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.

IN DEFENSE OF REGULATION

In the campaign season of 2008, regulation is a decidedly unsexy topic. Yet the outcomes of the presidential and congressional races this fall matter because of the divergent positions that Republicans and Democrats take on the question of the regulatory powers of the state.

The collapse of two construction cranes in New York, the fact that sports utility vehicles are not subject to the same anti-pollution controls as smaller passenger cars, tomatoes infested with salmonella, lead-painted Thomas the Tank Engine toys, the spread of subprime lending and the ensuing foreclosure crisis, and downer cows in meatpacking firms--these are all diverse examples of regulatory failure.

Changing Society, one of the smartest academic blogs, offers an astute analysis of the "two imperatives that work against public health and safety in most modern societies: the private incentive that the provider has to cut corners, and the perennial temptation of corruption that is inherent within a regulatory process. On the providers’ side, there is a constant business incentive to lower costs by substituting inferior ingredients or materials, to tolerate less-than-sanitary conditions in the back-of-restaurant areas, or to skimp on necessary maintenance of inherently dangerous systems. And on the regulatory side, there is the omnipresent possibility of collusion between inspectors and providers."

Changing Society poses three key questions: "how effective are the systems of regulation and inspection that we have in our key industries — food, pharmaceuticals, hospitals, transportation, and construction? How much confidence can we have in the basic health and safety features of these fundamental social goods? And what sorts of institutional reforms do we need to undertake?"

Regulation is one of the most important issues at stake in November. Since the late 1970s, and accelerating during the Reagan/Bush years and again in Bush II, the Republicans have worked assiduously to limit the regulatory power of the federal government on the grounds that it creates inefficiencies and hinders capital accumulation. Liberals justifiably fret that Republican-appointed federal judges will whittle away at the precarious right to reproductive freedom. But Bush's newest appointees are, above all, characterized by their suspicion of federal regulatory agencies and their power.

John McCain is not as intensely anti-regulation as our current president, although on the financial industry, he holds his own with the deregulators--or as he put it earlier this year, “our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.” That doesn't bode well for a McCain administration. It's also highly likely that should he be elected, McCain will continue to fill the federal bench with judges hostile to regulation.

We have seen the negative consequences of the deregulatory impulse, particularly over the last seven and a half years. It's time to stand in defense of regulation.