Barack Obama has noted, carefully and correctly, that we have only one
president at a time. Yet on at least one issue he has taken the lead
and nudged the man who will soon be his predecessor in a direction that
he might not have taken without prompting.
It is an issue, moreover, that points up the tension between Obama's
appeal to young voters and his calls for creating a new America on the
one hand and, on the other, policies that he backs which seem designed
to freeze in place the America we have.
The issue is whether the federal government should bail out, with a
capital injection the size of what would have been unthinkable four
months ago, General Motors and perhaps the other two U.S.-based auto
manufacturers, Ford and Chrysler.
As one born and raised in Detroit and its suburbs, who once lived next
door to Big Three factory workers and later went to school with the
children of Big Three executives, I have mixed feelings about this
proposal. My native Michigan is ailing, with the highest unemployment
in the nation, plummeting housing values and cascading foreclosures.
Its economy, despite the efforts of two previous governors -- Democrat
Jim Blanchard and Republican John Engler -- is dangerously dependent on
what used to be called the Big Three and are now called the Detroit
Three.
The bankruptcy of one or more of them would deeply impact the personal
lives and dash the seemingly reasonable expectations of those who,
directly or indirectly, have depended on them. I can't help but think
of these people when the issue is raised.
And yet the implications of a bailout are frightening. The Detroit
Three were unprofitable well before the current financial crisis hit,
and GM is reportedly hemorrhaging $1 billion a month. The huge cost of
lavish employee and retiree health care benefits, negotiated with the
United Auto Workers (UAW), makes it impossible for the companies to
sell for a profit anything but the big cars and SUVs that, after gas
prices hit $4 a gallon last spring, almost no one wants to buy.
No one in the private sector is willing to pony up a dime for this
business plan. GM stock is below its 1946 price, and one investment
house has priced it at zero.
The Detroit Three are taking advantage of the passage of the $700
billion financial bailout to argue that they, too, need government
money to go on. But as Megan McArdle of The Atlantic argues, the
finance firms are different. If credit coagulates, everyone suffers,
while if the Detroit Three go bankrupt, their shareholders lose their
stake, employee and retiree pay and benefits are cut, and real estate
values go down in areas where the companies and their suppliers operate
-- but life for most of us goes on.
McArdle, native of a similarly bedraggled industrial area (Upstate New
York) and an Obama supporter, further argues that the capital invested
in keeping the hulk of the Detroit Three operating pretty much as they
are, unprofitably, will not be available to those whose startups could
morph into the Microsofts and FedExes of the future. We don't know who
today's Bill Gateses and Fred Smiths are, but markets sure have a
better chance of finding them than the federal government.
Obama's presidential campaign was an entrepreneurial enterprise whose
success owed much to harnessing individual initiative through an
innovative management structure and creatively using emerging
technology. The campaign, as well as the candidate, helped inspire
under-30 voters, who preferred Obama by an unprecedented 66 percent to
32 percent margin -- as opposed to his 50 percent to 49 percent margin
in those 30 and over.
But keeping the Detroit Three in their present form, with their
extravagant health care benefits and the union's 5,000 pages of work
rules, is an exercise in preserving in amber the America of the past.
And of course the Detroit Three will not be the last flagging
enterprises to line up for government subsidy. Michigan is not the only
state that has a talented congressional delegation capable of enlisting
allies on relevant committees and from states with economic stakes in
failing companies. Other unions, noting the UAW's success in
maintaining benefits, will be standing in line.
George W. Bush may well acquiesce in a Detroit Three bailout. GM could
run out of cash over Christmastime (Big Three plants don't operate
between Christmas and New Year's), well before Jan. 20. If so, I will
feel happy for the respite provided my friends and relatives in
Michigan. But I will wonder if in preserving the past we are giving up
the chance to get to a better future.
