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Throwing It in Reverse

Posted By Ernest Istook On June 2, 2009 @ 11:40 am In Economics | Comments Disabled

Government control of General Motors is likely to throw the company into reverse gear rather than forward. By rewarding bad behavior with $50-billion, President Obama has created powerful incentives for even worse performance. In his New York Times column [1] today, David Brooks lays out six reasons why the latest bailout will backfire:

  1. GM has been cut off from innovative thinking. Because Obama wiped out existing bondholders in favor of unions, no outsiders will be willing to bring fresh capital and ideas to GM.
  2. Insiders who sank the company remain in charge. The old CEO is gone, but the new leaders are entrenched insiders—especially the union leaders.
  3. There is now no downside for failure. Having bet $50-billion already, it would be political suicide for politicians ever to pull the plug on the company.
  4. The new GM will focus on the wrong things. As Brooks says, “Instead of thinking obsessively about profitability and quality, GM will also have to meet the administration’s environmental goals. . . . GM now has to serve two masters, the market and the administration’s policy goals.”
  5. New management knows the company is protected by Big Brother. “In the years ahead, GM’s management will have a strong incentive to spend time in Washington, urging the company’s owner, the federal government, to issue laws to help it against Ford and Honda.”
  6. Stronger-than-ever bonds will now be forged between government, management and unions and “will fundamentally alter the corporate culture, and not for the better.”

As Brooks concludes, “The end result is that GM will not become more like successful car companies. It will become less like them. The federal merger will not accelerate the company’s viability. It will impede it. . . .The result is quagmire. The costs escalate. There is no exit strategy.”

Or, as summarized by House Republican Leader John Boehner (R, OH), “Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?” [2]

It will cost taxpayers at least $50-billion to find out.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/06/02/throwing-it-in-reverse/

URLs in this post:

[1] column: http://www.nytimes.com/2009/06/02/opinion/02brooks.html

[2] “Does anyone really believe that politicians and bureaucrats in Washington can successfully steer a multinational corporation to economic viability?”: http://www.miamiherald.com/news/politics/story/1076708.html

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