Bail Out the Workers, Not the Plants

Bailing out GM, Ford, and Chrysler is anti-change. Many agree that the United States--and the world--need to shrink the auto industry and grow new industries that use renewable resources and are more environmentally (climate included) friendly. The current crisis provides an opportunity to let the obsolete sector of the economy shrivel more quickly, and accelerate the development of a new one. Bailing out the Big Three seeks to stop history rather than to give it a hand.

The main counter argument is that GM et. al. are too big to fail, that allowing them to decline will trigger a domino effect that would bring down many other manufacturing industries that make parts for autos, process the raw materials they need, and so on. First, these secondary industries also must either find new products to make or go the way of the car makers. Second, the way to greatly curtail the side effects and pain of the transition to new industries is to bail out the workers but not the plants.

Rescuing the workers should take the form of paying for their retraining, relocation, and extended unemployment benefits, and even assuming responsibilities for their health insurance and retirement funds, now paid for by the Big Three. The costs of bailing out the workers are much smaller than keeping them afloat by bailing out the plants. The reason is that in such "rescue" plans, part of the funds go to maintain and modify the obsolete assembly lines (and more generally the plants)--as well as to pay high salaries to executives and dividends to share holders.

All this can be made easier, because there is no reason to close all the auto plants. Those that can make buses, passenger vans, trucks and pick-ups can be maintained. The same is true for those which make smart or mini-cars and for those that work to develop an electric or hydrogen car. Some others might be converted to the new world. However, about the last thing the United States needs is more full size gas guzzlers, SUVs, civilian Humvees and the like.

Many economists oppose the use of industrial policy, one that chooses losers and winners: chooses losers to sunset, and rains capital and other goodies on the newcomers. They favor injecting the economy with a general stimulus and letting the consumers choose on what to spend these manna dollars. However, the fact is that an industrial policy is very much under consideration by Congress and the new president--only its priorities are upside down. The current plan calls for shoring up the losers, the Big Three, and for --given that funds are limited--in effect, shortchanging the newcomers.

One of the examples most often used by the opponents of industrial policy is to suggest that when cars first rolled off the assembly line, industrial policy was inclined to invest money in the makers of buggies and whips, to bail out the horse-driven industries. Rescuing the Big Three is the contemporary version of saving the buggy and whip makers instead of investing in tomorrow's equivalent of car makers--green industries, public transportation, and new technologies.

Obama is the change president. It is odd that his first major substantive policy announcement since he was elected was a call to bail out yesterday.

Amitai Etzioni studied economics at the Hebrew University and is the author of The Moral Dimension: Toward a New Economics. He can be reached at [e-mail]

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Should the Government Bail Out the Big U.S. Three Automakers? HuffPost Bloggers Weigh In

Comments

[2cntswrth]

I agree! The workers are those who will feel and in turn create the greatest negative economic impact. And it is the workers who should get the help. Bailing out the auto companies who are making over-priced gas-guzzlers and paying obscene corporate executive salaries will not really solve the problem or the economic woes in our country. People cannot afford to buy the cars they are producing! That's why these companies are out of money. They are trying to sell something people don't want and cannot afford. It is that simple. So, giving them tax-payers' money to just produce more of the same over the next several months doesn't seem to make a lot of sense.

[Scudrunner]

Good article. I just retired after 34 long hard years working this industry. It's amazing how many folks are so ready to judge an industry that they really are not knowledgeable about. The American auto industry and the earnings of the union autoworker has been so instrumental in the wealth building of this nation. But the rapid rise in the cost of oil has left the market flat. The Big Three also produce decent economy cars but even they aren't selling. Even Toyota/Honda sales are way down. People are out of work or making less and cars last longer so guess what, that auto sale is put off for a while longer.

Still, I'm against a bailout because there has to be demand first. Put money in the buyer's hands first. Then when they buy a new car, that corrects the problem. Duh!

