Bernie Marcus, one of the founders of Home Depot, is worried that the rule of law is being undermined when it comes to businesses:
Politicians in Washington are using the current economic crisis to cram through a series of policies that increase the power and size of government without regard to the sound checks and balances our Constitution’s Framers put in place. This deeply concerns me, because free enterprise and the certainty provided by the rule of law made America the most prosperous and generous nation in the world. Now this is in jeopardy. I cannot think of anything more detrimental to the future of free enterprise than turning bankruptcy proceedings on their head as has happened with Chrysler.
Banks and other financial institutions were willing to loan money over the years to a troubled company like Chrysler because their loans were secured by the auto company’s assets, and because these lenders would be first in line in the event of a bankruptcy. But in the Chrysler bankruptcy unsecured creditors were effectively put ahead of secured creditors.
The biggest beneficiaries are Chrysler’s union employees. Let’s not forget that the union — which demanded and won uncompetitive work rules, pay and benefits — is just as responsible for the company’s failure as are its shortsighted executives. Yet according to reports, a union trust fund will own 55% of the auto maker, as well as receive from the company a $4.9 billion promissory note and a boatload of cash after it emerges from bankruptcy.
What lender today would loan money to a company without the certainty of a secured position in the company’s assets? A company may seem healthy today, as Chrysler once did, but without the certainty of the rule of law in bankruptcy proceedings, capital for business will either dry up or be prohibitively expensive. . . .
There are also threats to the rule of law in the “Employee Free Choice Act” pending in Congress. If a company and its newly organized employees are unable to agree to contract terms, an arbitrator appointed by the federal government would set the work rules, pay, benefits and other terms for at least two years. Couple this with the Treasury Department effectively firing the CEO of General Motors and telling Chrysler how much it can spend on advertising and the situation does not look good for free enterprise.
I hadn’t realized that Chrysler workers will end up owning the company, at the expense of the capital investors. So the workers, rather than the capitalists, will own the means of production.
Marcus’s point is that businesses need consistent laws–such as contract laws, which he also thinks are under attack–in order to function effectively, and if the rules keep changing for political expediency, our prosperity will be threatened. Indeed, this was part of the problem in former Communist countries trying to transition into a free economy. Does Marcus have a point, or is this just capitalist self-pleading against the emerging proletarian paradise?