I’ve been reading various things about the audo industry bailout and various opinions of people for and against. Through all this confusion, I thought out I would point out a couple of invariants:

  • We’ll still be buying the same number of cars whether GM goes under or not. Those cars will still need parts and workers and those workers will still be working in North American plants. They might not be plants in Michigan but they’ll be somewhere in North America. So when you hear that GM and it’s subsidiaries employ 300,000 people, it does not mean that the employment rate in the US will drop by 300,000 just because GM is out of business.
  • The dislocation will be painful. On the flip side of the fence, the market idealists who like to think of creative destruction as an abstract force are wrong. There’s going to be plenty of economic cost before the economy rights itself again. Factories are going to have to be torn down in Michigan and built up in Kansas, assembly lines will have to be retooled from making GM widgets to Honda sprockets, Engineers who are used to working with Mac down the hall now have to work with Joe from Ontario, most of the R&D on the GM Volt isn’t going to be much use for the Toyota Prius.
  • Whether you support the bailout or not depends crucially on whether you feel GM can turn itself around. It’s curious that this case rarely seems to be made explicit. Those supporting the bailout make the fundamental assumption that GM can eventually be restored to a smaller yet functional corporation that will eventually return to profitability and those opposing it assume fundamental structural flaws in the company system. I’ve not yet found many articles which make such claims explicit and try to justify yet and yet this is the determining factor in whether the bailout makes economic sense.

Personally, I’m very much against the bailout. It seems to me that the problems that GM face are caused by an endemic failure of corporate culture spanning everything from an uncreative, insular management to obdurate union which is unable to make the concessions needed. Such a thing cannot be fixed through any sort of superficial restructuring or easy infusion of cash. Rather, GM needs to go through the sort of wrenching transition that IBM went through in the 90’s and I don’t see any evidence of such a thing occuring.

Yes, it sucks that GM is going out of business and it’s going to cause enormous economic pain for those involved. It would be great if we could wave a magic wand that would cause that pain to go away and I would wholeheartedly support a bailout plan if that looked realistic. But as it stands, it looks like GM going out of business will be inevitable and all a bailout will do is become an expensive way of forstalling the inevitable.

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