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New Bill Ends Government-Run Companies

New Bill Ends Government-Run Companies

By Sen. John Thune - June 12, 2009

The federal government currently holds various ownership stakes in over 500 private companies. This alarming fact, along with the events of recent days in the auto industry, should serve as a wakeup call for all those concerned about preserving the free market principles upon which our nation was founded. As we have been so rudely reminded, government ownership of private companies threatens the fairness of markets, creates coercive business conditions, and allows government bureaucrats to dictate business decisions.

Government ownership interests in private companies create an uneven playing field. Companies aided by the government are given an unfair competitive advantage that private companies do not enjoy. Because of this influence, government entities distort the competitive process and lead to inefficient market outcomes which favor the government-owned entity.

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Greater government involvement in private companies also fosters coercion and government manipulation. In the last six months, the federal government has fired CEOs of major corporations, intervened in advertising and production decisions, pressured businesses to make certain decisions and take certain public policy positions, and coordinated "pre-arranged" bankruptcy filings designed to reward the government's "friends." Instead of the private hand of the market guiding market activities, the cold hand of political power is shaping business decisions.

The federal government now finds itself in the strange position of owning 60 percent of General Motors, one of the nation's oldest and largest car companies, and eight percent of Chrysler. To reach this point, creditors who thought they held positions superior to other creditors were sent to the back of the line so that government-favored creditors could receive favorable treatment. Those who opposed the government-imposed solution and the outrageous division of assets were branded as trouble-making "speculators."

Now in control of several private institutions, the federal government will have the power to make management decisions. Instead of being guided by the discipline of the market, however, government owned companies are free to pursue the social goals of government bureaucrats, whether they be certain kinds of cars, loans to preferred demographics, or the latest demands of government-favored unions. Whether these experiments are unprofitable may not matter in the same way that it would for privately-owned companies. Unlike their privately owned counterparts, these government owned companies benefit from untold billions of U.S. taxpayer dollars, without any guarantee of repayment in the future.

This state of affairs sounds so strange because it is so new. The heightened degree of government control of our economy is a major deviation from our nation's free-market philosophy. From the beginning of our republic, the economic sector has largely been dominated by privately owned firms competing with one another without the government dictating how these firms should act. But with little warning, we have entered a brave new world in which a large number of private firms are now subject to government control, an economic model perhaps familiar in Europe or South America, but not the United States.

Neither the citizens of this republic nor their elected representatives in Washington voted for this degree of government control over private businesses. Instead, what was supposed to be a short-term program to relieve financial institutions of toxic assets morphed into an uncontrolled and unauthorized bureaucracy extending its tentacles into hundreds of private businesses. With no explicit vote of Congressional approval, the federal government is now in the business of running banks, insurance companies, and car manufacturers.

To stop this dangerous course of action, I have introduced the Government Ownership Exit Plan Act. This legislation would put an immediate end to government purchases of additional direct ownership interests of private companies. It would also prohibit government officials from making or influencing business decisions when it comes to the companies in which the government already has an ownership interest.

It is equally important to set an exit strategy for this unprecedented government intrusion. The Government Ownership Exit Plan sets a hard deadline for the final termination of government ownership interests in private companies and puts our economy back on the path to competitiveness and private ownership, not governmental control. The legislation would require the Treasury to sell any ownership stake in a private entity by July 1, 2010. Revenue from the sale of these assets would be used for debt reduction.

If we do not act now, government ownership of these private entities could persist for decades. If we want to once again promote free market principles and the private ownership of business, it is time to act.

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Thune is a Republican Senator from South Dakota.

Sen. John Thune

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