[enochsmoky]

The auto industry is a perfect example of the excesses of 70 years of unionism. Sure, management made many mistakes over the years, however, they were forced into selling a disproportionate lineup of trucks, SUV's and large cars in order to generate a profit margin that would cover their outlandish labor costs and benefits. The Democratic party wants to bring such good times to every business through the proposed card check union organizing. Any business owner who voted for Obama and Democratic Senators and Representatives deserves that knock on the door by Anthony, the friendly 300 pound union organizer. I can't wait for the dawning of this new progressive era in America.

[PatientNoMore]

Eunoch, what ARE you smokin'?
Unions have helped build our economy. By unions demanding fair wages, more of the profits of industry get injected into our economy than would have if management had their way and those profits were hoarded by the few at the top. Trickle down economics does not work.
Furthermore, if the automakers were "forced" into selling gas guzzlers by a clamoring public why did they 1)spend so much money advertising those SUV's that everyone already wanted?
2) cancel the leases on everyone's EV-1 and confiscate them under protest from the very satisfied customers? and 3) buy up and supress every other gas saving innovation that they could?

[hrmarlin]

Do not bail out mismanaged companies!

Bail out the taxpayer.

How?

A "reverse sales tax". Give a ten percent rebate on each retail sale (excluding real estate sales). The U.S. Census Bureau reports that there were about five trillion dollars in retail sales in the year 2006. Ten percent of that is about five hundred billion dollars a year. That's about forty-three billion a month. That's about half of what we pay in Iraq.

A "reverse sales tax" would give poor people a non-tax boost in income. If people don't buy goods and services they would not get any benefit. Companies that don't file U.S. tax returns would not get a benefit.
A boost in retail sales would support employment.

The IRS could handle the details. The rebate should be on a monthly basis to help small businesses. A store could offer an instant rebate in goods and services, or they could submit their monthly sales statements to the IRS and get a tax credit or cash. A customer could then submit their sales receipts the following month to get a cash rebate from the store.

A monthly cycle would mean that Congress could repeal the benefit at any time!

A reward could be offered to people who report stores who unfairly raise prices to try to take advantage of the rebate for themselves.

[Phil Waste]

We need to save the auto companies but not to produce those giant behemoths that burn so much gas and take up so much of the road.

First thing that needs to be done is to raise the tax on gas so that it stays above $4.00 a gallon to force the auto companies and their idiot customers to buy economical small cars. If we do this and Detroit retools to build smaller cars we can also make freeway lanes narrower and make new lanes without making new freeways. There would be more room for parking, so on and so forth.

The money raised with gas tax could be used to build high speed trains on dedicated tracks going coast to coast along highways 10, 20, 40, 80, and north and south along side 5, 95 and through the middle of the country. This would provide jobs and ultimately stop our need to import oil.

If we only use our heads we can make an entire sane and prosperous nation.

If we let greed and self indulgents take over again it is back down tnto the sewer.

I have been through this before in the 70's and just as soon as the shortage disappeared so did the concern over conservation of resources.

[mommadona]

I don't know if it's general knowledge, but here's a point to ponder.

The 'BIG THREE', in the past, spent millions to buy up new technology/alternative motor/energy patents and then SAT ON THEM....they knew if these devices or processes were available in the public market, that their products would be worthless.

For decades, they've been doing this.

Something to really think about.

If they had WANTED to move forward into 'green technology', they OWNED ALL THE INFORMATION to do just that.

Just a thought.

http://74.125.95.104/search?q=cache:hwDa0tlsJ5IJ:judiciary.house.gov/hearings/pdf/Gillis080214.pdf+patents%2Bautomakers&hl=en&ct=clnk&cd=14&gl=us&client=firefox-a

[americaforme]

If the car companys could deversify into the age of robitics, and nanotech, the money would not be frittered away. This is a new era, they need to dump their old ideas, step up to the plate and be counted. Bailouts shouldn't be for medical period....WE HAVE TO NATIONALISE MEDICAL CARE. Retirement thats whole new issue. Retirements should be accelerated as the Big Three become rich on the new USA Made robots of the future.

