by Gene Denardo

Created on: May 13, 2009   Last Updated: May 23, 2009

Corporatism is a form of government that traditionally has been closely allied with Fascism. Companies are allowed to exist and control markets under the guidance and approval of the State. They are allowed to profit as long as their operations fall in line with the Ideology of the existing power structure. Examples are Nazi Germany and Mussolini's Italy.

Corporate Socialism is a system in which Corporations are "chartered" by the State and aided in their enterprises by tax preferences, subsidies and overall beneficial actions of the State. The Government, while not always fundamentally Socialist, utilizes the corporate structure to satisfy the needs of its people. The Socialist agenda is realized through the workings of the Corporation. The government struggles to ask more in terms of the needs of the people and the Corporations lobby for greater profits and more self determination.

When government intervenes to "bailout" corporations that are approaching or surpassing insolvency, the workings of the market are being dismissed. The market will naturally eliminate less efficient companies and more efficient ones will move in to take their place. This competitive nature of the marketplace assures that the production and distribution of goods in the economy are determined by those who purchase those goods, the consumer. Subsidizing or rescuing corporations that have made enough bad business decisions to jeopardize their credibility in the marketplace, removes this power of choice from the consumer and bestows it on the corporations and the government.

"Moral Hazard" is the term used to describe the effects of repeated bailouts. With the possibility of a government rescue in the back of their minds, firms lose the fear of risk. Instead, they take a cavalier approach which allows them to experience greater return. Other firms must compete in the same climate, and the attitude spreads, creating a higher rate of failures and subsequent bailouts.

Other corporations feel that they should also be compensated. The argument does have some bearing and soon they are also receiving a subsidy or favorable tax treatment. There is no end to this slide into one of the two categories of Socialism mention above. In economics as in most things, precedents are extremely influential in later action.

There is never a valid reason for government intervention to rescue corporations. The "too big to fail" argument, is simply an admittance that government actions and intervention

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