The post earlier this week on the proposed additional bailout of the Detroit Three generated the usual couple of emails suggesting I was a "right winger" or "corporatist." I don't quite get that, as I'm actually advocating that perhaps GM, Ford, and Chrysler should be allowed to fail. Regular readers know that I'm that conundrum of fiscal conservative free market social liberal, therefore with no major party to identify with. Supporting the bailout seems to be more "corporatist" as it would be throwing more money at companies their excessively-paid management. Which is why it's surprising which party is pushing for it.
There have been a flurry of great articles and letters in the Wall Street Journal (and most top tier periodicals for that matter) debating the proposed bailout, and from the tone of yesterday's paper it appears the tide may be turning against throwing good money after bad. Daniel Mitchell of the Cato Institute penned a great article for CNN that really hits the nail on the head, and I'm not just saying that as someone who has supported Cato for many years.
Let's start with just the muda of lobbying for the bailout in the first place.
General Motors, Ford, Chrysler and the United Auto Workers union are pouring millions of dollars into a lobbying campaign for a taxpayer bailout. The money devoted to influence peddling in Washington would be better spent on improving quality and finding ways to reduce a bloated cost structure, but both management and UAW have decided that fleecing taxpayers is a better option.
Imagine if millions were poured into a real lean manufacturing program. It might help change the course of the leadership failure of the past few… decades.
A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the synonymous with inflexible and anti-competitive work rules.
I don't blame the unions themselves (am I actually a "left winger"?), as I've always believed that the need for unions arises from a failure of management to recognize the value of people. But the union bosses did negotiate terms that made their symbiotic partner uncompetitive.
Perhaps most important, though, is that a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations. These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust.
Just which leadership model is sustainable and best for our future? One that refuses to make the hard decisions and has no long-term vision while continually battling employees and suppliers? Or one that leverages the value of employees to design and build high quality vehicles that the public wants?
Is this in effect a form of reverse redistribution?
Bailouts are a particularly bizarre form of redistribution, however, because the corporate bureaucrats at the Big Three are among the very richest Americans. The union bosses make extravagant salaries, as well, and even regular union workers make an average of approximately $70 per hour, far higher than the average American.
The government should not be in the business of giving unearned wealth to any group of citizens, but surely liberals and conservatives both can agree that politicians should not be taking money from middle class taxpayers and giving it to upper-middle class and rich taxpayers.
Tough times sometimes require tough medicine, especially when the illness is your own fault.
But Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity – under court supervision – to reduce costs and streamline operations. Bankruptcy would not be popular in some quarters, to be sure. The bloated management structure would be streamlined and many overpaid executives would be unhappy about having to find new jobs.
The UAW would be equally upset, particularly since bankruptcy might force an end to extravagant benefits and inefficient workplace practices. But bankruptcy is akin to getting an alcoholic to put down the bottle. There clearly will be short-term discomfort, but compassionate people recognize that this is the best approach.
Finally, this may be only the beginning. First banks, then insurance, then the auto companies, then even cities like Philadelphia. The taxpayer trough has been opened up, and the line is forming.
America is on a dangerous path. The Wall Street bailout was a mistake. It transferred a huge amount of money from the productive sector of the economy to the government, and also exacerbated "moral hazard" by rewarding companies and executives who made dumb decisions. But this may be the tip of the iceberg.
Accountability to pathetic leadership decisions has been virtually eliminated. Where will it end?