Post-Peak Liberal: What to Do with The Big 3

Post-Peak Liberal

....... Life on the Downslope

What to Do with The Big 3

Lots of ink spilled over the plight of the Big 3 American automakers lately. Are the CEOs sufficiently humble? Did driving hybrids instead of flying corporate jets to Washington convey a good enough sign of remorse? Will giving them bailout money just be flushing it down the toilet? Are they too big too fail? Is bankruptcy a viable option for them, or will that be the final shove off the cliff into an all-out American Depression, Part Deux?

This is a situation that really defies easy answers. On one hand, the automakers themselves have committed many historical sins. They killed the electric car back in the 70s. They also conspired for decades to dismantle functioning streetcar and passenger rail systems around the country, especially in the Eastern Corridor, in favor of a sprawling, cancerous complex of interstates and regional highways. They have continuously fought against higher fuel economy standards, even when Congress was asking for absurdly modest improvements. And then, they have obviously pursued a suicidally short-term tactic in going all-in on light trucks and SUVs, ceding the energy efficient and sedan markets to the Japanese, Korean, and European companies.

On the other hand, the current difficulties of the Big 3 are more complex. The entire industry has been slapped down by the overall American meltdown. Automobile sales in general are down by a third in the US, and even the Japanese companies have seen steep declines in this climate. And on the surface, while the Big 3 look inflexible and weighed-down by their prodigious wage, health care, and pension commitments, recent studies show that total labor costs do not amount to much more than 10% of vehicle sticker prices. The allegedly bloated wage and benefit packages of autoworkers only appear as such because the rest of the labor market has been beaten into submission by economic developments over the last four decades: globalization, outsourcing, technological labor-replacement, rapid de-unionization, and the lack of a national health care system. Just think of autoworkers as one of the last high-standing pegs in the labor market, one that hasn't been pounded down to a lower level just yet, due to the zealousness and dedication of its union leadership. The labor costs of the Big 3 may thus be a bit higher than their competition, but it would be preferable to fix wider systemic flaws in our national economic policies than penalize either the UAW or the Big 3 for still providing decent compensation packages for their workers.

So what should be done? Should we let the Big 3 declare bankruptcy, like any other company that has made bad choices? Would bankruptcy make them more flexible, able to regroup and reorganize for the future? Or are these companies too big to fail? Is a huge swath of the American workforce at risk if these firms go under? Should we bail them out, considering that we just threw a trillion or so bucks at the financial industry, with very few strings attached? Or would bailing them out just be flushing money down the drain? Should we bail them out with strong conditions attached, like strict executive salary restrictions and mandates to produce electric cars and light rail and such? Or should we just nationalize the whole mess, buy the companies and then dictate from on high what they should do?

Michael Moore has made some good remarks in this recent debate (www.michaelmoore.com). He has pointed out that the Congress treated the auto industry heads like disobedient stepchildren recently, sending them back to Detroit to do a homework assignment on why they should get government largesse. The captains of finance were not treated as such, when they came with their hands out. Moore advocates the government buying the companies outright, which would actually cost less than a bailout, and then radically retooling the plants, a la WW2, for production of rail cars and electric vehicles. He notes that this retooling should be partnered with an overall national commitment to building a light rail infrastructure, as well as massive public works projects to rehabilitate highways and bridges. And finally, he cites the rapid turnaround of the American rail system in the 70s, when a bankrupt system was nationalized, rehabilitated, and then returned to private control in roughly a decade's time.

Good points all. The Big 3 really are too big to fail. Bankruptcy is not a viable option. We all know that if these companies go Chapter 11, their "reorganizing" will involve massive layoffs and Draconian demands for further labor concessions, which would result in torrents of personal bankruptcies, many more home foreclosures, and continued hollowing out of the already-fragile blue collar Midwest. And how many people would actually buy vehicles from companies that are bankrupt? Would you feel good about a long-term warranty on your sensible sedan, knowing that the company might be gone by the next Spring Training? The bankruptcy option for the Big 3 would just be a temporary stay of execution, and their eventual collapse would likely be pushed to late 2009 or 2010, at which point the massive loss of tax revenue and matching federal outlays in unemployment insurance would descend on our national budget like locusts. In the big picture, according to the Center for Automotive Research (www.cargroup.org), the bankruptcy and failure of the Big 3 would result in 3 million jobs lost, and $60 billion in lost federal money (through tax revenue decline and unemployment and other outlays), in just the first year alone.

So with bankruptcy off the table, what about a bailout, with strict conditions? After all, we bailed out the financial industry without many strings, so why not the Big 3? If they make commitments to limit executive compensation, to develop green energy vehicles, and to invest in improved quality and safety standards, why not give them some cash? There are a few reasons why I don't like the bailout option:

First, the incoming Obama administration should put the financial industry on notice right now, to expect radical alterations and conditions on their bailout money. As many have pointed out, the lack of demands by the government in the financial bailout packages has resulted in companies just sitting on the money, which is not an unreasonable option in the petrified credit environment that exists right now. But Obama's team should make clear that this will not continue.
The auto execs have made it clear that if Congress gives them some loot right now, they will make the cost-sensible move to lay off 20,000 workers, increasing competitiveness. Again, is that what we need, the pounding down of that protruding labor peg, throwing more people out of work, in hopes of becoming a "better" business? This shows that the Big 3 have just not learned anything about an overall business strategy, beyond wanting to send another message to the "bloated" UAW.
Bailing out the Big 3 would actually cost much more than simply buying the companies outright. GM could be had for a few billion, Ford for just a few billion more (as I understand it). Why give or even loan these companies money, when there is no guarantee that they will not eventually fail anyway, leaving the taxpayers with nothing to show for it?

