I would guess that, prior to the recent World Economic Meltdown (WEM), most of us never gave much thought to which industries were “too big to fail”. Who knew we couldn’t live without AIG or Bank of America? Insurance companies and banks come and go, right? It turns out that this rule only applies to the smaller banks and insurance companies. It seems that the big banks and insurance companies, taken collectively – even individually as with AIG – are indispensable and critical to the very existence of the United States. Therefore, the U.S. government had to step in and rescue these companies – for the good of the country.
So, I’ve been thinking that it might be nice to know in advance which other companies or industries are also too big to fail, just so I can be prepared. Apparently the U.S. automobile industry is also too big to fail – at least the Ford and GM parts of the industry – maybe not Chrysler. It seems that the economic impact of losing GM (Ford is doing OK) would be detrimental to the U.S. so we just aren’t going to let them fail (a structured bankruptcy is not really failing). My question then is this: is there some way I can identify other sectors or companies that are also too big to fail? What other companies can expect a guaranteed government lifeline if they also get into financial trouble?
I took a look at the 2008 Fortune 500 list of America’s biggest companies, which, incidentally, is called the Fortune 1000, to see if I could see some sort of pattern or trend that would help me identify the other “too big to fail” candidates. I found that, of the top 25 revenue earning companies in the U.S., they could all be placed into one of the following six groups:
1. Oil/Energy
2. Finance/Insurance
3. Retail
4. Communications/Technology
5. Automobile
6. Health/Medical
The sectors above are listed in order of total revenues for 2008. The number one spot goes to the oil industry with total revenues of about $1.2 trillion. The financial sector came in second with revenues of about $810 billion. I have to assume that the reason we have to save the banking/insurance industry is because they play such an important role in our economy. However, our government decided that the auto industry is also to big to fail and they came in at only fifth place with revenues of about $360 billion. Given the recent measures taken by our government to save both the financial and auto sectors of our economy, I think it is only reasonable to expect that the other members of the top five would be saved if they imploded too.
My conclusion is this: if the time comes when disaster strikes any of these other sectors of our economy, namely oil/energy, retail, or communications/technology we can expect our government to immediately step in and declare that these are “too big to fail” also. This must be especially true for Big Oil because they are the largest sector of our economy. It’s probably comforting for Big Oil to know that if they ever do get in trouble, we, the American taxpayer, will be there to bail them out.
As far as the health/medical sector goes – I don’t know. You guys didn’t make it into the top five, you know. And what about the aviation sector: the airlines, airplane manufacturers, and so forth? Sorry, you didn’t even make the top ten – you’re actually not even on my chart! I guess we can do without the U.S. aviation industry, right? Maybe we could outsource and insource all our aviation needs from other countries! After all this is a global economy, right?
Come to think of it, we could probably outsource and insource our medical needs too, couldn’t we? I mean if it really comes down to it, couldn’t we just buy all of our pharmaceuticals from China or India? Couldn’t we just use our electronic technology to outsource diagnostic testing to Canadian or British or even Chinese doctors? Maybe so… Sorry, health/medical, but you’re only number 6. You’re out too. Sorry.
So that’s it then. There’s my top five list of U.S. industries too big to die. We are saving two of them right now, and with only three more to go. I wonder who’ll be next?