Former Massachusetts governor and Republican presidential candidate Mitt Romney penned a column in the New York Times this week entitled Let Detroit Go Bankrupt. This column was written in response to the financial difficulties General Motors, Ford, and Chrysler are experiencing. Their stock values are sinking, their plants are closing, and they are losing market share to Japanese, Korean, and European automakers. Romney argues that providing economic assistance to these struggling companies would only prevent these companies from making the changes they need in order to become more competitive:
"Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course--the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check."Romney's argument is a classic argument of economic conservatives. Badly managed companies should not have their bad executives be the recipients of billions of taxpayer dollars. A tough love approach that holds these executives accountable by forcing them to survive without government assistance keeps government out of the way and saves taxpayer money.
But these automakers do not operate in a vacuum. And this is where the argument for economic conservatism fails. If GM fails, for example, it may satisfy free market capitalists who believe its executives don't deserve any "bailout money." After all, why should these companies be rewarded with taxpayer money for their own bad business decisions? Why should taxpayers be forced to subsidize this irresponsible behavior?
Because GM, Ford, and Chrysler aren't just about incompetent and wasteful executives. They're about millions of jobs that impact millions of other jobs. The assembly line worker barely keeping his head above water as is may find himself without a job if Ford fails. What will happen to this worker's family? What will happen to his mortgage? What will happen to his health care? This worker had nothing to do with the unwise business decisions that were made in corporate boardrooms by incompetent managers. This worker should not reasonably be expected to be an expert with the stock market and their competitors' market share. That's why this worker was on the assembly line and not in a budget analyst's office.
If a plant closes in Traverse City, Michigan, for example, where will these workers go? In addition to putting hundreds or thousands of people out of work, what will happen to the workers whose livelihoods depend on them?
The diners across the street from the plant that made the bulk of their revenue when the auto plant workers stopped there for lunch may not survive. What will happen to these small businesses?
Anyone involved in the distribution of these vehicles or their components will be impacted. What will happen to the truckers? The porters? The forklift operators?
If fewer cars are produced, dealerships will be threatened. What will happen to the car salesmen? The office secretaries? The mechanics?
If GM fails, plants close, and jobs are lost, the cities in which these plants are located will also be threatened. What will happen to the property values in Traverse City if the laid off workers can't pay their mortgages? What will happen to the public school systems that are funded by property taxes? What will happen to social services and local government jobs that rely on this tax revenue? What will happen to the Traverse City police force? Its area hospitals? Its fire department?
Many of these plant workers receive their health insurance coverage directly from their employer. If they get laid off, if their plant closes, or if the company ceases to exist, how will these workers pay for their health care? And what will happen to their pensions?
Conservatives like Romney advocate that bankruptcy may be the best remedy for these troubled companies. In addition to not "bailing out" bad managers and saving taxpayer money, filing for Chapter 11 bankruptcy protection would allow the companies to renegotiate their contracts to cut costs. But who is to say that declaring bankruptcy will allow these struggling companies to get back on their feet?
Who wants to buy a car from a bankrupt company? As the owner of a car from a company that has since gone bankrupt, I can speak firsthand about the unease consumers experience when either considering buying a car from a troubled company or buying one from a company that later disappears. Will my warranty be honored? Where can I get replacement parts? What will happen to my car's resale value? How will my insurance company classify my car and how will that affect my premiums? Are this company's cars safe to drive, or did they compromise safety and build quality to cut costs? Will my dealership even be around in six months?
In other words, if GM's sales are sluggish now, imagine how much more sluggish they will be if everyone knows GM has declared bankruptcy. Chapter 11 bankruptcy (the ability to renegotiate contracts) now may only lead to Chapter 7 bankruptcy (the total liquidation of assets) later.
And what about the psychological impact of knowing that GM, Ford, or Chrysler no longer exists? What would happen to the NFL if the Dallas Cowboys and Washington Redskins no longer existed? What would the world of fast food be like without the Big Mac and the Whopper? Could the United States really concede all of these manufacturing jobs to the Germans, the Japanese, and the Koreans? What will this do to Americans' sense of pride? Given Republicans' chants of "USA! USA!" at their campaign events, it seems strange for Republican politicians (e.g., economic conservatives) to not show more pride in their own country's manufacturing base.
Again, the executives of the Big Three automakers certainly don't deserve a "bailout" or a "bridge loan" or whatever the proper nomenclature is. They couldn't even be bothered to ditch their private jets when they flew to Washington for this week's congressional hearings. However, politicians and economists should remember that the Big Three isn't just about boneheaded and undisciplined executives. It's about the millions and millions of regular people who had nothing to do with running these companies into the ditch who stand to have their own survival threatened. And if Washington can find the money to bail out the investment bankers at AIG, why can't they find the money to bail out the working class people at the Big Three?
How many lives are free market capitalists willing to ruin in order to stay true to conservative economic principles? This disconnect is a good illustration of why Republicans have fallen out of favor with the broader electorate. Regular people are not looking for political dogma and ideological purity. They're looking for meaningful solutions (even if they come from the government) that can help protect their families and communities.