Sometimes bankruptcy is good for the economy and the country, but apparently house speaker Nancy Pelosi doesn’t think so. She is hoping that congress will pass an emergency bailout of the automotive industry next week to prevent struggling giant General Moters from going under. What she forgot to mention, however, are the major reasons GM is struggling to make a profit to begin with.
GM is a classic example of a company regulated out of profitability by congress. First it was trade unions and salary regulations, then came mandatory retirement pensions for the trade unions. Finally came a multi-billion dollar yearly health-care program. The result? GMs ability to keep up with foreign competitors tanked to the point at which its research and development funding was not enough to make par. Toyota saw this immediatly and leaped for the kill. Toyota was not only capable of funding better automotive research, but could give a lower price on the final automobile too. Granted, Toyota also innovated better quality control and efficiency when they first began using teams to build cars instead of production lines, but this is what competition is about: finding better ways to do things and to do them cheaper. Today, Toyota has become one of the largest car companies in America, employing tens of thousands of Americans in U.S. factories.
That’s not to say Toyota can’t be criticized, part of its success story is also tied to tax-dollars. Toyota has recieved hundreds of millions of tax-dollars to help build factories; millions more for their popular prius (for every car sold the US gives Toyota $3,150); and has not been held to the same standard on health-care as GM (mostly because they aren’t unionized).
Anybody remember when the .com bubble burst in 2000? The resulting bankruptcies put nearly all the collateral (in the form of fiber-optics communications lines) in the hands of banks who for obvious reasons had no desire to hold on to them. The fiber-optics network was sold piecemeal to a large number of newer start-ups for pennies on the dollar, and those companies’ vastly lower initial costs allowed them to make the internet affordable for everyone. So you see, bankruptcy can be a very good thing for consumers.
In short, government interference is bad for competition. Competition isn’t about saving every company from going out of business, competition is about letting companies that need to die, die, and letting new companies that do things better grow. That GM is on the way out isn’t a bad thing: their cars have been substandard for too long, and the trade unions have bogged down their resources, turned the company into a giant bureaucracy, and have prevented GM from being anything but a failed government project in socialism. That GM is leaving because government put their nose in where it shouldn’t have is regretable, but a bailout of GM now would be even more irresponsible and should not be a priority of Congress. Let GM go bankrupt, hopefully some newer company will buy up its designs, vastly innovate and improve upon them, and in a few years give us a Cadillac whose moldings don’t come unglued a few years after it leaves the factory and whose value holds like a Camry.
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James Thoburn is a student at the University of Chicago. He created Backyard Politics to bring together individuals interested in actively participating in the political discussion without giving up their day job. His other interests include running, golf, and music.
This from Yahoo news Friday:
“Democrats in the lame-duck Congress are pressing for a bailout of Detroit’s Big Three automakers with money taken from the $700 billion Wall Street rescue. But President George W. Bush and many Republicans have come out against the idea, arguing that the financial rescue package was not intended for such uses, and that a bailout would reward poor management and lead other industries to demand government handouts, too.”
Full story from Yahoo
Isn’t that what they already did exactly? Bailout companies who were irresponsible and poorly managed? And how would bailing out the auto industry whose downfall they are in part responsible for be any different from bailing out wall-street whose crisis was in part caused by them too?
GM posted this tonight, it seems they really want their share of the bailout money! They are even claiming that they should be bailed out with $25 Billion because it will save the U.S. government $140 Billion in lost tax revenues. What they don’t tell you in this video is that the jobs and gdp lost when the big three go down will be replaced by the better companies that would replace them, or by themselves scaled down and restructured similar to the Airline industry a few years back. Their statistics are only true if the auto industry is simply non existent after they leave, but we know that wont be true. Honda and Toyota would just increase their market share and hire more U.S. employees, and as I said before, newer or scaled down companies would replace them. Here is their new “ad” attempt at getting their part of the free money.
http://www.youtube.com/watch?v=72cHfOKoA1c&eurl