Every few years it happens again: the state must intervene to save banks, companies and societies from collapsing. In 2008 it was the financial crisis, in 2000 the bursting of the Internet bubble, in 1987 Black Monday, in 1973 the oil price shock. And in 2020 the Corona crisis. And these are just crises that had a global impact. The local crises that happened in between are not mentioned. Wikipedia lists at least 50 local and global economic crises between the 19th century and today.
Every crisis is – microscopically speaking – due to different causes. For example, the financial crisis of 2008 was caused by speculation in real estate, based on unbridled lending to not creditworthy individuals and by the tying of seemingly excellent but, as it turned out, very risky securities on these loans. The bursting of the Internet bubble was due to unrealistic investment in companies with more ideas on false assumptions than execution skills. The oil price shock resulted from the announcement that oil was going to become scarce, turning into a price-driven depression, even though oil was in fact never scarce on world markets. And the current corona crisis brought the global economy to a sudden standstill because government measures to combat the spread of the pandemic forced people to stay at home.
Macroscopically, this makes little difference for states and societies. Hundreds of billions of aid packages have to be put together, those to banks, airlines and the companies considered the most important industries for the country in question. Millions of workers lose their livelihoods, their homes, their possessions, while boards of directors and investors often get off scot-free.
Financial Crisis in 2008
For example, during the 2008 financial crisis, a total of 47 bankers were sentenced to prison worldwide; 25 of them in Iceland, 11 in Spain, 7 in Ireland, and one each in Cyprus, Italy, Germany and the USA. Knowing that the 2008 financial crisis originated in the USA, this is astonishing. Not only were the guilty bankers not punished, but they were rewarded. Even the boards of directors of bankrupt banks such as Lehman Brothers and Bear Stearns, or the collapsed insurer AIG, received generous bonuses amounting to hundreds of millions.
Now on Amazon
and in book stores!
The Last Driver’s License Holder Has Already Been Born
The combined effect of autonomous driving, electric vehicles, and the sharing economy is on the verge of changing the auto industry―all within the next decade. And this tech/economics revolution will touch virtually every industry.
This book provides the information and insight you need to position your company for these groundbreaking changes. It reveals the disruptive technologies now taking shape and provides a timeline of when they will take hold. It examines the impact on the industry itself, as well as adjacent sectors, including jobs and professions, city and street design, hospitals, insurances, politics, security, hospitality industry, the oil industry, real estate, and society at large.
At that time, the banks dependent on state aid accepted the trillions in bailout money with open arms, and used it for purposes other than those intended by the state. They were not used to maintain liquidity for loans, but were hoarded and used to buy up weaker competitors. Many of those who caused the crisis emerged stronger from the crisis, while ordinary workers were left unemployed and small businesses went bankrupt.
At first glance, the corona crisis shows a somewhat different picture, but on closer inspection very similar behavior and causes come to light. Sure, a pandemic is not caused by companies, but how it spreads, how resilient companies are, and how much they don’t care about the market economy when they are doing badly themselves, very well does.
A few weeks ago, the CEO of United Airlines rumbled that the aviation industry in general and his company in particular should be helped. He forgot to mention that United Airlines had used 96 percent of its free cash flow – as much as $12.5 billion – over the past ten years to buy back its own shares. Of course, this money, which had not been used to improve the company’s own services, but to drive up the share price and thus the bonuses of the board of directors, was now missing as reserves in a crisis.
Anyone who thinks that only board members in the USA are affected by this should take a look at Lufthansa. Here, too, Lufthansa-CEO Carsten Spohr is calling for state aid, while at the same time issuing a warning, that the state should absolutely not expect to get a board seat for the mere 9 billion euros and the 25 percent share or impose other conditions. Hand over the money quickly, but please refrain from state supervision or conditions that lead to more, let’s say, climate neutral travel. And besides that, everyone knows that the state is a bad market and business actor.
Conditions & Consequences
The neighbors in France and the Netherlands see things differently. There, state aid to Air France-KLM amounting to 7 billion euros was made conditional on eliminating domestic flights on routes that can be covered by the high speed train TGV in less than 2.5 hours.
We could fill this list with a long list of other companies that also see themselves as systemically relevant and should be banned from the state. The car industry immediately comes to mind, and – as no one would expect – please do not get the audacious idea of linking a scrapping or purchase premium to any environmental requirements. It is now important to secure jobs quickly. There are a number of effective ways of helping both businesses and the climate.
The situation becomes alarming when the same companies want to take advantage of state aid and demand tax money, but do everything they can to avoid paying their own taxes. In a comparison, German daily Süddeutsche Zeitung lists which domestic companies have subsidiaries in tax havens and can thus optimize tax payments. Denmark has already shown that it can also be done differently. There, companies may take advantage of the aid package if they are not based in a tax haven.
We can already see that something needs to be done here. It is not acceptable that the great capitalist market economy has to be knocked out every 10 to 15 years by the states with billions. While the companies survive and the boards of directors even receive bonuses and the shareholders receive dividends, millions of workers are driven into ruin.
Prison for Bailouts
This has a lot to do with the fact that we do not sufficiently hold company directors and investors to account. There must be stricter rules on financial reserves and the protection of employees. The participation of employees in the success of the company also needs to be discussed anew. This is an area where governments and trade unions have failed in recent years because the gap between productivity and wage increases has widened. At the same time, the situation of many dependent employees has become more precarious. The gig economy is allowing these workers to fall through the social net.
Andrew Yang, entrepreneur, investor and former candidate for the US presidential elections in 2020, even proposes radical measures to ensure corporate social responsibility and improve corporate governance. For every 100 million increment in fines or bailouts, the CEO and the largest investor should be put in jail for a month. For example, in the diesel scandal, when Volkswagen or Daimler are sentenced to pay billions in fines, the CEO and the head of the largest investor should each breathe sifted air for one month for every 100 million in fines. At 29 billion dollars, which Volkswagen alone had to pay, this would have meant life imprisonment for Winterkorn and a member of the Piëch family. And then we wouldn’t be talking about a scrappage subsidiary to promote car sales any more, but VW alone would have had 29 billion more to survive the crisis better.
Or consider Lufthansa or United Airlines and their demands for aid packages. For every billion that they now lack as crisis reserves because of share buybacks and that they demand from the state in an aid package, they and the largest investor should go to jail for a month. Munoz and Spohr, as well as the biggest investors, each breathe a month of sieved air, allowing them to think about which decisions they made for their own pockets and which for society.
What would change quickly would be a more long-term thinking and a great willingness from the economy to support a concept like the unconditional basic income. Currently, big companies can take any risk, privatize profits, but then nationalize losses. This must be stopped.
And if everyone were to receive an unconditional basic income, the effect would be to create an economic basis that would enable active economic activity even during a crisis. A basic level would then always be there, would make planning more predictable and the fluctuations in economic activity would be less volatile. And we could already afford it today. In Germany, 4 out of every 10 people receive their income from gainful employment, 3 as relatives, 2 receive a pension or annuity, and 1 receives unemployment benefit or social assistance. In other words, the majority of people in Germany live on some form of transfer payment. The majority! Conversely, it is a minority that lives from gainful employment and pays taxes.
Let us never waste a good crisis and let us now take the right measures. What are we actually waiting for?