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Posts Tagged ‘GM

About the complaints on Obama’s interference in Detroit

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The government has no business involving itself in business.

That is the popular refrain you will hear from fiscal conservatives/libertarians and such. Personally, I don’t disagree with the sentiment. Even in these tough times, I believe that the economy is best served by private enterprise with limited interference from the government. Plus, anyone growing up in India through the 70-80’s  observed first hand how governmental involvement creates inefficiency in business  (e.g. land-line phone companies) and how too much red-tapism destroy entrepreneurial spirits (or limits it to a dedicated or privileged few).  So in general, I am all for the government keeping their fingers off private businesses.

Except, when they have a right to it, by virtue of ummmm…….say few billion dollars invested ! I am of course, referring to all the hullabaloo over Obama’s recent sacking of the GM CEO Wagoner. Predictably, a swathe of right-wing bloggers (even some liberal ones) are upset over what they perceive as the administration’s needless meddling. The Corner sums it up thus:

GM is now Obama’ s company. If it closes, it will be on his say-so. But Obama is a politician, not a CEO. So his first concern is to avoid bad political fallout, which means he will prop up the company for as long as it takes, regardless of what makes economic sense.

This is very much on the lines of emotion expressed by Don Boudreaux in an editorial on USA Today earlier this month (he was talking about bank nationalization, but the idea is the same):

Politicians’ incentives differ radically from those of private owners. Few politicians look past the next election or beyond the familiar interest groups whose support is crucial.

(A very typical line that is often parroted by a certain eminent Indian libertarian blogger as well.)

All this is mildly amusing.  I wonder if people writing these stuff have any idea about the irony: Last time I checked, the current financial mess was created not by politicians, but private businesses, or rather the heads of certain private businesses. And the reason it happened is that these CEOs, just like politicians, were looking at short-term incentives – lining their own pockets with bonuses without considering long-term ramifications of their risky investments.

Similar short-sightedness have contributed to the fall of  the Detroit Big 3.  Rather than compete with foreign automakers by designing better vehicles in terms of quality, reliability and fuel-efficiency, they have been content to sit on the sales of poorly made gas-guzzling SUVs and trucks and lobbying to block any legislation that impact fuel efficiency.

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The problem is that the government should not have been involved in this mess at all (although when such a large number of people’s jobs are on the line, it is difficult for a modern government to be hands-off – and remember that while people are blaming Obama, the major bailouts  were passed by the Bush administration). But now that it is involved having paid the dollars, you cannot complain about its involvement, for good or bad.

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Written by BongoP'o'ndit

March 31, 2009 at 7:53 am