Why a Big Three rescue is so hard
Congress can't be CEO to the industry's revival or to picking other market winners.
In deciding whether to bail out US automakers, Congress has set itself up as a venture capitalist. It demanded the Big Three reveal such data as "operating cash position," "callable loans," and "assumptions" of sales. But can lawmakers be CEOs? Under President Barack Obama, they best get used to it. Uncle Sam will become a Dutch uncle to budding businesses.Skip to next paragraph
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Mr. Obama has laid out big plans to use taxpayer money in picking winners in various industries, either by creating new jobs (2.5 million by 2011) or by investing $150 billion in clean energy technologies, such as solar and wind.
Next year, lawmakers will be asked to comb the financial prospects of many businesses and guess which ones might meet Obama's promise of government as the incubator of new jobs and sunrise industries. Under his plan, for instance, money will be spent to "support local manufacturers with the most compelling plans for modernizing existing or closed manufacturing facilities to produce new advanced clean technologies."
Americans may greet this Uncle-Sam-knows-best attitude with the same skepticism as a Detroit bailout and the federal buy-ins of Wall Street firms. Nearly 6 in 10 are against a rescue of the Big Three, according to a CNN poll. Letters to lawmakers reveal an angry majority that doesn't want to subsidize an industry whose executives have such a tin ear to public sentiments that they flew private jets to Washington for their first congressional hearing to beg for billions.
Now, back before Congress after traveling in more humble transport, the Big Three execs presented the requested details for a presumed recovery while asking for loans and credit lines of up to $34 billion.
The basic question is whether politicians on Capitol Hill are the best ones to nurse the industry to health or should they leave the task to some sort of bankruptcy process, either a Chapter 11 proceeding or a novel type of prebankruptcy proceeding with a "restructuring trustee" who has the powers to butt heads and make difficult decisions.
The choices are indeed a Gordian knot. Either bankruptcy or a trustee-run redirection would result in massive job losses and make car buyers wary of the Big Three's products. The United Auto Workers might need to accept workplace arrangements like those in foreign-run auto plants, with wages, benefits, and rules more competitive in a global market.
Congress, however, which has been beholden in the past to union and Big Three pressures, might be too timid to demand radical reform. Similar difficult decisions will be necessary if Congress tries to boost "clean energy" or other job-creating businesses such as biotechnology.
How much in solar subsidies is needed to drive that market? How can accurate prices be determined in a renewable-energy market with a heavy federal hand? What if a federal focus on some industries, such as hydrogen cars, fails?
Innovation, either to save Detroit or to grow new energy industries, isn't easy to manage. Sometimes failure is necessary for a phoenixlike renewal.
Congress needs humility to know what it can and cannot do.