So for these reasons, it seems to me that a (hopefully temporary) nationalization of the Big 3 is the best option. Ownership of these companies would be cheaper than a bailout, and would give the government the power to direct all facets of the retooling of the businesses. The looming spectre of eventual failure would be removed, as the government could sustain temporary setbacks in view of longer-term economic, environmental, and social goals. And again, the model could be the rail system in the 70s, turned around by government management and then returned to the private sector later on, preferably on a more decentralized scale (see below). But there are some major features to a nationalization of the Big 3, as I see it, that are not present in most descriptions of this process. Without attention to these facets, nationalization will not work in the long run. Here's how I see it:

Government buys the Big 3, with the general goal of retooling them to manufacture traditional and light rail cars, green fuel buses, hybrid cars, and other fuel-efficient vehicles. But this goal is intricately linked to an overall, coordinated plan to rejuvenate local communities, rebuild non-car commuter infrastructure, and repopulate small towns, small cities, and destitute inner city cores.
To that end, the finance industry bailout must be radically restructured, with strong mandates for banks to loan money to small businesses and other collective groups who are looking to reinhabit and revitalize local communities. Tax , zoning, and money-loaning policies should be radically simplified to make it easier for groups of people to finance their living spaces, businesses, and community projects. As I have described it before, the skids have to be greased for collective, local, micro-scale enterprises. It must be made easier and safer for people to own their own property, try out their own business ideas, and shape the contours of their everyday lives. We cannot just hope that the massive finance industry bailout will "get the economy going again," as it was in the roaring 90s, by stimulating big corporate loaning and investing. Let's remember that the "normal" functioning of the economy has been funneling wealth upwards for three decades, which is what put regular people in dire circumstances in the first place (subprime lending would not have been necessary if the rewards of our spectacular economy had been equitably doled out to those that did the actual work).
Another pillar in the overall lifeboat for America would be the immediate pullout from Iraq and Afghanistan, with a rapid redeployment of military money and personnel to a massive public works project, dedicated to building a nationwide system of decentralized, sustainable-energy power plants. What could be more central to our national security than getting us off the petro-teat as soon as possible? These decentralized power plants would eventually be returned to local areas as municipal utilities, still the best way of delivering energy to people at realistic costs. (To see more details on this power plant proposal, check out my post from 8/28, "What the Next President Should Do")
Similarly, as many have pointed out, a nationalization of the Big 3, with an eye to building mass transit options, must also be accompanied by a large public works agenda, to rebuild traditional rail lines, create new light rail lines, and refurbish our crumbling road and bridge infrastructures. This is certainly necessary, and could be accomplished by direct federal spending, by further mandates that the finance bailout money go to private construction companies for infrastructure projects, by using portions of the military budget and/or personnel to do the necessary work -- or more appropriately, a mixed hybrid of all these approaches, to keep as many options open as possible, and to satisfy a broad range of constituencies.
A final pillar of the overall scheme would be a national health care system. Even if we're not going to get a single-payer, national Medicare system right away, the most preferable option, we at least need to get something in place to help the uninsured and underinsured, as well as beleaguered employers. We cannot allow medical emergencies to continue as the leading cause of personal bankruptcies. Health problems cannot be allowed to destroy people's lives and futures, period. We live in a civilized, democratic society, and our for-profit system is an embarrassment.
The long-term end game for the auto-industry itself, similar to the decentralized power plants above, would be its return to private control, but with "first dibs" ownership given to the plant workers themselves. This could be a crowning jewel in a new national strategy to give legal and political preference to real worker control of their businesses, with profit-sharing, equitable compensation structures, and whatever other mechanisms deemed worthy. Centralized corporate control has been a boon for a few, but a disaster for the rank and file. Making the American auto industry a worker-controlled arena would be a shot across the bow of economic inequality.

So that's how I see a nationalized auto industry playing out. It must be part of an overall strategy to reinvigorate local communities, repopulate abandoned areas, and recreate dense but decentralized living arrangements. It won't do us any good to retool the Big 3, if we then stubbornly hold on to our suburban sprawl and easy motoring ways. What's the point of building light rail and traditional rail infrastructure, if there are no vibrant city and town centers left that people want to go to? And while, certainly, some jobs would be created in producing and maintaining this infrastructure itself, eventually those people will have to do other work in the places we link together by transport. If we don't have an overall strategy to encourage decentralized, self-sufficient, cooperative enterprises that actually produce the real stuff of life (food, durable products, meaningful services, and public sphere maintenance), we will just end up with a first class transit system to nowhere. The Green Economy does hold promise, but not if it ends up being co-opted by the same over-centralized corporate control that has left regular people powerless and broke. Our world will get a lot smaller very soon, especially as Peak Oil gains more traction. We need to be ready to inhabit our local places again, using new and old ways of working, producing, consuming, and living -- ways that do not rely on far-flung corners of the globe and sprawling petro-soaked supply lines.

So, bail out the Big 3? Nope, buy 'em, and make the auto industry one pillar in an overall rescue plan for the country, one with sensible, realistic, long-term strategies for living through the Long Emergency.