[SOLERSO68]

yeah robots can do the work, just like on "FUTURAMA".

[1stThron]

US automakers are in trouble because the worker's salaries compared to Toyota workers are as obscene as the executive salaries the Left loves to demonize. Plus the design and quality, except pick-ups and SUVs, are wanting. If you want greener transportation then support managing the transition which means keeping oil prices in the sixty dollar per barrel range which can be done with drill, drill, drill and cap oil strategy with the goal that if our enemies stopped sending oil or coerced our friend to the US could uncap wells and meet daily needs within two weeks. This would allow US automakers to sell pick-ups and SUVs giving them the profits to invest in green technology and the oil industry the profits to invest in green alternatives. Remember, no matter what the US does to eliminated carbons, China and India will triple present carbon emissions by the US. It may take twenty years for the US to be green but it will take 40 for China and India. Because of the present economic disaster not even Americans are going to be able to afford green technology. A green economy will establish itself faster and will be more affordable if government will work with the oil, technology and auto industries to manage the transition. Cold turkey will not do it. But then again, no one does stupid better than liberal Democrats.

[Oridaman]

Is that BS that I smell?
Why is it always the 'evil unions' that are the culprits?
CEOs that do a HORRIBLE job still get a HUGE retirement package, how is that fair?

[PatientNoMore]

1st Throne, thanks for telling us where you do your writing from, otherwise known as the one-seat-library. Maybe that explains the odor that Oridaman has detected.
Comparing the salaries of CEO's to hourly workers is a pretty clear indication of the problem actually. In Japan, the ratio of CEO salaries to average worker's wages is about 11:1 and in the United States it is about 400:1. This is the biggest disparity of wages anywhere in the world.
Further, I think you have made a typo when you stated that "the US could uncap wells and meet daily needs within two weeks" if we adopted a drill and cap strategy. It has been estimated that uncapping oil wells and drilling for more for the next ten years could meet daily needs FOR a few weeks.

[TrooAmerican]

I say use some of these billions to buy Gas saving Hybrid or all electric commuter cars for the populace. 500 Billion would buy 20 million cars @25,000.00 each.

That would cover just about half of households making under 50k per year. Require them to turn in an existing vehicle for the program owned, registered, titled, and insured 90 days prior; Require new ownership of the new car for a minimum of 5 yrs. The government then sells the vehicles to salvage yards for scrap and parts. Any vehicle turned in that is in good running condition and gets over 30mpg avg could be resold in the used car market by the salvage yard.

That would A) help millions of families in need of a decent newer vehicle that gets high mpg and reduce their costs for years to come.
B) pump up the auto industry in a huge way, all the millions of employees of parts supplier industries as well, and actually acheive something useful. (Heck the Government buys fleets of Vans, cars, or trucks or some other vehicles for Govt use? we pay for that.)
C) It would immediately lower nationwide pollution, gasoline usage, oil usage, and leaks to help the environment and lower prices for petroleum due to drastically lower demand.

This stupid criminal bailout of banks that are hoarding money, refusing to lend, using it to pay themselves golden parachutes, bonuses, n posh vacations is just vomit.

[iyamchazz]

The problems that the big 3 now face is of their own creation.
They abandoned innovation and stuck with a failing strategy.
If we look at it rationally, the gas guzzler philosophy was part
and parcel of them being in the pocket of the oil companies.
The consumer, fuel efficiency and the environment were never
their concern. More gas guzzlers, more profit for the oil companies.

