Creative Destruction for GM

I have been trying to think of the number of ways of interpreting federal dollars that will be used to rescure General Motors.  Here are a handful:

A. Bad capitalism (e.g. the worst kind of state-corporate collusion).
B. A bailout of the UAW's ridiculous contracts.
C. Another slap in the face of the small business community of Michigan.
D. A plan to keep America's automobile industry from ever REALLY recovering.

Despite the hype, a bailout for GM is not about protecting the economy. All the workers that will be supposeduly saved by keeping GM afloat should talk to the airline workers of the last three decades, where company after company has gone bankrupt. If we want to keep automative jobs in the U.S., then we have to let GM get reorganized, even if that means chopped up into pieces so that new entrpreneurial firms can rise from the ashes. And don't try telling us that now is the worst time to lose all these jobs. Please. That's an excuse to never act. A recession is when these things happen.

If Congress really cared about Michigan or the automotive industry in America, it would let GM face the music. The business model is flawed, and every year that a flawed automotive industry is propped up, it is another year lost. Do you think Toyota or Honda want to see GM saved?  Yes!  They would love nothing more than to keep that kind of competitor around indefinitely.

A revolution in the U.S. auto industry -- real change -- can happen, but it requires real change. No more zombies in Detroit. I think Michigan has suffered enough from the corporate-labor cabal, and it's long overdue to let the free market work a turnaround. David Brooks makes a number of similar points in this column today, as if Joseph Schumpeter himself were writing:

Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America.

As for President-elect Obama, this is a serious test of what kind of capitalist he really is. A "good" capitalist that supports little guys (taxpayers, future generations, small businesses) or a "bad" capitalist that supports special interests (big business, organized labor, anyone with a lobbyist). I have high hopes for the Obama presidency, but his team has to understand that it literally won't get any easier to do the right thing than it is right now.  Every month that goes by, political concerns for the 2010 mid-terms and 2012 re-election will weigh more heavily (not just on him, his team, or his allies in Congress, but on the whole system). Now is the time for the nation to take its medicine. So if Obama opts for the easy, short-term things now, there is no turning back.

The best thing Washington could do in this situation is this. Nothing.

Comments

[Michael F. Martin]

The most ridiculous argument made by GM in favor of a bailout that I saw was that if it weren't bailed out, that its competitors could end up going bankrupt also. And they argue this in perfect seriousness.

[Charlie Poole]

Excellent analysis. The best part is the very last sentence. Unfortunately, this govnt and the next will do exactly the opposite, everything.