Should we nationalize the Big Three?

As lawmakers debate a bailout package for the troubled Big Three automakers this week, we're seeing a word rarely spotted north of Venezuela or west of Scandinavia: nationalization.

Auto-industry workers and supporters demonstrate outside the San Francisco office of Sen. Diane Feinstein (D) of California on Saturday.

As lawmakers debate a bailout package for the troubled Big Three automakers this week, we're seeing a word rarely spotted north of Venezuela or west of Scandinavia: nationalization.

Last week the Los Angeles Times ran an op-ed by Pulitzer Prize-winning automotive writer Dan Neil, unambiguously headlined Nationalize GM.

An outright federal government purchase of GM would have many benefits, argues Mr. Neil. A state-owned General Motors would be able to quickly void onerous contracts. GM is already competing with companies abroad, like Honda and Toyota, that are already quasinational, what with their government-provided healthcare and pension plans. And Uncle Sam could avoid many of the strategic failures – such as betting on SUVs instead of hybrids – caused by short-term, quarter-to-quarter thinking.

A state-run GM could help the US transition to cleaner cars and trucks. Neil writes:

We need government-sized automotive help anyway. This country should be putting millions of plug-in hybrid and electric vehicles on the road. As far as I can tell, without big subsidies, there is no way in the near term to build these vehicles and make a reasonable profit, due to the stubbornly high cost of advanced batteries. Besides, if GM were owned by the government, it wouldn't spend time and money litigating and lobbying against clean-air and safety rules.

Almost as an afterthought, Neil adds that the government should take over Ford and Chrysler, too.

Neil is not the only one calling for a government takeover of the Big Three. NYU economist Nouriel Roubini, who in 2006 accurately predicted that the US subprime mortgage crisis would balloon into an economy-threatening credit crisis, has also called for a temporary nationalization of Ford, Chrysler, and GM.

We might even make a buck at it

A government takeover might not be as expensive as it sounds – especially considering that the real price tag may not be the $34 billion now being bandied about, but more like $75 billion to $125 billion. FireDogLake blogger Ian Welch, who advocates nationalizing Citibank and GM, notes the relatively low upfront costs and potential windfall of a GM buyout:

Buy out the shareholders for the $3 billion their shares are worth, or hey, be generous and pay them double – $6 billion.  In the current context, that's not even real money.  Get the best auto people in the world and have them go in and restructure GM.  Spend the necessary money and make the necessary cuts.  Restructure the company to serve America's interests – get the Volt working, increase mpg ratings, restructure the dealer network.  Do it all.  Fix the company and make it viable again.  Then, once it's working again in a few years, start selling it back to the private sector.  Do it right and the government will make a significant profit.

Others aren't so sure. Robert Weissman, who edits the Multinational Monitor, a bimonthy founded by Ralph Nader in 1980, argues that nationalization of GM should be seriously considered, but that getting government into the automaking business would involve making hard choices:

[N]ationalizing the companies would entail many complications and difficulties, including managing relations with workers and plants around the world, fair dealing with suppliers and workers at suppliers, and the inherent complexity of running multinational auto companies.
Is a true nationalization the best option? Maybe, maybe not.

A public utility

Michael Moore, who first became famous for his 1989 film, "Roger & Me," which described what happened in his home town after the GM plant closed there, sees an opportunity to use the Big Three's manufacturing might to build a new transportation infrastructure. On his blog, the filmmaker writes:

Transporting Americans is and should be one of the most important functions our government must address. And because we are facing a massive economic, energy and environmental crisis, the new president and Congress must do what Franklin Roosevelt did when he was faced with a crisis (and ordered the auto industry to stop building cars and instead build tanks and planes): The Big 3 are, from this point forward, to build only cars that are not primarily dependent on oil and, more importantly to build trains, buses, subways and light rail (a corresponding public works project across the country will build the rail lines and tracks). This will not only save jobs, but create millions of new ones.

Mr. Moore says that a government buyout of the Big Three makes sense because, if the government loans them money and they default on those loans, the government will end up owning them anyway.

A Red scare?

Some see the prospect of government takeovers as sinister. Libertarian commentator Lew Rockwell, the president of the Ludwig von Mises Institute sees shades of Soviet-style economics in Dan Neil's proposal.

Only a complete economic ignoramus would believe that Americans would for some reason be better at socialism than Russians (or anyone else).

Nationalizing one or more of the Big Three is probably not politically palatable for most Americans: A recent CNN poll showed that 6 in 10 Americans oppose using taxpayer money to help the automakers. But many Americans are not opposed to nationalization in principle. In June a Rasmussen poll found a slim minority of Americans oppose nationalizing the US oil industry.

In Sweden, the public is far less ambivalent about state intervention.  A late-November poll found that 68 percent of Swedes favor temporary nationalization of Volvo, which is currently owned by Ford.

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