I promise one of these days I'll get off the topic of this ridiculous bailout of the Detroit Three automakers, but there are so many lessons of leadership (or lack thereof) and lessons of policy (pathetic as they may be) that this situation requires some intense scrutiny. As one of the few remaining real taxpayers, I also have a personal interest in how my money is being spent.
The original title of this post was going to be something along the lines of "our wacky world" as I am very amused at how the policy positions of the major political parties have shifted during this debate. As in about 180 degrees by both sides. The "party of the people" Left is supporting a policy that gives tons of money to corporations and their highly-paid executives to stimulate the supply side, and now the "corporatist" Right is advocating giving money to the consumers to stimulate demand. What's next? Locusts?
But I won't belabor the increasingly bizarre political side in this post. Instead let's take a look at a great piece from Saturday's Wall Street Journal by David Yermack, titled Just Say No to Detroit. Mr. Yermack goes into considerable, and downright horrifying, detail on the destruction created by the Detroit Three over the past few decades.
As a society, we have very little to show for this $465 billion. At the end of 1998, GM's market capitalization was $46 billion and Ford's was $71 billion. Today both firms have negligible value, with share prices in the low single digits. Both are facing imminent bankruptcy and delisting from the major stock exchanges.
A waste of $1.5 billion per month, every month, for the past decade. Just by GM. What could have been done with that $465 billion?
One can only imagine how the $465 billion could have been used better -- for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen.
Or perhaps an itty bitty fraction of that to implement a real lean manufacturing and leadership system. They could have shut down their companies for a year or two, retained all employees, and given each of them a few thousand hours of training... then spend another year to develop and implement improvements.
Hey, but what's a few billion when we're now throwing hundreds of billions at companies, leaders, and even individuals that couldn't lead a cat to a mouse or bothered to see if they could really afford that mortgage. Who needs accountability anyway?
The implications of this story for Washington policy makers are obvious. Investing in the major auto companies today would be throwing good money after bad. Many are suggesting that $25 billion of public money be immediately injected into the auto business in order to buy time for an even larger bailout to be organized. We would do better to set this money on fire rather than using it to keep these dying firms on life support, setting them up for even more money-losing investments in the future.
As Lester commented on my previous post, allowing GM, Ford, and Chrysler to go bankrupt is not necessarily a bad thing. There is still a demand that needs to be met, and some company will have to build it. Whether it's Toyota or a GM with new leadership. Mr. Yermack tackles this question as well.
Two main arguments are being raised to justify a government rescue of the auto industry. First, large numbers of jobs may be at stake, perhaps as many as three million if one counts all the other firms that supply the Big Three. This greatly overstates the situation. Americans are not going to stop driving cars, and if GM, Ford and Chrysler disappear, other companies will expand to soak up their market share, adding jobs in the process. If the government wants to spend $25 billion to protect auto workers, it would do better to transfer the money to them directly (perhaps by cutting each worker a check for $10,000) rather than by keeping their unproductive employer in business.
I could use that check to help buy a... Toyota!
Second, it is suggested that the failures of the U.S. financial industry, which have cost us something like $700 billion, justify bailouts of other sectors of the economy. This makes no sense. If the government diverts our national savings into businesses that have long track records of destroying investment capital, eventually we'll end up with an economy like France's -- or Zimbabwe's.
Sounds like we're already doing that. If there's no accountability, and a bailout at the end of even the most pathetic leadership decisions, then why bother trying to make good decisions, let alone visionary ones, at all? But who's going to bail out the government from their own pathetic decisions on bailouts? Not too many of us left.
I wonder what the weather's like in Harare.