The End Of American Capitalism?

It’s really hard to watch the ongoing development of news about the Big Three American auto companies and not feel depressed.

It’s depressing to see former titans of industry, brought low by, really, very little more than their own incompetence.  There are plenty of scapegoats.  David Brooks said it well:

Some experts mention the management blunders, some the union contracts and the legacy costs, some the years of poor car design and some the entrenched corporate cultures.

And, fundamentally, all of these are true.  At the same point, all of them, even the union contracts and debilitating legacy costs of offering health care for life to former workers, are the result of contracts that were signed by corporate management.  It took a long time, by corporate standards, for the full bill of sale for these errors to come due, but it has, with a vengeance.

So now, we’re asked by our Democratic leaders to ponder giving up to $50 billion to the Big Three, on top of the $25 billion which has already been designated for them. This issue has made strange bedfellows, as Nancy Pelosi and President-Elect Obama argue in favor of further bailout of massive corporations, while conservative stalwarts agitate against.

Now, there are many good reasons in favor of keeping the Big Three around.  Although they are smaller than they once were, they are still quite big, and their shuttering would have massive ripple effects up and down all levels of the economy, dislocating workers everywhere from parts manufacturer assembly liners to car salesmen.  Such an event would pretty much destroy the economy of several inner Midwestern states, particularly Michigan, for a good long while.  Daniel Gross makes the claim against allowing the Big Three to file for Chapter 11 bankruptcy, pretty much the only alternative to a big bailout, over at Slate.

This morning, in the previously-linked to column, David Brooks made the argument against further bailout.  I have to say that, perhaps a bit oddly, I find Brooks’ case to be much more compelling.  If I were to be in favor of any sort of big bailout, it would have to come with some pretty massive strings attached to it – big requirements to change all the corporate structures that brought about so many of the bad outcomes of the last 40 or so years.

But, fundamentally, I don’t think the government has the balls to do this right.  I’m no fan of Ralph Nader, but one thing he gets mostly right is to argue that both major political parties are completely under the thumb of big corporate interests; something we’re seeing right now in the near-universal Democratic argument in favor of the big secondary bailout.  So, even if there was good intention to really force the car companies to be nimbler, smart, lither operations, I think bureaucratic inertia would be an overwhelming factor, and changes would not be made.

I don’t know if Chapter 11 is the right solution – I’m certainly no bankruptcy expert.  But, it seems to me that the right answer is compartmentalization.  Personally, I’m with Robert Reich – I think all sorts of these companies have simply become too big, and should be broken up, by force if necessary.  Because companies should be allowed to fail, and the fact that they’ve become too big for this to happen is a long-term failure of the market system.  But, if we don’t break them up, per se, they should at least be forced into more creative and innovative management structures.

The areas where they are still profitable – SUV’s, pickups, sports cars – could be allowed to continue doing business as usual.  But areas where they are getting their collective asses handed to them by the Japanese – small cars, hybrids, and the like – should be either spun off as new companies, or at least put under the control of new management, who should have the express goal of making those areas competetive.  I have no idea how easy this could be, but I do remember, in my lifetime, when GM founded an operation, Saturn, which made small, nifty cars that were reliable and, if not exactly sexy, weren’t absolute clunkers either.  There’s no reason this sort of experiment could not be repeated, with federal backing, to try and make the Big Three competetive again on the world stage.

I really don’t know if this idea is feasible, or even enforceable.  But if it is, we should absolutely be doing it already…

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2 Responses to The End Of American Capitalism?

  1. Tripp says:

    Remember Chrysler in ’79? I don’t but I do know that they were bailed out by the fed and saved from insolvency. The gov’t dictated a number of things and basically owned some kinda preferred stock in the company. They loaned Chrysler $1.5B (something like that anyways). Chrysler paid the money back 7 years ahead of schedule and the gov’t made ~$500M on the deal. NPR had a story on this the other night. Soooo bailouts may not be such a horrible thing in the end, but the number of them being discussed and their magnitude is pretty disturbing.

  2. […] Favor Of Bailouts Commenter Tripp writes in on the subject of auto bailouts: Remember Chrysler in ‘79? I don’t but I do know that they were bailed out by the fed […]

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