Sunday, June 7, 2009

Why Not "Government Motors?"

The Federal Government - that is to say, you and I - now own an astonishingly large piece of General Motors. In the long run, this may or may not prove to be a good deal for the public and the American auto industry. Of course, in the long run, as Keynes famously said, we're all dead, so who can say?

Still, critics of the government's role in GM's bankruptcy seem to take it as an article of faith that the government should not step in to take over a failing industry, like car production, because governments have no business operating in the private sector.

As GM's bankruptcy approached, I heard and read several versions of the story of the British car industry in the 1970s: collapsing of its own inefficiencies and ineptitudes, it was taken over by the Labor Government and consolidated into one, enormous entity. Which then failed even further, causing a huge loss of taxpayer money. Moral of story? Government should not dictate what private companies do.

The British story is certainly a cautionary tale, but at roughly the same moment much of the American railroad industry was also collapsing. It was taken over by the government and turned into Consolidated Rail. Conrail managed to stabilize the American freight railroad system, and modernize it to some extent. Indeed, Conrail was successful enough that it was broken up and sold back to the private sector (CSX, in particular, benefitted magnificently from Conrail's breakup, thus from the public investment in it). Conrail's story would seem to offer a different lesson for GM, though we've heard less about that.

Indeed, as many commentators have noted, GM's operations in emerging markets are doing better than its domestic operations. In China particularly GM is making and selling lots of cars. Of course, in China GM operates in a roughly 50-50 partnership with the government. It seems to work there.

I don't mean to argue that the government take over is either good or bad, though it was probably necessary and unavoidable. (The government may not be able to save GM, but it can hardly do any worse than GM's own management and board have already done.) But as we contemplate the changed economic landscape that will emerge after our current economic mess we need to dispense with the dogma that government ipso facto is incapable of partnering with industry. We need to stop genuflecting at the altar of the MBA as the source of all wisdom about our economy. We need to recognize that the private sector has public responsibilities and that government's job is to protect our interests and enforce those responsibilities.


Angela said...

I read this morning that there are 7 to 10 million blogs out there... So glad you are keeping this one active!

Paz said...

It's certainly an interesting way of thinking about it. There's probably a study out there (and if not, then dibs on the research funding)as to why Conrail was successful and Amtrak, was, frankly, not so much.

Scott said...

Please, the only reason Obama bailed out both GM and Chrysler was as pay back to the UAW. As to why not the gov't, simply put the market allocates resources better than the gov't ever has or ever will.

La Lubu said...

As to why not the gov't, simply put the market allocates resources better than the gov't ever has or ever will.

Oh, bullshit. Pick up some old maps at the library and take a look at what our "interstate highway system" used to look like before Eisenhower dumped a bunch of federal money into it. Hell, a good part of the U.S. South still wouldn't have electricity if not for the TVA.

How many private recreational facilities open to the public on a use-fee basis are there in your state that can rival State parks? Can't think of any in my state, but you can go to any State park and see the beuatiful lodges and trails that were created from that dirty-commie CCC program.

What about the bang-up job the private health insurance industry is doing, hmm? What---a third of the people in the U.S. are uninsured? Over 60% of bankruptcies in the U.S. in 2007 were due to medical bills---and of those, three quarters of those people had insurance?

Driven through the rust belt lately? Seen all the boarded-up windows on Main Street? Where's all that private market money flowing to, hmmm? Lots of cheap land to invest in, right? Plenty of unemployed workers. Basic infrastructure could use some work, but hey---it exists. Doesn't have to be built from scratch. Wonder where all that private money is...hmmm...

Speaking of private money, there sure isn't anything stopping the private market from creating schools to complete with the public schools, right? Gee, wondering why that isn't happening, since education is supposed to be such easy money, judging from the number of people who think public schools need to be abandoned.

And why aren't all the market advocates jumping up and down demanding that paid mercenaries start replacing U.S. troops? Think of the money that could be saved by abolishing the Army, Navy, Air Force and Marines. Surely the "market" could do better? Y'know, just like the "market" is doing better in police departments, fire departments....

Scott said...

La Luba:

The roads weren't as developed in the US because of the excellent rail system built by private industry. As for private money not going to the rust belt, its gone south to build new auto factories and what will be a new steel plant in AL. Industry must have wised up and decided to avoid the union wage extortion.

La Lubu said...

Industry must have wised up and decided to avoid the union wage extortion.

BWA hahahaha!! The private money went overseas, pal. Union wages are $40K-$70K, hardly "extortion. Now CEO pay on the other hand...

Scott said...

The joke is on you. Kia, BMW, Hyundai and Thyseenkrup have all built new plants in the South. Sorry, but paying 4$40k-$70k to some guy who at most has a high school education is extortion.

La Lubu said...

Scott: So, so you have the skills of a journeyman wireman? A carpenter? A plumber? A pipefitter? A sheet metal worker? An ironworker? An operating engineer? None of those jobs require a college education. They are also jobs that you and your desk-jockey buddies don't have the skills to perform.

In case you haven't looked lately, the U.S. economy is based on consumer spending. About 70% of it, in fact. Forty grand gives you basic needs, with no extras (if you have a kid). Not much economic stimulation from that crowd! Seventy grand, and you're making a damn good living---what we used to call "middle class", when one still existed.

Can't have it both ways. If it's "extortion" to pay someone a middle-class wage, then don't cry the blues when the U.S. is just another third world country. Also, don't whine about how the infrastructure of the country is falling apart (no tax base), or how long it takes to be seen in the emergency room (no insurance), or how uneducated the populace is (folks can't afford to go to college or send kids to college).

Were you born wealthy, or were you the beneficiary of all the middle-class benefits and programs fought for and won by unions (you know, like the weekend!) that you now want to take away from others, hmm?

Scott said...

No, I don't have those skills but I do have a law degree, am licensed in two states and am working on an LLM in tax. With some training I could do anyone of those job but I don't that most of the workers in those jobs would be able to do what I do. That is the difference, I earn what I make make because of my intelligence and education not b/c I belong to a collective that is able to extort wages from their employer based on their numbers.

If a number of companies get together to fix prices we call it a crime but if folks get together to fix wages we call it a union.

I'm all for paying "middle class" (whatever that is) wages if they are commensurate with the persons education or skills but not just b/c the local union can extort them. I'll give you an example. My wife used to do trade shows. A number of cities require work in their convention center to be done by unions. Need some stuff (which my wife could move herself) moved around call one union, need to plug an extension cord in to the wall (which a trained chimp could do) call another. But you can't get just one union guy for just one hour, no you have to get more than one for a minimum time. So one guy does at most thirty minutes of work, and the others stand around and get paid for nothing.

Scott said...

The Dems have already started to interfere with Gov't Motors. Barney Frank got GM to keep a GM factory in his district open and the UAW got the gov't to keep GM from importing cars from China. How long did it take for BO to break his promise to let GM manage it affairs, not long at all.

Eddie Willers said...

The interstate highway system as built by President Ike, was borne from his experience during WW II in Europe. It in no way was intended as public benefit project although it has greatly benefited this country in more ways than it was intended.

Eisenhower insisted on our highway system for defense of the country. After struggling with movement of troops and more importantly their support, resupply, etc., he declared we would have a highway system to enable the military to deploy in the event of WW III. That's why every 5th mile was straight to allow aircraft to land and at every N-S/E-W intersection is a military supply depot.

Learn some history

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