Nationalization--A Bugaboo Word

Apparently the word “nationalization” when applied to our collapsing banks has investors scared stiff. So say several commentators who attribute the falling stock market of the last few days to their fear of that specific word. “Nationalization”. Of the banking industry.
Do they have anything to be afraid of? Possibly so. Nationalization as a policy in Laborite Britain after the war didn’t do anything much good for Britain’s economy. Wartime rationing remained in effect all through the 1950s, and everything stagnated until Thatcher vigorously denationalized everything in sight during the 80s.
Now, we have to remember that no one in the United States is talking about permanently taking over the banks—but there certainly will be a significant degree of control as the government bails out the industry by taking huge equity positions in many of the largest banks.
For a time, those banks likely will be under the control of the Washington bureaucracy—in other words, they will be effectively “nationalized” until they can buy themselves back. There is one major problem with the governmental bureaucracies that no one is talking about.
I think you almost have to have worked in the rank and file bureaucracy to have actually seen or experienced it. Government has particularly cruel ways of punishing its midlevel and upper level employees when they become too zealous in carrying out this year’s Congressional or Presidential whim.
Remember, those people have usually been in government employ for more than fifteen years. That’s significant because after that time you are trapped in the pension system. Before fifteen years, if you leave government employ you can take your pension money with you.
After fifteen years you cannot. If you go, the money stays and all you get for a pension is an amount based on your seventeen or twenty years of service. That’s not a lot. (There is no social security for federal employees.) So you really can’t leave after fifteen years in.
They’ve got you, and they know it. What happens to a bureaucrat who gets excited about this year’s Congressional mandate and really works to carry it out? (I’ve seen this four or five times.) In two years, there’s an election and a new Congress.
Congress swings with the perceived mood of the electorate. So does the President. Last year’s program—be it civil rights or bank reform—is no longer popular. The President about faces. Congress does a one eighty. The GS 14 or 15 (high to top level) bureaucrat is left twisting in the wind.
They can’t fire him. They put him at a desk out with the secretaries. He is given no phone, no work; he attends no meetings. Almost no one talks to him. He must sit there day after day with absolutely nothing to do. Since the people prone to zeal tend to be Type A personalities this is an almost lethal penalty.
His mistake? He got excited and active in carrying out yesterday’s law of the land. So how does a wise bureaucrat handle a fancy new program? He pays a lot of lip service. “Yes sir, yes sir, we can handle that. Yes sir.” He takes as little action as possible, being very careful to be certain that someone senior, preferably elected, has signed off on it. You won’t find his fingerprints on it.
He works with absolutely no zeal or enthusiasm. (These tend incidentally to be very bright people—my experience indicates that, man for man, high level bureaucrats tend to be smarter than high level executives.) He is cautious about dangerous innovation and he certainly takes nothing Congress or the President says seriously. He’s looking down the road a couple of years.
The banking business that bureaucrats are asked to handle will correctly be perceived as a very hot third rail and they will touch it gingerly and do as little to endanger themselves as possible.
That leaves you with a valid question. Do you want men and women under that sort of constraint to be working to rescue our banking system? The wise ones—the ones you really wish were handling things—will tend to step back and let the fools rush in.
Let those foolish enough to get really involved and excited spend several years sitting at a bare desk somewhere down the road. The thought of this attitude (however sensible from the bureaucrat’s point of view) might make the average stock holder just a bit nervous.
But just remember, if bankers and investors feel they have something to fear from the bureaucracy, the bureaucrat has even more to fear from doing a good job.