Robert Reich: The GM Bailout Is A Waste, We Need A Post-Manufacturing Economy

robertreich2 tbi

There’s been something of a left-right split when it comes to the bailout of GM (GM). It’s not perfectly clean, but liberals (or friends of labour) have generally been supportive of some government intervention, while conservatives, who are hoping to rebuild their identity as the “anti-” party have pushed back (though not terribly hard).

In a refreshing twist, liberal economist and former Clinton labour secretary Robert Reich slams the GM bailout for being a waste that will ultimately prove pointless:

But why would US taxpayers want to own today’s GM? Surely not because the shares promise a high return when the economy turns up. GM has been on a downward slide for years. In the 1960s, consumer advocate Ralph Nader revealed its cars were unsafe. In the 1970s, Middle East oil producers showed its cars were uneconomic. In the 1980s, Japanese auto makers exposed them as unreliable and costly. Many younger Americans have never bought a GM car and would not think of doing so. Given this record, it seems doubtful that taxpayers will even be repaid our $60 billion. But getting repaid cannot be the main goal of the bail-out. Presumably, the reason is to serve some larger public purpose. But the goal is not obvious.

It cannot be to preserve GM jobs, because the US Treasury has signaled GM must slim to get the cash. The company has only slightly more than 60,000 Americans today (83,000 around the world), and plans to shut half-a-dozen factories and sack at least 20,000 more U.S. workers this year. It has already culled its dealership network. Plans call for laying off another 18,000 U.S. workers by the end of 2010.

The purpose cannot be to create a new, lean, debt-free company that might one day turn a profit. That is what the private sector is supposed to achieve on its own and what a reorganization under bankruptcy would do.

Nor is the purpose of the bail-out to create a new generation of fuel-efficient cars. Congress has already given auto makers money to do this. Besides, the Treasury has said it has no interest in being an active investor or telling the industry what cars to make.

The real answer is clear: it’s to slow the economic decline. At a time when the financial and economic system rests at a particularly precarious state, we’ve decided that it’s better to just keep a zombie firm running for the stake of slow stability, rather than risk the shock to the system of an out-and-out liquidation and its attendant follow-on effects. This should be pretty indisputable.

Reich thinks GM is bound to vanish for good, due to what he calls industrial adjustments:

But US politicians dare not talk openly about industrial adjustment because the public does not want to hear about it. A strong constituency wants to preserve jobs and communities as they are, regardless of the public cost. Another equally powerful group wants to let markets work their will, regardless of the short-term social costs. Polls show most Americans are against bailing out GM, but if their own jobs were at stake I am sure they would have a different view.

So the Obama administration is, in effect, paying $60 billion to buy off both constituencies. It is telling the first group that jobs and communities dependent on GM will be better preserved because of the bail-out, and the second that taxpayers and creditors will be rewarded by it. But it is not telling anyone the complete truth: GM will disappear, eventually. The bail-out is designed to give the economy time to reduce the social costs of the blow.

Middle-class taxpayers worry they cannot afford to bail out companies like GM. Yet they worry they cannot afford to lose their jobs. Wilson’s edict, too, has been turned upside down: in many ways, what has been bad for GM has been bad for much of America. The answer is not to bail out GM. It is to smooth the way to a new, post-manufacturing economy. Read the whole post >

Here’s where he loses us. This idea of “smoothing the way” to a new post-manufacturing economy is what we’ve been trying to do for years, with our relentless focus on the knowledge economy, herding everyone (regardless of innate ability) through high school and ideally to a four-year college and then into an office, all the while producing more and more elsewhere. To some extent, the wealthier we get, the less we want to get our hands dirty and build physical things. And the avoidance of backbreaking labour is great.

But there’s still no reason why workers in the US can’t build cars competitively. Well, actually they can and already do. They can build cars in the south working for transplant industries. This points not to the fact that we’re destined to be a post-manufacturing economy, but to the idea that bad industrial policies (labour laws are an obvious culprit, though they don’t stand alone) have made it difficult to manufacture certain goods in certain places, stupidly cutting off opportunities for workers most likely to go into that field.

What Reich and other mainstream economists (right and left) don’t yet appreciate (but which the current crisis should be teaching us) is that a healthy economy shouldn’t just be judged in terms of growth (or really even equality), but in terms of whether it allows people to use their natural abilities in some way that will allow themselves to support themselves through labour. Unless you think that Americans are born innately overqualified for industrial work and that folks in China and elsewhere are just naturally going to work in facotires, there’s no particular reason to keep pushing this post-manufacturing idea, when we have both the labour and natural resources to build real things just fine.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.