The history of capitalism is replete with stories of bankruptcies, stock market collapses and business failures on a gigantic scale. Small businesses regularly shut shop and big companies flame out in spectacular style.

The 1990’s saw the rise of everything technology, the world witnessed what came to be called the Internet bubble. Money poured into technology and Internet stocks as if nothing else mattered.

Nasdaq, where most of America’s tech stocks are traded, rose to dizzy heights. In February 2000 the Nasdaq index touched 5,000, having doubled in the previous year.

Soon thereafter sense returned to the market. The bubble burst. People realised that profits in tech stocks depended on the greater fool theory; no matter how high a price you paid for buying Yahoo’s shares you could always offload it a few months later to someone else who was willing to pay an even higher price. This state of affairs could not continue indefinitely.

By October 2002 Nasdaq had dropped almost 80 per cent to 1,100. Four years later it still trades at under 2,400. Investors lost not only their own shirts but also of their relatives and friends from whom they had borrowed for a sure shot thing.

I remember when I was in San Francisco and my brother was given a hot tip to buy shares of LSI logic. The reply to a question about what the company did was, ‘Why do you want to know. Are you going to run it?’

In May 1997, when Jeff Bezos the founder of Amazon.com first took his company public, he priced each share very aggressively at $18. By January 1999, the same share had risen to $480. This, at a time, when Amazon was loosing large amounts of cash.

The same story was repeated with Yahoo and hundreds of other companies. Most of these companies have since ceased to exist. Amazon and Yahoo shares bottomed out by loosing 90 per cent of their value but are now in a revival mode.

For every company which survived there are perhaps 10 which went under. And this is not the first time that investors goofed up and made such stupid bets.

When cars first came on the scene, in the beginning of the last century, the story was much the same. Investors in America could not stop throwing money at car manufacturers. There were, in days of the ‘car bubble’, over a thousand companies involved in making cars. Only three Ford, General Motors, and Chrysler (taken over by Daimler and now DaimlerChrysler) exist today.

If such spectacular mistakes and misallocation of resources is made by private entrepreneurs under capitalism, isn’t the government entitled to make a few mistakes?

Why do I criticise the government, so much?

The difference is that when private companies make mistakes, and they do it all the time, it is businessmen, investors, creditors, and employees who voluntarily take the risk and hence bear the loss. When Enron, the giant US electricity company, collapsed it was not the taxpayers which footed the bill, it was its shareholders, lenders, and workers. Internet companies went under when the investors finally woke up and said, ‘show us a positive cash flow or at least the prospect of one, otherwise sorry, no more funding.’

Contrast this with government mistakes. They are mammoth. But there is no mechanism to end failed experiments. The ministers and bureaucrats do not live under the discipline of the market. Losses mean that taxpayers have to foot the bill.

RNAC’s losses (incurred despite its monopoly privileges on several routes) have not resulted in its bankruptcy. The airline continues to survive on government doles. And if the taxpayers can’t be squeezed any further, the government has another way out; just print more notes. If it causes inflation, so what. Politicians can always pass the blame onto greedy capitalists.

This is why we must let mistakes be made by individuals and companies who will bear the consequences, but limit the ability of government to make mistakes, because, then we will bear the consequences. Have you ever heard of restitution by politicians or government employees for the losses they cause to the nation?

(The writer can be contacted at: everest@mos.com.np)