A Big Three Bailout? Hell yes (kind of)

Congressional Republicans seem to be taking a stand against the proposed bailout of American auto companies. They supported, albeit reluctantly and far from unanimously, the previous bailouts, and seemingly still have confidence in Henry Paulson. But U.S. automobile manufacturers? That is just beyond the pale. Free market capitalism for some, but not all. Bailing out some people, but not others. What’s the difference? I think it has a lot to do with the union. Republicans would love to see the Detroit-centered, unionized domestic auto industry fail. For all of their flag-lapel wearing and American flag-self-wrapping, they would love to see a country full of Nissan, Honda and Toyota plants—all are non-union and have plants primarily in the South.

For a moment, I’ll pretend this kind of Reagan-esque union industry targeting isn’t going on. The argument for the finance industry bailout hinged on the assertion that a collapse in the financial services sector would have wide-spread, top-to-bottom repercussions on the economy. A bailout was needed in order to fend off the economic Apocalypse. The argument is based on the scope of the effect.
The Big Three employ upwards of half a million people combined. But these employees are just the very tip of the iceberg. There are thousands of other businesses (even whole cities) that depend on the industry. Already small manufacturers that supply parts to the Big Three are feeling pinched. Orders are down; and when orders are down in factory work, you get laid off indefinitely (like my mother did on Wednesday—she’ll be out of work until at least February). This AP story outlines the extent of the problem for allied industries, after-market suppliers, part suppliers, etc. A failure of U.S. automakers won’t just affect the failing businesses—even foreign manufactures will suffer. Dave Andrea, a trade association VP, explains:

"We need to be talking about this at the U.S. level, not talking about the Detroit Three and then putting the other automakers in another bucket," he said. "If we have major failures of suppliers, the foreign automakers are going to be affected as well."

The scope is indeed large.

It’s not just Republicans that have voiced their opposition to this bailout; at the G20 summit, British Prime Minister Gordon Brown denounced the bailout, and the EU is prepared to “take action against the US at the World Trade Organization if aid for the stricken US car industry was judged by the European Commission as illegal”. Brown and others are crying protectionism—but I don’t buy it. The Big Three have significant labor costs related to healthcare. In countries with cheaper, government-provided healthcare, the business sector is not saddled with providing health care for employees. Because even large companies are not as big as governments, the price of covering GM’s 250,000 workers is much higher per person than Britain’s 60.7 million citizens. It’s not an even playing field. What would letting one of the largest, most iconic, most powerful unionized industries fail do? It think it would send a strong message to corporations that if you pay good wages, healthcare, pensions, and get into trouble… well, you are on your own. What an incentive for good corporate citizenship.

Don’t get me wrong—I’m in no way claiming the good virtues or pure motives of the auto industry. They haven’t provided wages and benefits out of the kindness of their hearts—these wages and benefits were fought for, hard, over many years in the labor movement. The Big Three are horribly managed, manipulative, unimaginative, greedy, and reactive. The operative phrase here is horribly managed. It isn’t the workers’ fault management has run one of the most important American industries into the ground. It isn’t the fault of suppliers and after-market manufacturers, it isn’t the fault of dealerships, banks, and the huge number of allied businesses. This is a failure of leadership and regulation.

This is why I’m not proposing a bailout—good money after bad isn’t the way to fix the situation. Nor am I siding with Republican Richard Shelby, who has called the industry a “dinosaur”. I think the government ought to infuse the companies with enough cash to remain solvent and retool, sack the leadership, and claim a stake in the industry. You know, nationalize the automobile industry. Think about this—if we don’t spend the money here, who is going to be on the hook for 500,000 pensions? The U.S. taxpayers. The money is going to be spent on way or another; why not do it in a way that gives the taxpayers control, saves an industry, and allows us to start creating the cars we need here in the U.S., with good, high paying union jobs?