[hollybork]

This is one approach. Let me suggest another. Let the automakers fail. Put them into chapter 11 bankruptcy. This will give them a legal basis to renegotiate labor contracts.. Then the department of energy can capitalize through $500B of preferred share purchases 3 of the best and most innovative companies out of California. They have innovative and risk tolerant management, plus they have prototypes for alternative cars fueled by hydrogen, electric, and hybrid fuels. Allow them to buy up the assets of Ford, Chrysler and GM to convert the existing plants, personnel, technical expertise and distribution networks of conventional autos into part of a green transport business revolution.

Paying off and training the employees may work in small doses. We do however need a transportation industry for many reasons, not least of which is for national security. Turn this failure into an opportunity to move forward aggressively with totally new management.

[Downing]

If Lassez-Fiare worked, why are we having to clean up these messes? I say let Lassez-faire work it out. This is totally, blatantly illogical. I don't want to pay stockbrokers to support their indulgences and covetous stupidity,. Where's MY bailout? I have four kids, so give us our $13,200 share and we'll get a year ahead on our utilities and other payments.

[Sundialsvc4]

On the one hand, we must not permit one of our few active domestic industries to "fail."

On the other hand, "we actually have no GENUINE Money to throw at the problem anyway." No matter what the military industrialists may say, there's no pot of gold at the end of the Beltway.

"Bail Out" means "Easy Money." Again.

What we need to do, in terms of Government action, is much more subtle. We must create an environment in which promotes industriousness (of all types) at home than from afar. I said "industriousness" instead of "industry." A company owned by foreign investors who is building better cars than you are, but doing so on this soil and in compliance with American laws and standards, is both an employer and a worthy competitor.

A vibrant economy is, in the point-of-view of an accountant and his ledger books, highly "redundant" and even "inefficient." It doesn't produce at the lowest price, nor choose the cheapest source. Yet it produces the higher wages that allow its workers to purchase what they PREFER.

Finally, "you are turning a big boat here." Capital decisions, in any large business, take time... this did not start in just one administration and it won't end in just one, either. But REAL FORTUNES have been "made in America," and they will be again. Get rid of the anemia.

[DuganS1]

The idea that the car is obsolete technology is laughable. The problem is not the cars, but the fact that Chrysler, GM, and Ford can't make any money selling them..

[djtyg]

As someone who works at GM, I have to ask you to take your own advice.

Quit your job, go on unemployment, go to school (oh wait, you can't go on unemployment and go to school in Michigan!), and get retrained for a new job, even though you're just a few years shy of your pension and were looking forward to retirement.

Does it sound like a good idea when its YOU that's being asked to do it? Not quite the bailout you were hoping for, huh?

[beaupritchard]

As one who has watched his community devastated by the investor class chasing ever expanding markets and cheap labor abroad I empathise even sympathise with you. Both answers are wrong ... I know ... I know I have posted "let them fail" in talking about automobile and banking and wallstreet ... and I still blanche that those who brought this crisis too us were bailed out when for years they let us live by a more darwinian crede.

But in a somber moment on a Monday morning I understand ... there would just be too much pain were we to do what's right. It is not right to ask someone who has worked his whole toward the promise of retirement to forgo retirement benefits ... it is not right to ask someone who trained to do this job to suddenly shift gears and learn to do something else.

There is some other answer out there ... we must find it. I do know that the focus on that particular type of man that worships greed above all else must end.

I do not envy Obama's choices ... but I know he will come down on the side of doing what's right for those that elected him ... not wallstreet ... not the investor class.

[Erickay]

Quite so.... workers are the ones who will pay the price for the auto industry mess one way or the other. Those who landed them in the mess (the decision makers who made millions while leading them to the dump) will walk away greatly enriched. What is just about that?

It's time America realized that those who produce the goods are NOT at fault for the failures at hand, nor are the unions who fought for healthcare, training, decent pay, equality in the workplace, and decent retirement benefits.

My son said yesterday, "Raid the bank accounts of the CEO's and see if they are willing to invest in the companies they drove into the ground." Hold the "leaders" responsible for their decisions.