Hooray for Kodak’s Failure

by Mike Wendy on January 6, 2012

You may know that Kodak announced this week that it was likely to file for bankruptcy, ending a spectacular, world-changing 131-year run.  Once a leading brand in American life, it now sits depleted – a victim of some bad business choices that neutered its ability to deal with technological disruption.

For me, this takes on all the more importance in light of the recent FCC-DoJ tag-team of AT&T, which ultimately derailed the company’s proposed $39 billion merger with T-Mobile.

We should be wary of these police actions, based on speculation, framed by last-century notions of markets and the supposed harms that can be imposed on consumers by large, successful companies. No doubt, laws protecting against real, not speculative, consumer harm are important – that is, to the extent they are not employed to shape markets to some Ivy League-defined, centrally planned utopia. As to the latter, such actions not only harm consumers by short-circuiting market dynamics, they are ripe for political abuse and crony-capitalism, which favor the well-connected competitor over the average consumer and citizen.

Thankfully, companies go out of business when they fail to serve consumers.  Kodak is Example A.  There is no static caste system for corporations – only 1/3rd of the companies on the Dow Industrial Average in 1982 are on it today; of the original Fortune 500 companies published in 1955, only 67 remain.

Sadly, however, we have a bureaucrat caste that has only become more entrenched and engorged, being isolated from the laws of competition, risk and markets.  We should worry about this instead of the vapor-ware harms these bureaucrats frighten us with on a daily basis.  Such speculation – policed through mandate or regulation – is more apt to harm the public interest than protect it.

Investors Business Daily has a good opinion piece on the Kodak failure, entitled  “A Perfect Kodak Moment Of Creative Destruction.”  It notes:

Kodak is hardly the first to suffer the consequences of Schumpeter’s “perennial gale of creative destruction.”

Edison’s light bulb and the electric industry it spawned, for example, quickly and completely wiped out what had been a vast and lucrative gas lamp industry.

IBM, once feared for its tremendous market power, is now a shadow of its former self.

Just a few years ago, industry analysts convinced themselves that Microsoft had to be broken up if competition in the software industry was ever to have a chance. Today, that company struggles to compete as the market heads increasingly away from a PC-centric world.

And RIM dominated the smartphone market until Apple and Google reshaped it.”

This “destruction” or churn is a hallmark of healthy economies – one that ultimately benefits consumers with better products and services.  But, as the piece states, not all (in Washington) harbor this view.  Many on the Left instead see markets as…

…dark, powerful, impenetrable forces arrayed against hapless consumers who, in turn, require the protection of benevolent government bureaucrats.”

The piece argues against this, concluding:

…the only thing that gets in the way of this creative destruction is big government, whose meddling more often than not works to distort markets, limit competition, protect corporate giants and sacrifice everyone’s well-being.”

Contrasted with those grainy, black-and-white images one might pull out of old shoe boxes from a parent’s closet, Kodak shows that markets are far more vibrant, dynamic and colorful than any old snapshot can convey.

Yes, a picture is worth a thousand words.  But markets are far better at saying and framing them than bureaucrats.

txpatriot January 10, 2012 at 6:50 pm

I wonder if Kodak retirees are cheering too?

Mike Wendy January 10, 2012 at 7:20 pm

Probably not, but that pain and hardship isn’t really the point of this piece. No one cheers lost jobs; the important point here is that the dynamic (painful as it is sometimes) is (still) alive (not being mandated out of existence, thankfully), and will more than likely result in not only better goods and services for consumers, but also in new risk-taking for old and new industries, which should also result in new jobs.

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