Tuesday, March 24, 2009

Saving the auto industry

Philip Longman has a fascinating piece in this month's Washington Monthly making the case for a government takeover of the auto industry based on past successes with railroads. Read the whole thing, but here's the money quote:

What do Conrail’s and Woodrow Wilson’s forays into socialism tell us? For one, they contradict the doctrinaire idea that government will always and everywhere mess up if it gets hands-on control of a private industry—even if in both instances other government policies largely contributed to the crisis that government control ultimately solved. The dramatic improvements to rail technology and logistics achieved by the USRA during the Great War also belie the notion that market forces alone will always be a sufficient spur to innovation and maximum efficiency. When government takes responsibility for an ailing industry, it also gets a combination of a hands-on learning experience and a strong incentive to do the job right: with public money at stake in the industry’s success, politicians pay more attention to the ways in which their own past decisions are making its problems worse.

These are vitally important truths to keep in mind as Washington considers how best to help an ailing Detroit avoid catastrophe. The auto industry’s problems, like the railroads’, are not solely the fault of arrogant, out-of-touch executives flying to and from begging sessions on Capitol Hill in private jets; government policies have shaped the environment in which automakers must produce and sell vehicles, often for the worse. [...]

Simply throwing vast sums of money at Detroit, then, is unlikely to save the American auto industry, no matter how many strings are attached to that money. Better for the federal government to take direct, if temporary, control of U.S. automakers, as it did with the railroads. Only at that point will Washington have both the leverage to force needed management reforms as well as the incentive to change its own policies—increasing gas taxes, preempting state dealership laws, and easing Detroit’s high health care costs by, among other things, passing universal health care.

As with Conrail, however, care would have to be taken not to surrender too many public goods to the altar of profitability. It would be wonderful if the government could one day sell its shares in General Motors at the same high price Conrail eventually fetched—but not if the profits came by turning GM into a monopoly or by making Americans still more dependent on cars. When it comes to rescuing deeply troubled industrial companies that the country cannot afford to do without, Conrail’s successful managers have left us with a good checklist to follow: leave your ideology at the door, pay more attention to the engineers and managers on the ground than to the financiers in the corner offices, and remember that social returns, not profits, are the ultimate measure of success.

I am particularly struck by how some of the policy improvements he cited--"increasing gas taxes...and...passing universal health care"--are also great goals for the country. As I said, read the whole thing: the story of the two railroad nationalizations is a fascinating one that I, at least, had never heard.

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