Posts Tagged ‘Chrysler’

With General Motors filing for bankruptcy today and our esteem federal government taking operational control (has our government ever been successful at turning a real profit?), I thought it timely that the Wall Street Journal would find  someone that has experience in a government’s running of a car company.  In this article,  Lt. Gen Pacepa, once a Soviet bloc car czar, describes his experiences and lack of successes.  Enjoy!

Oh, and remember that under the new union agreement (you know, the one that gives the UAW about 17% of the new GM while the more secure bond holders get much less), GM is not allowed to import from their global factories the more fuel efficient small cars made for non-US markets.  Bravo to the union for struggling along with us and our environment.

chron.com

In the Wall Street Journal’s opinion section, Scott Sperling of THL Partners (a private equity firm) defends the current administration’s auto workout plan as a capitalistic approach.  With all due respect, I don’t believe he understands the meaning of capitalism.

Rather than re-inventing the wheel, I present the wikipedia definition of capitalism below;

Capitalism is an economic system in which wealth, and the means of producing wealth, are privately owned.  Through capitalism, the land, labor, and capital are owned, operated, and traded for the purpose of generating profits, without force or fraud, by private individuals either singly or jointly, and investments, distribution, income, production, pricing and supply of goods, commodities and services are determined by voluntary private decision in a market economy.  A distinguishing feature of capitalism is that each person owns his or her own labor and therefore is allowed to sell the use of it to employers.  In a “capitalist state”, private rights and property relations are protected by the rule of law of a limited regulatory framework.

I believe that the above adequately defines capitalism and further discussion on it would be a waste.

In no way do the actions taken by the federal government (this administration or past administrations) to ‘save’ the US auto industry have any resemblance to 1) the fair trade of land, labor, and capital, and/or 2) the respect for the rule of law.  For him to offer that it is capitalistic because all parties suffered is ludicrous. In his own words, he mentions that the government “demands… …retirees take equity” and that it (government) “used rigorous analysis to make tough decisions.”  Remember, it was Bush and Congress (including Obama) that decided to get involved in the first place by writing a bailout check rather than letting these two (GM and Chrysler) go through the rational and logical process called Chapter 11.  The definition of capitalism does not include a caveat allowing an elected majority the right to dictate terms that go against the rule of law.

Actually, we can go back a little farther and assess some blame on the banks for being willing to fund a leverage buyout of Chrysler by a private equity firm, knowing that said firm has never been self-sufficient, was at the peak of an economic cycle, and had massive fixed labor costs (most of that is not hindsight).  They, under capitalism, have every right to make bad decisions, but they should have to suffer the consequences.  If they did, maybe Chrysler would have been liquidated and GM would have survived, as a major market participant would have been eliminated from the market.  Who knows the outcome since the free market was never allowed to operate.

It may be that the action taken by the current administration was the best solution available to lessen the pain by the largest amount for all parties directly involved, but in no way can it be confused with capitalism.  It was an action taken (forcefully and against the general population of the US) by a body of government elected by about 50% of the population, with the thought (right or wrong) that immediate steps were needed for the good of “society.”  In my opinion, the likely immediate benefits are far outweighed by the lasting implications of this decision, especially, if we resign ourselves into thinking that these actions represent capitalism. 

As mentioned above, maybe this was the best coarse of action, but we need to be honest about it residing outside the basic principles of capitalism.  If we accept Mr. Sperling’s argument, we do ourselves an injustice, redefine the word ‘capitalism’, and bend to forces of those in power, neglecting the rights of Individuals (singly or jointly) to succeed and fail.

If you don’t read the entire article, please read the excerpt below.

“The value of the rule of law is not merely a matter of economic efficiency.  It also provides a bulwark against arbitrary governmental action taken at the behest of politically influential interests at the expense of the politically unpopular.  The government’s threats and bare-knuckle tactics set an ominous precedent for the treatment of those considered insufficiently responsive to its desires.” – Todd J. Zywicki