Capitalism beyond Theory
We are rightly proud of the economic achievements capitalism has brought to the US, but capitalism is not a flawless mechanism.
Consider this situation. US airlines were under extreme financial pressure earlier in the decade. A number of factors are involved, but a fundamental problem is that older, more established airlines have to fund retirement funds at a level which forces their ticket prices to be uncompetitive. Just look at the large sloughing of United's pension liability over to the PGB (Pension Guarantee Board).
Older companies die and declare bankruptcy, repudiating their debts. Soon thereafter newly formed companies buy up the unencumbered remains. They start with a clean slate, charging less and perhaps providing the same service.
That's creative destruction. A large segment of business talking heads claim, that's the proper working of capitalism. Get rid of uncompetitive companies. But the victims aren't the companies, it's the retirees of the vanished company. They no longer have the pensions they were promised. Creative destruction in our economic system is done on the backs of the working men and women and especially on those who have retired.
Industrial and service companies (like GM, GE, BofA) face a same funding calculus. What does this mean, beyond the individual hardships it causes?
Capitalism, as we practice it in the US, has an inherent, unchecked tendency to favor the bankrupcy of existing companies.
The cost of their reformation as new enterprises is lost pensions of the existing employees and retirees. Removing that cost is the source of lower expenses in the new companies.
Workers, not management, are forced to finance what talking heads call 'creative destruction'.
In the government sector, now we are finding pension funding crippling. The unilateral cutting of already agreed-to retirement benefits breaks the social contract. Why should those in power think that the abused workers will continue to act as if the rest of the social contract is valid?