Nationalizing the US Auto Industry

Here's a background article from the International Herald Tribune, though I'm sure one could find many similar articles from other sources.

Taking risks with bailout for U.S. automakers

Here are a few quotes to start this entry:

"We don't want government to run companies," Obama told Tom Brokaw on "Meet the Press." "Generally, government historically hasn't done that very well."

But what Obama went on to describe was a long-term government bailout that would be conditioned on government oversight. It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make — to recreate an industry that Obama said "actually works, that actually functions."

Depending on how the longer-term revamping of the industry proceeds, Washington could become a major shareholder in the Big Three, it could provide loans, or, in one course that Obama seemed to hint at on Sunday, it could organize what amounts to a "structured bankruptcy." In that case, the government would convene the creditors, the unions, the shareholders and the company's management, and apportion a share of the hit to each of them. If that "consensus building" sounds a lot like the role of the Japanese Ministry of International Trade and Industry in the 1970s and the 1980s, well, it is.

For the record, I think this is a very, very bad idea. If the congress wants to restructure the auto industry through some bankruptcy-like receivership, why not use actual bankruptcy? Having a "car cazr" running the automobile companies is just plain stupid. One contributing reason (though certainly not the sole one) for the auto companies' mess today is the mandates that congress has imposed on producing vehicles that American consumers did not want to buy. This problem will be exponentially bigger with a "car czar". There is no way the restructing process is going to remain free of politics. Decisions will be made based on political payback and partronage, rather than on economic efficiency.

Beside which, this is (as the article points out) all pretty hypocritcal.

"If Japan was doing this, we'd be threatening billions of dollars in retaliation," said Jeffrey Garten, a professor at the Yale School of Management, who as under secretary of commerce in the 1990s was one of many government officials who tried in vain to get Detroit prepared for a world of international competition. "In fact, when they did something a lot more subtle, we threatened exactly that," referring to calls for import restrictions.

To promote the Japanese car industry on the way up, the trade ministry nudged companies toward consolidation, and even tried to mandate which parts of the market each could go into. (Soichiro Honda, the founder of the company, rebelled when bureaucrats told him he was supposed to limit himself to making motorcycles.) By the 1980s, Congress was denouncing this as "industrial policy," and arguing that it put American makers at a competitive disadvantage — and polluted free enterprise.

Now, it is Congress doing exactly that, but this time as emergency surgery. Other nations will doubtless complain, or begin doing the same for their own companies. "We're at this moment in history, in which the Chinese are touting that their system is better than ours" with their mix of capitalism and state control, said Garten, who has long experience in Asia. "And our response, it looks like, is to begin replicating what they've been doing."

I find the policy responses to our latest recession simply stunning. The political class from both parties seem to think that doing something is better than nothing, even if that something is just plain bad.