important. If I make a bad choice and suffer because of it, that is my own doing and hence it is not the duty of the state to save me. The evidence is that the economic mess is largely a product of greed, poor decision making, failure in leadership, and various moral failures. Hence, the failed companies should accept responsibility for the failures and expect to be allowed to die semi-honorable deaths.

That said, it could be argued that the companies should be bailed out because their failure would hurt those not responsible for their failure. To use an analogy, if the parents make bad choices and a family is destitute, then the state should help the young children. After all, they were not at fault and are in such straights due to bad luck and not bad judgment.

In reply to this, perhaps it is the people who should be helped out directly. The failing companies could be allowed to fail (or survive) and then new ones could arise-hopefully lead by better people who will make better choices. Realistically, I think we can (sadly enough) expect the same scoundrels back at the helm again, ready to steer onto the rocks in search