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.

GM, We Told You So

Most observers agree that the age of Free Market Fundamentalism is now over. With the swirl of events leading up the election, we didn't take the time to pause long enough over Alan Greenspan's Oscar-worthy performance in front of Congress where he did a remarkable imitation of the police lieutenant Louie in Casablanca: He was shocked, SHOCKED that bankers could behave this way.

During the reign of the Fundamentalists, not only were the unregulated markets supposed to solve all our problems - that didn't work out so well actually - but we assumed that the private sector was the source of all wisdom. About everything. The best the benighted public sector might hope for over the last generation was to enter into a "public-private partnership" through which private enterprise would share all its experience, sound judgment and good leadership with the otherwise hapless public realm.

With this in mind, I point out this small irony to GM's Rick Wagoner, and the other auto executives currently shuffling around Washington looking for a bailout handout:

Let's start by giving GM credit for some success. While GM and the others have failed to keep up with the competition from Honda and Toyota in the business of making cars, they have succeeded in lobbying Congress and the Bush administration to keep fuel efficiency standards low. The auto industry couldn't afford that kind of regulation, Congress was told, and Congress has no business telling GM how to run its business anyway.

So now it turns out that no one wants to buy GM's over-sized SUVs and GM doesn't have fuel-efficient alternatives to offer consumers. How 'bout that. Follow this with me. If GM had embraced higher fuel standards, rather than lobby to defeat them, they might have been forced to make better cars? And if they had been forced to make better cars, perhaps they would be better positioned in the current marketplace? And if they had better cars to sell right now, perhaps their financial situation would not be so dire?

I wonder if Rick, hat in hand, now laments those lost opportunities.

The Big 3 may in fact be too big to fail - too many Americans might well suffer if they went out of business. The Big 3 may have to be bailed out in some way. But perhaps we should conclude from this that maybe, just maybe the public has not only the right to regulate the market in ways that advance the common good, but also a wisdom that GM and the others clearly don't. Maybe it is time to recognize that businessmen can learn a few things from the public sector too. Perhaps it is time to say to GM (and AIG, and all the rest): we told you so.