Page 146 - (DK) The Business Book

144 WHO BEARS THE RISK?

Italian food giant Parmalat’s 2004
$1.6-billion accounting cover-up was
primarily due to fraud. The effects were
sharply felt by shareholders and the
many employees who lost their jobs.

term “too big to fail” illustrates that
business risks have been transferred
to the taxpayer. Faced with the
bankruptcy of General Motors and
Chrysler in 2009, the US government
—in other words, US taxpayers—
took on billions of dollars’ of debt to
give the companies a fresh start.
In the UK and Europe, bank
bailouts in 2008 and 2009 saved
the private sector from huge losses.
In Europe, what was put forward as
a Eurozone government problem
In the UK, a similar fate awaited should, on this basis, lead to the was in fact a private-sector problem,
figures such as Fred Goodwin (CEO death of the business. Austrian- as banks faced nonrepayment of
of Royal Bank of Scotland when it American economist Joseph loans to businesses within Greece,
collapsed in 2008) and James Crosby Schumpeter, in his classic 1942 Portugal, or Italy. The bailouts
(CEO of Halifax Bank of Scotland book Capitalism, Socialism, and were arranged and financed by
until 2006). Both were blamed for Democracy, made the famous governments, meaning that
the dramatic collapses of their statement: “The process of Creative taxpayers turned out to be the risk
banks in 2008, and for their part in Destruction is the essential fact takers, even though nobody asked
the subsequent economic turmoil. about capitalism.” Schumpeter, like their opinion. American economist
Is it fair that a company’s many others, viewed recessions as Nouriel Roubini summed this up
bosses should have to take the a cleansing mechanism, allowing by saying: “This is again a case
blame for failure so personally? the weak to fall back and new, of privatizing the gains and
After all, it is inconceivable that the stronger companies to emerge. socializing the losses; a bailout
CEO is the only one to blame for the Yet modern governments seem and socialism for the rich, the
failure of a business. Objectively, to see things differently, certainly well-connected, and Wall Street.”
the answer is clear, because in relation to large businesses. The This issue has stretched far
business failure is certainly the wider than the US and Europe,
responsibility of more than just the influencing the economic situation
CEO. Yet high-profile executives in both Japan and China in recent
often strive to associate themselves decades. From the start of its
so closely with the company— 20-year depression in 1990, land
making it seem as though they prices in Japan fell by more than 80
personally are the business—and Risk comes from percent, and today remain far below
are so eager to back this up with not knowing what the levels reached in 1988 before the
massive remuneration packages, you are doing. recession began. In effect, almost
that it can be no surprise when the Warren Buffett every bank in Japan was insolvent
public and the media turn on them. US investor (1930–) as a result of vast portfolios of
nonperforming loans—loans that
Taxpayers to the rescue were made to companies that could
In mature, developed economies, neither repay the debt, nor pay the
businesses are supposed to take interest on that debt. Only the
risks in pursuit of reward. Failure support of the Japanese central