Govt Cash Injections Reanimate Zombie Capitalism

Another corporate failure. Another taxpayer bailout: This time it's the insurer AMI with Finance Minister Bill English agreeing the government will provide a backstop of up to $500 million initially (with more later if needed) to ensure the insurer will be able to meet all its Canterbury earthquake claims.

AMI is a "mutual" company owned by its policyholders rather than shareholders so this time the taxpayer rescue doesn't have the usual stench of an open sewer - more like the odour from a badly maintained oxidation pond.

Nonetheless taxpayers are again bailing out market failure. It feels like a scene from a bad zombie movie where our financial sector is a train wreck with the corpses of failed companies littering the landscape. Along comes the government with a massive cash injection to reanimate the undead. Just the largest corpses however. Small companies go to the grave.

The government justification for the bailout says tens of thousands of Canterbury policy holders - one third of the city's businesses and residences - depend on insurance payouts from AMI and the company will not have enough cash and reserves to meet all the claims. Fair enough but why was this company allowed to take on so many policyholders without the capital to pay for claims on a significant scale? And wouldn't we all be better off if the government continued to own the likes of State Insurance and Government Life Insurance? Instead we have essential services such as these provided by dog-eat-dog capitalists who take the profits when the going is good and leave the government to pick up the mess when they fail. If taxpayers are to cover the risks then we should own these businesses, make sure they are managed well in the first place and take the financial rewards for the community along the way. It's what we used to do far better than the private sector.

However the prevailing political view is that capitalism hasn't failed - we just hit a bad patch where things got a bit out of hand - a combination of excess greed in the finance sector and a few criminal businessmen - a la Bernie Madoff with his ponzi scheme and Mark Hotchin with his addiction to other peoples' money - and once these cowboys are sorted it will all be sweet. The answer we are told is just a bit more government regulation.

It's true that regulation, progressive taxation and strong social policies from the 1930s to the 1980s kept the most destructive tendencies of capitalism under some restraint. Regulation alone as the government proposes will make some difference but it's a bandaid solution. Progressive taxation, public ownership of essential services and community assets along with strong social policies are just as important. Regulating the finance sector will provide a bit more certainty for the middle class with extra cash to invest but the majority will continue to drift further into poverty.

The important lesson from AMI and the other collapses are that this is not unusual. Capitalism has always required the likes of taxpayer bailouts, state laws to keep a tight reign on workers' rights and government support to expand markets (sometimes through war) as a necessary part of its existence.

Forget welfare bludgers. Providing corporate welfare has been the function of government and has been there from the earliest days of the Industrial Revolution which gave birth to modern capitalism.

Our reaction to AMI should be more than a feeling of déjà vu. We are experiencing again the simple truth that governments are the life support system for corporate capitalism.

Instead of wailing about another bailout we need a discussion about a kiwi-style socialism.

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