For many years, at least since the Bolshevik Revolution in Russia and quite probably longer than that, stout-hearted and stout-voiced American economic 'purists' have been preaching the virtues of the free market system. This isn't new, the United States has always been a capitalist country. Though there have been communal experiments within that economy (some of them very successful), the national economy has always been dedicated to the idea of competition and free enterprise. With the only possible exceptions being the Chinese and the Japanese, Americans are the most naturally capitalistic people on Earth. Marxism, while its effects have been felt (largely as a negative reaction against the idea by the right wing) quite strongly, has never had a serious claim to the political or economic loyalties of the majority of Americans. 'The American Dream' is the idea that one can become a successful capitalist by doing what one naturally loves doing, though it has been distorted in crasser and more commercial ways over the years.
I am, economically, a capitalist. I believe that the free market economy is the most viable system devised in the world's history. The most successful empires have always been built on honest capitalism, with wars arising over commercial disputes between capitalists. The greatest political crisis in American history was a dispute between capitalists and latter-day feudalists who had substituted the plantation for the manor and believed whole-heartedly in a patently unfree labor market.
The problem is that, since the Bolshevik Revolution, the most vocal defenders of the free market system have attempted to defend their own profits rather than the system that makes them possible. In a very real way, the Confederacy has stolen victory from the jaws of their Civil War defeat in modern America. Modern capitalism, as expounded upon by monetarists and the anarcho-capitalists of the Austrian school, has far more in common with the manor or the plantation than with Adam Smith's vision. The modern corporation, at least in America, has become the new refuge of feudalism and the modern upper-echelon corporate executive has become the modern day robber baron.
The voices of deregulation are not entirely new either. Anglican clergyman Thomas Malthus, speaking with pained self-righteousness, argued that the victims of Great Britain's Industrial Revolution could not be helped and that any attempt to help underpaid, overworked laborers or to regulate industry would only make things worse for the laborers and ruin everyone else's lives to boot.
Deregulation and free trade have been the rallying cry of American capitalists since the end of World War II and are still bedrock values to some in both the Republican and Democratic parties. Business, they say, must be left alone to run itself. The government is not equipped to manage the economy, business must handle that. We are now winding down eight years of our first CEO president, following sixteen years of deregulation and twelve years of increasingly free trade. Clearly, business cannot manage the economy any better than the government can when left to its own devices.
Alexander Hamilton, the father of both American capitalism and American political liberalism, understood that the role of government in a capitalist society is to re-enforce the natural tendencies of the market. The government does this by regulating business so as to ensure competition. In an unregulated market, capital becomes the club with which successful businesses prevent new competitors from establishing themselves. The reason we have only three major American automakers, for instance, is because The Big Three have used their money and political connections to buy out and stamp out potential competitors. This is not unlike the methods used by men like J.P. Morgan and John D. Rockefeller, whose corporate empires were eventually parceled out in courtrooms by judges gavels because it was found they had broken the law and illegally manipulated the market in order to drive their costs and wages down while driving profits up. This was the atmosphere in which the modern American labor movement emerged in the early twentieth century.
A truly free market is a competitive market in which someone with a product and capital can establish a new business in their chosen field and compete as successfully as their product and ability allows. Such a market does not exist in the United States. While such a market may be an unrealistic ideal, it is the government's job (through practical, sensible regulation of corporate conduct and consistent enforcement of the spirit of those regulations) to realize as much of that ideal as possible. This economic crisis has shown this dramatically, just as the Great Depression did in the 1930s.
I want to oppose the auto industry bailout in the worst way. Not because I am a hardened economic purist who believes that a failed business deserves to fail, though I do believe that the government's insulation of such corporations does have negative consequences, but on a moral level. The Big Three (and other companies, including the defunct American Motors) did the government very big favors during WWII. While some would call this their patriotic duty, they were able to translate these favors into credit with Washington. As Ford, General Motors, Chrysler, and American Motors consolidated their hold on the American automobile market and consolidated more and more money and power in their own hands they formed a cartel powerful enough to prevent new manufacturers (Preston Tucker is a poster-worthy example, though there are less well-known examples as well) from entering the market. When American Motors merged with Chrysler, the modern American auto industry was set in stone and the only changes since then have been foreign acquisitions and mergers.
The premier example of the failure of the big three has been the GM brand 'Saturn.' The Saturn line was launched to great fanfare, an entirely American manufacturing enterprise in which the workers at the factory owned the company. GM originally set the company up to be completely independent of their larger network of brands and Saturn was extremely successful. So successful, that GM decided it needed a bigger piece of the pie. GM bought out the shareholders and closed down the original Saturn factory, moving manufacturing to Mexico and Detroit as with their other brands. Despite this, Saturn has continued to be the bright spot in the American auto industry. The brand has led the way in making the kind of cars the modern world wishes to buy: economical, technologically current, and fuel efficient. The Saturn Vue SUV, contrary to most stereotypes of such vehicles, gets gas mileage competitive with that of mid-size cars. Yet when General Motors submitted their post-bailout business plan to Congress, their proposal was to drop Saturn but to retain GMC, Cadillac, and Buick. GMC is entirely redundant. Every GMC truck is an equivalent model of a truck manufactured by Chevrolet. Cadillac is a luxury brand, priced well out of the range of the average working American. Buick is, and has for years been, famous for producing cars that are too big and too fuel-guzzling to be practical for their sticker price. Yet in their appeal for government aid, GM believed that keeping these three brands and scrapping Saturn was in their best business interests.
I believe an automotive bailout is necessary, despite all of that, because of the effect letting GM and Chrysler fail would have on the American economy. Even the Republican Party believes so, and despite all their bluster the only real bar to such a bailout passing the Senate was the fact that the House proposal wasn't tough enough on the United Auto Workers to satisfy union busting senators from right-to-work states which host heavily state-subsidized automobile factories owned by foreign companies.
In my opinion, we have to hold our nose and bail the Big Three out despite all their sins. This does not mean, however, that they cannot be held accountable. Real reforms can and should be required. The Big Three should be completely enjoined from laying off employees or closing factories on US soil if they receive government money. Their management payroll should be heavily slashed, especially at the very top levels. Executive bonuses should be tied to sales and revenue rather than share prices. I would go so far as to mandate the transfer of outsourced jobs back to the United States and certainly believe a prohibition on further outsourcing must be part of any bailout package.
The House bailout is not happening and the White House is merely playing for time to allow the new Congress and President to act when the new administration takes office. Any fix between now and then will be purely temporary. The new Congress should revisit the issue, and the new President should be mindful of his own remarks on the necessity of forcing the Big Three to reestablish themselves as viable business concerns. Some pay cuts, on the labor side, may be required for legitimate economic reasons and that thorny issue must be addressed head on. While less guilty than management, labor does have a share in the blame for rising costs. Yet their share is inconsequential compared to the malfeasance of the management of the Big Three and this proportion of blame must be kept firmly in mind. Allowing the Big Three to fail is not punishing merely the incompetents and criminals responsible for that failure, but also punishing everyone who works for them or does business with them.
If a hand is gangrenous, one amputates the hand to save a life if that is necessary. However, penicillin is generally tried first. If penicillin works, amputation is not necessary. We need to approach our economic problems with that kind of calculation, not with a machete and a can of gasoline nor with a gift box full of money with no strings attached. Conservatives say that government is simply not equipped to micromanage the auto-industry to the degree necessary to save it from itself. I say micromanagement is not necessary. Practical regulation and consistent enforcement will force manager to do their jobs in return for their checks.
Penicillin before amputation.