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.