Who wants to own a failing car company?
Maybe someone does, but not I. Who knows…there might be some venture capitalists out there willing to shell out the money to fund GM through its failure, but at this point we won’t get the chance to find out. Under the lead of President Obama, the US and Canadian governments will assume a “70% equity stake” in the company during and after it emerges from the bankruptcy it declared on Monday.
And here’s the kicker: Obama has said that he has no interest in running GM! Anyone solidly grounded in capitalistic principle would insist as the majority stakeholder in a company that not only should their views be heard, but as the majority, they should direct the business of the company. Well Adam Smith help us if the US government gets in the drivers seat of the largest car manufacturer in the country. And that’s what’s already happening…the administration is appointing personnel to handle the restructuring of GM, and demanding that the company support its subsidiary Chrysler.
I would be fine with private investors rallying together to fund GM through its time of crisis. They could pool their own money or the money of additional willing investors, and prop up the company in an effort to get it back on its feet. What’s happening now is far from that. This decision to fund a bankrupt company isn’t even being routed through Congress (in effect, the US taxpayer isn’t being consulted on the use of their money). What’s happening now is the execution of a Presidential order directed at funneling taxpayer money towards salvaging a failure.
It was always my belief that the role of the US government was to allow the free market to ebb and flow on its own. If a business achieved success it wasn’t due to some political influence, but rather the effectiveness of the business and their ability to compete in the marketplace. If a business fails at its aim, that entity doesn’t deserve a place in the market under its current structure, and it must redirect/reorganize itself if it wants to succeed. The US government has no place saving a failing company from its ultimate fate because its role is to remain neutral and absent from the free market. This move sets a dire precedent for future “bailouts”, or as we should call them “takeovers”.
While some will argue that such a takeover of a company needs to happen in order to save jobs, this sentiment, echoed by intrusive politicians everywhere, goes against all that the capitalist system is founded on. The value of your work is proportional to the value of the product you create. Once demand for your product reduces in the marketplace, the need for the skill to create that product also reduces, driving down demand for the worker in that given job. This may seem cold-hearted, but this same principle also drives the ingenuity of the capitalist, specifically American businessmen and women as the US has historically been the country where the independent thinker has had the opportunity to thrive and prosper economically. Whether you’re the CEO of a car company or a worker on the factory line, you have a mind that allows and pushes you to see the complexities of the world and determine what the market needs. To not see the failure of one company as a spark that ignites new ideas (and new ventures) is to let the brilliant fire of capitalism extinguish.
June 4th, 2009 at 21:56
Good points Drew! I think your right about the value of letting both capital and labor be devoted to the projects with the highest marginal product. This ensures we get the most bang for our buck.
I do think you generally gloss over the situation of the individual worker. There are substantial frictions for these workers in changing their skill set or occupation. These include the financial costs of new training, the high likelihood that they are liquidity constrained and thus incapable of financing their own business, and the fact that a large shock to unemployment would saturate their local labor markets requiring geographic displacement. All of these frictions are aggravated by a financial sector that is suddenly adverse to risk and a national excess of labor.
June 11th, 2009 at 23:46
I agree with this on all fronts. First and foremost it is unconstitutional for the federal government to take over and run any private company. Second, there is no rationalization that I think supports the bailout of this comapny. Several large companies in the past have gone out of business and jobs were lost, but this did not have the economic implications that is described along with such job loss, even if it did, it wasn’t something we obviously couldn’t overcome. Look at the international accounting company of Aurther Anderson in the late 90s…there were hundreds of unemployeed accountants when they went under, but the market did not totally fail. Also, there is no reason that I see why GM is more important than Lehman Bros, who were allowed to fail. Why GM? Why AIG? Why now? Why not every Fortune 50 company that is in the red? Lastly, this ultimatly has set prescidence for the government to always get involed with business. When the government throws out the Constitition it throws out the law in which we live by, though lately it seems we are living not of the law itself but of empathy. What should have happend is that GM should have failed and Ford to pick up the business that GM lost and then Ford can be the car company of America. And government should stay in the business in which they were designed which is make and enforce laws…thats it.
June 24th, 2009 at 17:38
Drew,
Once again I am with you all the way. How preposterous is it that our government who is drowning in debt and facing an unbelievably huge budget deficit be allowed or even have the audacity to bailout anyone. The feds need to balance their own checkbook before they start working on anyone else’s. This is coming from a man who recently lost his job in the building industry due to the downturn in demand for new housing. It’s unfortunate, but the market has to be allowed to correct itself. What the government needs to focus on is the really large white elephant in the middle of the room called the “trade deficit”. Legislate to even the playing field of trade and watch jobs begin to return to America and captialism fix itself. Capitilism will recover if allowed to operate without such hugely intrusive outside forces as the Chinese who don’t play with the same rulebook that our American companies are forced to play with. Save the Trade Deficit, Save the World” or at least the American economy.