Archive for the 'libertarianism' Category

Owners, not patrons

May 27, 2009

The government is poised to acquire ownership of 70% of General Motors, ostensibly in a move that will smooth out GM’s restructuring. As the Times reports:

The latest plan for the troubled automaker, which is expected to file for bankruptcy by Monday, calls for the Treasury Department to receive about 70 percent of a restructured G.M. Including the more than $20 billion that has already been spent to prop up G.M., the government will provide G.M. at least $50 billion to get the company through Chapter 11, people with direct knowledge of the situation said Tuesday. By some estimates in Detroit, tens of billions beyond that amount may be required. …

The prospect of a G.M. effectively owned by the government raises a number of thorny questions. Countless policy decisions — on matters such as fuel economy standards, tax incentives to replace aging cars and green technology initiatives — will present conflicting interests. …

Aides to President Obama have consistently said they would be reluctant shareholders, and they plan no operating role in the company.

“No one is going to put U.S. government employees on the G.M. board,” one person close to the ongoing discussions said on Tuesday.

The day-to-day running of the firm, this person said, would be left to professional managers, and the government would not be involved in decisions about closing factories, renegotiating contracts or selecting product lines.

There is a strong cultural obligation for the Obama administration to keep their hands off of business, even businesses in which the government would own a controlling stake. Not surprisingly, even with these reassurances there have followed the inevitable wisecracks about socialism and government-run enterprise. While American tolerance for most state-run businesses may be low, it is simply bad policy to rely on “professional managers” to bring GM back from capitalist Limbo. After all, GM has been in some form of restructuring for decades under the steering of “professional managers,” and has neither fully recovered from its market losses in the 20th century, nor successfully avoided collapse in this recession. How badly have “professional managers” mishandled GM? Consider this:

The automaking losses have put GM in the kind of financial position lately associated with dying airlines and retail chains. The company has been frantically seeking cash to meet its financial obligations. GM has sold stock and tapped credit markets to raise $5 billion in the past year alone, mostly to pay operating expenses. If the financial squeeze grows too tight, GM might even file for bankruptcy protection under Chapter 11 to force concessions in its wage, pension and benefit packages.

Thus wrote Time in 1992. Professional managers have not saved GM in the past, and it is odd to think they will do so in the future. Rather than the government merely becoming patrons of the same managerial cadre, it should carefully consider taking that dreaded active role, and finally changing the (faulty) way GM does business.

The bonuses next time

March 19, 2009

Sir Charles at Cogitamus wins Best Extension of the “Invisible Hand” Metaphor. He also has a good post on the implications of public anger at the AIG bonuses and their recipients:

For years we have been fed the bullshit notion that our economic system provided “pay for performance.” rewarding greatly those who most deserved it. When one was so gauche as to engage in “class warfare” and criticize the compensation of CEOs and Wall Street titans, and the growing gap between them and the average worker, we were lectured to by the Randroids and libertarians, the business press, and most of all, by Republicans, that this was simply the invisible hand briskly stroking the deserving organ of commerce.

The AIG situation stands as a wonderfully emblematic moment, a veritable tsunami washing away this illusion. It is but one of many instances in recent years where business elites have chosen to enrich themselves despite their all too verifiable failure. But it is one so stark, so brazen, so jaw-droppingly, gob-smackingly outrageous that it has created a public furor that could be transformative if used correctly. Coming as it does on the heels of Madoff and Stanford, Lehman and Bear Stearns, the stock market meltdown, the real estate bubble, the grotesque manipulation of exotic financial instruments by our financier-illusionist class, the public has simply had enough. They are afraid and angry, bitter and put-upon.

It would be nice if the bonuses were the thing that finally broke public support for the vast injustices and inequalities of the American economy, but I am not as optimistic as Sir Charles on this point. It is true that Americans are outraged about the bonuses, and that their outrage has even prompted the government to action. Nevertheless, as more huge bonuses to managers of failing organizations loom on the horizon, there seems to be little popular resentment of the idea of million-dollar corporate bonuses as such.

It is important to distinguish between anger at bonuses given out “undeservedly,” and anger at inflated corporate pay in general. The outrage over the AIG bonuses is likely a mixture of these two different sentiments. Some people are outraged because “the notion that the ‘masters of the universe’ class is in any way worth what they are paid or otherwise worthy of our esteeem and admiriation” has not yet been destroyed by economic realities. Others, I believe, are only upset at the bonuses because their recipients didn’t earn them this time. This latter contingent would not have cared one bit what executive pay was like if the economy were in (seemingly) good shape.

Sir Charles “want[s] Obama to take advantage of this moment and use it as a cudgel with which to achieve progressive economic ends.” Inasmuch as curbing inflated executive pay is central to American progressive hopes, it is essential that these “winter progressives” (those favoring redistribution only when times are bad) do not turn on the policies they support today because AIG, Fannie, or any other business is making good profits tomorrow.