Now that the Obama administration has taken General Motors under its wing, it’s worth wondering what the exit strategy is. How quickly will the federal government sell its stake in the company, and recover the tens of billions it has loaned GM? It would be nice to think the intervention may be temporary, but the America’s history with federal intervention into the private market is not especially encouraging.
It’s true that Uncle Sam nationalized companies during wartime, and spun them back to the private sector afterwards. But once you start to look at peacetime nationalizations and emergency programs, the record is downright depressing. One instructive comparison might be to Amtrak – as the arguments for nationalization and the promises of independence ring familiar.
Amtrak was established in May 1971, in response to the financial collapse of several intercity passenger rail companies. Congress and the President believed that intercity passenger rail service was a critical industry. Rather than allow companies to go out of business, they bought them out. A senior Nixon administration official projected that Amtrak ‘would experience financial losses for about three years and then become a self-sustaining enterprise.’ Nearly 40 years later, Amtrak continues to benefit from federal capital assistance and operating subsidies, with no end in sight.
There has been frequent talk in the last 40 years of making Amtrak independent, or putting Amtrak on the path to self-sufficiency. It was a promise of Amtrak administrators through the Reagan and Clinton administrations. In 1996, Amtrak President Tom Downs laughably said that Amtrak had remained dedicated to weaning itself off of taxpayer subsidies – for all of its 25 year history. He said then that the goal was ‘within [Amtrak’s] grasp.’ Thirteen years later, we are no closer. And Congress recently approved a nearly $3 billion annual subsidy for Amtrak.
What makes anyone think General Motors will be easier to return to the private market?
According to Ron Bloom, a member of the President’s auto task force, there is no specific timetable for returning General Motors to the market. Bloom recently testified before the Senate Banking Committee that the administration would likely start selling stock in General Motors in 2010, and would sell off all of its shares over an indefinite period of time. According to Bloom, the pace would be determined by the health of the economy and the health of the company.
But being owned by the government is a terrible way to prepare a business to succeed in the private economy. Witness Amtrak, which is still trying to become self-sufficient decades after it was taken over. When the government owns a business, it’s impossible for government officials not to interfere in business decisions. One reason that Amtrak has never been privatized is that Members of Congress won’t allow it to shut down unprofitable routes. It’s obvious that a company that won’t be permitted to pursue profits can’t succeed in the private sector.
Like Amtrak, General Motors is already being thought of as other than a for-profit venture. Before he was elected president, Barack Obama spoke of the need for GM to produce more ‘green cars’ to succeed. Yet GM has produced many high-mileage and hybrid models; they have not been especially popular. Will the White House drop its insistence that GM make money-losing vehicles, and instead allow company executives to figure out how to make money?
The Obama adminstration has forced out the CEO and selected a successor, and plans to choose a majority of a new board. What are the chances that Barack Obama appoints a team that disagrees with his vision of how the company should operate? Rather, the White House will probably appoint a board that promises to promote a greener car company, and improve relations with the labor unions. Both of these strategies are likely to damage competitiveness in the private sector.
Another problem is that the White House apparently has preconceived notions about what the ‘New GM’ should look like when (and if) it becomes independent. One senior administration official recently told the New York Times that GM could be in line for more taxpayer money, because ‘there are things you don’t know — like when the car market will come back, and how much Toyota and Honda and Volkswagen will benefit’ in the interim. There are clearly some in the government who are willing to buy more market share with more taxpayer money. Again, this instinct conflicts with the effort to build a company that can compete in the private sector. It can also damage GM’s competitiveness by signaling to decisionmakers that Uncle Sam is always ready to pony up billions more in assistance (as in the case of Amtrak). How can executives build an efficient company if they believe there’s always another bailout around the corner?
This week brought another demonstration that Washington views GM not as a budding private sector leader, but as a jobs program. More than 25 percent of the US Congress signed a letter protesting the decision by the auto task force to approve the closures of hundreds of auto dealers. Legislation has been introduced, and hearings have been convened, to force the White House to keep many of these dealers open – because they are important employers, community leaders, and sources of campaign donations. If Congress was interested in promoting General Motors as a viable entity, they would stand aside and let corporate experts determine how many dealers to retain, and which ones. Instead they seek to keep the new company saddled one of the anchors that’s currently weighing it down.
Will General Motors soon return to being an independent company, owned by shareholders and managed – to succeed or fail – as a private sector entity? It’s hard to see why it will turn out any differently than Amtrak.
Brian Faughnan's Bio
Brian Faughnan is a contributor to RedState.com and the Weekly Standard blog. He has written columns for the D.C. Examiner, and has provided political commentary on National Public Radio, XM, SkyNews, and other media outlets. Mr. Faughnan is a 10-year veteran of Capitol Hill, and has worked as a lobbyist and a consultant. He resides in Virginia.
Posted
06-12-2009 12:05 AM
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