Parastatals Are Always Problematic

Parastatals are corporate entities either partly controlled by both the public and private sector, or wholly owned by the government. We see them most often in Third World countries, but the United States has seen these combination from time to time in its own history.

In the 1790s the Washington Administration established the Bank of the United States. It served as one of the rare examples of an effectively run parastatal because the government allowed its private partners substantial latitude in its operations (when antagonistic presidents were not trying to eliminate it, that is.) This occurred due to the fact that even Federalists, who supported an assertive federal government, believed in limited government relative to modern liberals.

Modern parastatals include Amtrak and the old West Virginia State ABC stores (in other words, the liquor store.) Neither one turned a profit. How can you not profit from a liquor store chain?!?! Government can find a way, obviously. Like parastatals in the Third World, corruption reared its ugly head with the state liquor store system. Government owned businesses are especially vulnerable to the job ambitions of younger relatives of powerful people. In Africa parastatals employ many hundreds or even thousands more than necessary because people get hired for the wrong reason and cannot be let go.

Britain nationalized many key industries after World War II, only to find that increased costs made it uncompetitive. When government runs business, business decisions become political. It is hard to cut costs in such an environment. As a result, the government run industries hemorrhaged money for decades while producing lower quality products.

Government, excuse me, General Motors now finds itself surviving via a deal with the devil. The White House now controls their operations and if history is any guide, the government will run the company into the ground while subsidizing it with cash from time to time. GM should have split itself into two or three companies with familiar brands that could better maneuver and compete in a fast changing market.

Meanwhile Ford sales are still rising and it has become the belle of the ball of the auto industry. It also has a stronger claim on GM's traditional markets due to its remaining a fully capitalist enterprise.

As soon as the GOP returns to the White House it must undo this Faustian bargain and liberate General Motors.