“Will United States be forced to nationalize banks?” reads a recent Reuters headline. As fears about the well-being of the banking industry continue to mount, some analysts are predicting that the government may have to assume managerial control of some of the country’s major financial institutions.
For insight about what the late John Templeton might have said about such a scenario, we turn to his niece, Lauren Templeton, principal of Lauren Templeton Capital Management.
Uncle John believes that ultimately you must leave people to their own devices and allow them to pursue their economic goals in an unfettered manner. This notion of leaving markets alone was popularized by Adam Smith as laissez-faire, or hands-off. The underlying belief is that an “invisible hand” will guide the overall results to positive ground as capitalists allocate resources to the best opportunities and avoid the worst. In contrast to the invisible hand is what we could call a forcible hand utilized by government.
One of the most regrettable economic actions employed by a forcible hand is transferring ownership away from individuals and into the hands of public entities controlled by the government. The action is antithetical to a system of free enterprise. Moreover, the lack of competition that results from nationalizing an industry usually creates an environment where lethargy and complacency dominate the mindset, and this in turn leads to mediocre performance. As soon as ownership is transferred, the remaining operators lose their sense of having a stake in the assets or the activity of the assets. They sense that the conventional risk of failure ended in bankruptcy is low, and this mentality can set an enterprise back years or even decades compared with free enterprise-based competition, in which companies must improve constantly or be forced out of the market. Therefore, nationalizing assets not only represents a poor investment but also goes against a deep philosophical belief that Uncle John held. That belief is that free enterprise and the competition that results from it lead to progress. Progress is a very good and necessary thing for businesses. Progress is also a very good and necessary thing in all walks of life, whether technology, science, or any other discipline. When competition is stifled, progress is too.
Excerpted from Investing the Templeton Way