I can't think of a more appropriate symbol of the misplaced priorities of the political machine than this image of GM CEO Rick Wagoner traveling to the Congressional hearings in his Chevrolet Malibu hybrid car. This follows the auto industry CEOs' heavily criticised trip to the first set of hearings in their respective corporate jets. How dare they! chimed the media and the politicians. In this time of eco-awareness and required executive humility!
Since they aren't selling a lot of cars at the moment, I suppose the CEOs can afford to take a day's drive across the country to show the media how much they care about the environment and to what levels of degradation they are prepared to submit themselves in front of a fired-up Congress.
Enter His honourable Barney Rubble Frank and his outraged cohorts, who have perfect the fine the art of asking interviewees to agree to their own demise in front of a CSPAN audience. Like Guantanamo's frequent flyer programme, this process takes a few days to deliver results. More time well-spent by the auto executives...
The auto industry bailout is becoming the poster-child for why -- even in a democratic, firmly capitalist country like the US -- governments just can't resist creating a planned economy when they get their hands on its levers. And -- if approved -- it will go down in history as one of the most disastrous economic interventions in memory. Here are just two reasons why (there are many more):
First, to get the bailout the car makers will be forced to commit to a huge retooling and innovation project to build greener cars. Apparently, according to the politicians, it was management's failure to respond to huge demand for such vehicles that got them into financial trouble in the first place. I guess it's a good thing someone noticed and is prepared to save the companies from their myopia!
The green development plan will cost a fortune. Not $15bn, not $20bn, but probably more like $100bn+. When this becomes apparent (in 9 months, 12 months?), will any of the politicians have the guts to pull the plug? No, they will be forced to continue plowing money into the largest ever government-funded production line since re-armament for WWII. And at the end of it, will these politico-industrial behemoths be the profitable, solvent companies they couldn't be when they were making cars people actually wanted?
Second, government intervention will ensure that the only significant impediments to the companies' viability -- the inflexible labor contract with the UAW, and their garganguan pension fund obligations -- will remain intact, thus enshrining $75/hour labor (indexed to inflation) and $7bn/year pension funding costs (for GM alone) for eternity.
At that level, the less unionised foreign-owned car plants in the South will eat Detroit's (and Washington's!) green lunch. No one on Capitol Hill (or in the White House) will be willing or able to take on the unions nor restructure the legacy retirement packages, further entrenching a sclerotic state economy in Motown.
The good thing is that the net effect of all this attention and funding will be to drive increased interest in green cars.... just not Detroit's green cars.
The bad thing is that taxpayers will fund this adventure for generations to come, and the day of reckoning for Detroit's beleaguered workers will simply be delayed.
The fact is this bailout is entirely unnecessary. America has the world's most effective bankruptcy framework for enabling companies to buy the 'freedom to breathe'. In Chapter 11 proceedings the companies can negotiate with creditors, restructure onerous contracts (including labor and pension obligations), and make the organisational changes necessary to become viable again.
Just in case you think I'm a cold-hearted bastard, ignoring the hundreds of thousands of workers that might lose their jobs in a restructuring, I have a mitigating idea for them too. Let's put the $15bn or $20bn earmarked for the bailout into a fund that targets affected workers directly: re-skilling, job placement, early retirement, unemployment benefits. That would be much better use of the money, and would contribute to the economic 'stimulus' effect everyone is looking for.