What would happen to industries left to the free market?

In My Humble Opinion
1

I’m talking about industries that are run by private corporations, but are in some way subsidized by the government. What would happen if the government were to stop funding or supporting these industries tomorrow, and they were left to the free market

Colleges?
Oil companies?
Energy companies?
Road construction?
Corn farmers?
Banking? (Talking about FDIC insurance)
I just read the biography of Andrew Carnegie, and was somewhat surprised to learn almost all railroads were built by private companies, seems to have turned out fine.

How would these other industries fair? What about other industries I may have left out.

2

Are they still going to be regulated by government?

3

Lets say no.

Just the normal taxes and audits that go along with being a company.

4

Moderator Action

While some of this can be answered factually (you can cite what happened to banks before FDIC insurance, for example), a lot of this is going to require speculation and opinion. I think the thread will do a lot better in IMHO.

Moving thread from General Questions to In My Humble Opinion.

5

I think banking is fairly easy to answer. Without government regulations, you’d have the same problems that you had before those regulation were put in place. Without the FDIC, the banking industry is vulnerable to “bank runs”. What happens is that everyone knows the banks only have a certain amount of cash on hand. The rest of the customer’s assets are tied up in investments and such. As long as the FDIC is in place, customers know that they don’t have to worry about losing their money due to bad investments or whatever. Without the FDIC, there’s no guarantee of this, so as soon as the economy starts getting twerky, smart folks will quickly pull their money out of the bank before it fails. Those who hesitate see the others pulling their money out and also pull their money out, but for many of them, it’s too late. The bank’s liquid assets are already gone, and the bank fails, and most of the customers lose all of their money.

Also, not related to the FDIC, the government also sets the prime lending rate. Without government control over this, interest rates are free to fluctuate wildly, and can potentially wreak massive havoc on the economy during troubling economic times. Oh, you saved up half a million dollars for retirement? Sorry, but we had a few runs of massive inflation and that will only buy you a week’s worth of groceries now.

Colleges might become too expensive for many folks, but that’s kinda happening now anyway.

Oil companies are going to find themselves competing with large foreign oil companies that do have government subsidies, which is going to make life very difficult for them. Also, without the government using stockpiles to ease temporary shortages and price spikes, the price of oil could change much more quickly and dramatically than it does now.

Many corn farmers would go out of business and you’d have a massive economic disaster area through much of the midwest.

Energy companies would be free to ream their customers out the wazoo in areas where they effectively have monopolies.

As for road construction, I live in Pennsylvania, so as far as I’m concerned, the roads couldn’t possibly get any worse. :stuck_out_tongue:

6

Note that, for example, the companies that built the first transcontinental railroad issued government-backed bonds and were given large amounts of land along the train route. So things were not entirely left to the free market.

7

A lot of so called “subsidies” aren’t direct cash payments to big business, but are instead things like preferable legal status, tax benefits, favorable access to natural resources and so on. Because of this, it’s not clear what you mean by “left to the free market”, because there’s not necessarily any baseline to roll things back to. Nonetheless, I’ll give it a shot.

Life would, more or less, go on as usual. College would get a lot more expensive for most people since government subsidies would be gone, but it still exist as it previously did.

Oil companies deal largely with land leased from the government–assuming this doesn’t change, they would probably become less profitable as they lose favorable tax treatment, and more profitable as they become free from regulatory burden. My guess is that prices wouldn’t change drastically, especially since major oil corporations are multinational and thus would be largely unaffected by this change.

Energy companies would become drastically more profitable as they raise their rates significantly to take advantage of their monopoly status. People would almost certainly pay substantially hire electricity rates.

Road construction and maintenance would fall off entirely because roads are built by private contractors paid by the government. A handful of private highways exist, and more could be built. However, it’s unclear how a privately owned network of roads could be maintained.

Corn farmers would become less profitable with the loss of government subsidies, and especially due to the end of the ethanol mandate. This would be tempered by a reduction in regulatory costs, but I would guess corn farming would become a whole lot less profitable.

FDIC insurance is a negligible part of the government’s involvement in the banking system. Far more significant, if we are moving to an entirely free market, is the end of the Federal Reserve and the end of the extensive regulatory regime that heavily manages the banking sector. The extent of government regulation really is enormous–you’ve got the SEC, prohibitions on insider trading, required reserve rations, and much more. You could reasonably expect more bank failures, many more banking runs, and shorter, more extreme, and more frequent economic cycles. Libertarians have some idea about how a privately owned “clearinghouse” could replace the role of a central bank, but that’s fairly speculative and would take time to be implemented if at all.

8

Roads would get built faster and schools would get better teachers.

Oil companies would dump waste into the sea and poison our precious arable water, and banks would create phony financial instruments that would inevitably lead to economic catastrophe.

So all in all, we do what we need to, typically within reason. Both sides want to claim absolute moral superiority, citing what I mentioned above.

9

In the long run colleges would be different, and probably cheaper. They wouldn’t be building the lavish dormitory and classroom facilities that they do now. (At my school in New York State, the dorms were financed by tax-exempt bonds issued by the state dormitory authority.) Without government grants, they wouldn’t spend as much time and real estate on research, so professors would spend more time actually teaching students. Without tax deductions, endowments wouldn’t have grown as much as they have.

