Tuesday, 10 December 2002 8:30 am
Yesterday, on the same day that the world's second largest airline declared bankruptcy, it was also announced that the new US Treasury secretary would be an executive from the transportation industry.  This made me think about whether there is a correlation between who is at Treasury and which industry is favored.

Let's see - we had a Wall Street bond trader in Treasury under Clinton, who arranged the bailout of Long Term Capital Management, the largest hedge fund collapse in history (and, incidentally, a large holder of bonds).  He was followed by a metals industry executive, who bailed out the steel industry with protective tariffs.  Now we have a transportation industry executive who earlier in his career did a stint as Undersecretary of Transportation.  Based on the actions of his predecessors, the airlines and Amtrak will somehow be kept in operation.  The common carrier infrastructure will not be allowed to fall apart on John Snow's watch.

This could be good news to the telecommunications industry companies as well, since, after all, they are common carriers too and part of the essential national infrastructure.  In my November 15 column, I concluded:

"The question that comes to my mind is: what happens when in a free-market, capitalist economy, capital flees an industry who's services the public demands?  That is what we may be facing soon in the telecommunications arena.  Some companies (e.g. Lucent) have already lost access to capital.  The situation in airlines and electrical power, two other de-regulated industries, could be similar. 

"The answer is that the government will feel obligated to step in and assure the delivery of the services demanded by its constituents.  It can do that by nationalizing the industry and operating it as a government function, or by regulating it sufficiently to attract new investment capital from private sources.  The US government has usually chosen the latter approach, European governments the former. 

"The take-away here is that, under the current government philosophy and political makeup,  the likelihood of interfering in the telecommunications market in order to preempt the collapse of any or even all of its players is unlikely.  However, when things have deteriorated sufficiently that the delivery of service to constituents is in serious danger, then the government will intervene, probably taking the structure back to a regulated monopoly model."