It’s time to officially acknowledge we have two economies in America. The first economy is Capitalism and is practiced by small, medium and some large companies. The second economy is socialism which is practiced by some large and all very large companies. There are several ways to tell which economy a company is in.

The first factor is “Is a company to big to fail?” In capitalism, no company is too big to fail. You make bad decisions/investments you suffer. If you make really bad decisions, you go bankrupt. Socialism is when the marketplace says a company should fail or go bankrupt but the government steps in and says it knows better than the marketplace.

A second factor is “Does the government care if you merge”? If two local dry cleaning business’s want to merge, the city doesn’t even care, let alone the state or federal government. That’s capitalism. However if the marketplace, CitiBank, and Bank of America decide it would be best for Citi and BoA to merge, the government steps in and says “Wait. You need my permission”. Again, this is the government saying it knows best, which is socialism.

A third factor is compensation. One of capitalism’s theory is pay-for-performance. If your stock is going down, you’re losing market share, and have declining revenue, but the company continues to provide the same pay to top executives no matter what, the company is not following capitalist theory. Or if the company pays the CEO a golden parachute after forcing them out for driving the company into the ground, they are not following capitalist theory. In either case, it can’t be a capitalistic company.

A company can move between these economies. Companies start as capitalist companies. I have yet to see a start-up with money to throw around, or be too big to fail. Some reach the level where compensation and merger issues define you as being in the socialist economy. Companies at this level can shrink to the point where they are once again in the capitalist economy.

A few companies reach the point of being too big to fail. If a company this size falters, the government has few options. It can broker a merger (Merrill Lynch), it can throw money at the problem (AIG and others), it can regulate it like a public utility (the former Ma Bell), it can break it into smaller pieces (again, the former Ma Bell), or it could completely and permanently nationalize it (haven’t seen that yet).

Different economies require different rules. Right now we pretend we have one capitalist economy and try to make a common set of rules with some exceptions for the companies that are really in the socialist economy. Once we admit the socialist economy exists, we can set up appropriate rules for each economy.

Recent events have shown that the companies in the socialist economy can cause extreme damage to our country. Lots of capitalist companies go out of business every year without causing a problem. But a single too-large-to-fail company can cause enormous damage. Even Toyota was saying it was too dangerous to let GM go bankrupt because of the damage it would do to this Japanese company. How many capitalist companies would have to fail to cause the same amount of damage the few socialist companies did? And they didn’t even fail (They are still around aren’t they?).

This has literally become a National Security issue. Not admitting there is this socialist economy and applying appropriate rules to it, got us into this trouble. I know the basics of economics. I know when the government is looking at a company as a capitalist company or a socialist company. But I am not qualified to suggest how to run two different economies in one country. I only know we need to.

Russ A Johnson

Ps. This is the problem Tesha and others run into. They make suggestions for rules that would apply to the socialist companies. People who subscribe to the notion of one capitalist economy quickly label them anti-capitalist and pro something-no-true-blooded-American would ever support. This will always be the case until we officially acknowledge that we have two types of economies.