10

FDIC and roads I’m of mixed opinion on but I think we would benefit from the government getting out of the others. Especially colleges.

But you didn’t mention the biggest elephant in the room; hospitals and health care. That one may be best served in GD.

11

The one word answer is “monopolies.” That’s the tendency of any business vector in a capitalist economy - that is to say, the tendency of any business. The shining ideal of “fair trade” becomes absolutely Darwinian; strongest rules until only strongest is left.

The robber-baron era tells us all we need to know. It occurred in what is recognizably modern times, in the same USA we now live in, and with the theory that industries could regulate themselves to the benefit of all. I know of no examples that can be held up as “successful” examples of the ideal. All had to be broken and crushed… for the benefit of all but a tiny few.

12

I don’t think the government is the problem where universities are concerned, rather the combination of “everyone should go to college” combined with “requirements inflation” (employers requiring a degree for jobs that really don’t justify one.)

13

Are air and water wouldn’t be cleaner than it is now, that’s for damn sure.

14

Which is paralleled with the situation of paying first-rank costs for second-rank (charitably speaking) schools.

So instead of going to a top-tier school on merit and paying a relatively modest amount to do so because of grants, scholarships and financial support from their trust funds, and coming out with a degree that truly has high respect… some teeming of millions go to middling midwestern schools on their own nickel, and pay a fortune because they don’t qualify for meaningful trust monies, and because they’re carrying the financial burden of a school straining to be just like that New England one. So they end up paying 2-3 times as much for a degree that barely gets a sniff and a check-ed off box from an employer.

15

I don’t know what would happen with health care. I would hope in a truly free market (with transparent pricing and genuine competition, which doesn’t exist in our system) then there would be a drop in prices. I’ve heard there is a medical establishment built (or being built) in the Caribbean that does open heart surgery for $2000. Stuff like that would be great.

Then again, it would probably just be a drop in consumer protections as the more likely outcome.

16

As long as the only acceptable model is “maximum, and I mean MAXIMUM care” for every individual, then it’s going to be a hopeless spiral.

If you decide to put humans in orbit, and make it a foundational choice that only zero fatalities are acceptable, you get… NASA.

If you decide that mankind has a future in space that holds promise for mankind’s future, you accept that dangerous endeavors will kill a few participants… and you get the phenomenal advances in aerospace technology from 1940-1960 or so.

If medicine is bound to expend every last option for every single patient, regardless of the odds or benefit…

17

Just so. I have owned two houses in my life, one in IL and the other in Canada and both deedss went back to land given by the goverments to the railroads as an incentive to build them (Illinois Central and Canadian Northern, respectively). This is just right-wing propaganda that early industry was never subsidized.

Any unregulated “free market” will tend to monopoly. Adam Smith knew this, most economists know this (and the rest have their heads in the sand). Banks–oh yes they will drive the economy into the ground as they have recently demonstrated. Universities? A few would survive based on their endowments. Someone in a position to know told me once that Princeton could abolish tuition and do just fine. (Why don’t they? The same source told me that they wanted a base of wealthy alumni to maintain their endowment.) Most of the rest would just fold their tents.

18

The OP really needs to bone up on American History before commenting on something like the private RRs doing well.

One specific example of how much the US government subsidized the RRs is the O&C Lands for building a RR from CA to OR. Of course, the RR soon went into the land fraud business requiring the feds to take most of it back. This was very common.

Yet, despite the government subsidies and fraud, the RRs went thru many cycles of boom and bust. During the boom, stocks were sold at inflated values, unnecessary lines were built, etc., then the trusts pulled out and ordinary investors lost everything. The Union Pacific (one of the companies that built the transcontinental RR) went bankrupt in the 1870s due to a fraud scheme.

And it’s still going on. A major collapse led up to the creation of CONRAIL in 1976 with lesser ones after that.

Note that some businesses were deregulated in the 1970s and 1980s and we can see the effect of that today.

E.g., airlines were deregulated by Carter (he also deregulated steel). Very few years do the airlines make money. PanAm, Eastern, etc. are all gone and most of the rest have been in bankruptcy at least once.

Reagan really jumped on the bank deregulation trend started by Carter. Between the Great Depression and Reagan 2 S&Ls failed. By the late 80s hundreds were failing. Fully 1/3 of them went south. Then we had the little “episode” in 2008 that came close to collapsing the economy completely. Some new regs were created then but they are in the process of being revoked.

19

Not necessarily. Consider software. Some may barely remember it, but 15 years ago the government was attempting to break up Microsoft Corporation because Microsoft supposedly had an unstoppable monopoly on the market for operating systems. But the government lost, and Microsoft was allowed to carry on.

Today we barely even hear about Microsoft. Other companies like Apple and Google clobbered Microsoft, not by antitrust cases, but rather by creating better products. That’s what happens in a free market.

20

And furthermore, those railroad companies were beaucoup corrupt – Just like a lot of big-money businesses now, to the extent that they can get away with it. And in those days, they could get away with a lot. They devised bogus ways of screwing their investors, their customers, Congress, and taxpayers.

Suggested reading, if you can find it in a library or on-line somewhere: Iron Wheels and Broken Men: The Railroad Barons and the Plunder of the West by Richard O’Connor, 1973.