US Auto Bill: a Microcosm of the Macrocosm
Rizwan Ghani
November 21, 2008
The second sitting of US Congress deliberating the fate of 25 billion dollar auto bill shows that country´s lawmakers are in a fix. If they pass the bill or not either way, they are damned. In case the bill is passed, it could bring more company executives to Washington looking for similar bailouts with ´hats in their hands´.
On the other side, if Congress fails to provide monetary relief to auto industry reportedly some three million jobs could be lost in case of auto-industry bankruptcy option. Reports show that one in every ten jobs is directly linked to American auto-industry and every 100th job indirectly.
The three chief executives of Ford, Chrysler and General Motors have tactfully linked the bailout to unemployment and successfully turned their management failures into political liability for the lawmakers on the Capitol Hill.
It is opined that despite president-elect Obama´s reported reservations on Auto Bill bailout, the bill will pass both in the Congress and in the Senate to avoid en-mass unemployment. Reports already show that automakers have been asked to put up a recovery plan if they want the bailout. The bailout supporters are confident that since both houses bailed out banking sector or the Wall Street there is no reason the lawmakers can stop the auto bill. Any negative progress on the bill will have direct adverse effects for the average Americans on Main Street.
Reportedly, a group of U.S. senators reached a bipartisan agreement on aiding U.S. automakers as Congress was running out of time this week to help the cash-starved companies. It is a pressure tactic to cow lawmakers on the Capitol Hill to finalize the bailout on Republican terms during Bush´s term in office. Reports of assembling Senate after Thanks Giving are presumably part of the strategy to avoid or minimize regulation of the industry. It is therefore a serious political challenge for Obama and the Democratic Party to avoid any hasty decision on such a serious issue.
Otherwise also, the unrelenting bailout critics are reminding Washington that government cannot go on bailing out sick companies. It is a violation of free market economy and failures are not rewarded in America.
The timing of publication of new US data showing impending deflation couldn´t have been worse for the Democrat led Congress because the numbers show looming slowing of economy and unemployment while the country is already facing record unemployment. The last eight-month unemployment data revealing hundred twenty four thousand job losses pushing the accumulated figures of 1.2 million unemployed in last three years have prompted experts to remind the administration of 1930´s recession, which left one million Americans unemployed.
In this fiasco and deliberate mixing of facts and fiction for vested stakes, one thing that few have paid attention to is the fundamentals of American economic model. The US auto industry is the microcosm of the macrocosm.
The failure of Nov. 15 G-20 meeting in Washington to cobble an accountable, transparent and socialist (or regulated) ´financial system for 21st century´ had more to do with Washington´s unwillingness to let go policies of deregulation and capitalism than finding a way forward. The country´s policy makers instead opted to continue with Friedrich Hayek´s economic model given in his work Road to Serfdom, which significantly shaped the political ideologies of Ronald Regan and the concept of 'Reagonomics' in USA (and 'Thatcherism' in UK).
Neo-conservatives under Bush tested Hayek´s modal to its limits, leaving American economy in the current mess, and in the process exposing millions of average Americans to the perils of flawed economic system, including its unrelenting resistance to regulation and accountability.
The current economic chaos and plight of average Americans prove Democrat Socialist George Orwell´s comments on the book offered decades ago ominously spot on. He said "[A] return to 'free' competition, means for the great mass of people a tyranny probably worse, because (it will be) more irresponsible, than that of the state."
The effort is not to support John Maynard Keynes ´interventionist´ philosophy but to draw the attention to practical alternate that Keynes´ (financial) ideology offered in his book, ´The Economic Consequences of the Peace´, in 1919. He advocated interventionist government policy, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms.
Today, Congress and president-elect Obama like Roosevelt are at historic crossroad to make a choice over US auto bailout while the rest of the world watches closely. F.D. Roosevelt, the 32nd US president from 1933 to 1945 passed 15 laws in first year of his office. He passed two New Deals (in 1933 and 1936) to facilitate average American including pension program, rights to negotiate wages, establishment of unions, broad health care and education reforms resuscitating America following 1929´s great depression. Roosevelt delivered despite the historic fact that Republicans tried to stop the New Deals through US Supreme Court.
In my opinion, the road to recovery of US auto industry lies in improving products that are compatible at international level, ´green´ and the sector is itself headed by administration that works on the principles of accountability, transparency and productivity. The administration of leading three US car manufacturers cannot enjoy socialism personally while feeding its workers to rules of ´free market´. They must leave and it is only matter of time they will be shown the door.
There has to be uniformity of policies for company executives and workers in terms of pay and accountability. They cannot continue to earn on average between 15 to 22 million annually while workers are paid by the hour leaving the company to bear huge losses. Congress has to restore the parity between wages of the administration and the workers on lines of approved New Deal- 7to1.
Reportedly, one of the three auto giants suffered 22 billion dollar loss in last eight months and (its) chief executive instead of resigning is talking of massive layoff as bargaining chip to save his job. Ironically, the three chief executives flew to Washington in their company jets with tin-cup in their hand to secure bailouts for their companies. Ironically, the tax systems has been so designed that corporate flights are paid by the tax payers money not the companies. In this case reportedly, three flights cost tax payers some 60,000 US dollars for a trip that would have cost under 3,000 dollars in first class or 1100 dollars in economy class.
Next, future of US auto industry is directly linked to country´s health sector. Reportedly, against average health cost of 48 US dollars of auto industry workers in Germany, France and Japan, in US it stands at 77 US dollars. France has made its industrial sector competitive by ´socializing´ the health services nationwide. The US will have to review its corporatized health sector to stay competitive in the global market.
President-elect Obama and Democrat led Congress on the Capitol Hill need to take steps that protect blue-collar auto industry workers not the inept company executives and administration. A bailout package cannot be ruled out however what should be of interest to rest of the world is the regulatory policies that come with the financial support package.
Historically speaking, Republicans as they opposed New Deals in 30´s will never support a bailout package with attached regulations. The Congress and Obama should be mindful of the fact that the US auto industry despite getting re-tooling loans in the past 25 years has failed to modernize itself. The results will be no different if public tax dollars are given without strict regulations mandating structural changes in the auto industry to avoid reproduction of outdated products in new packaging.
If the supporters of free market are so averse to regulations, they should file for bankruptcy instead of seeking financial bailouts. If they want public´s money, they should be ready to be answerable to the public- that is what Keynes stood for. In all probability, that is what should happen in case of US auto bill.
Finally, the fate of US Auto Bill will show the world the emerging direction of US economy. If Nov. G-20 moot was an opportunity for America to turn the corner, for now it was a missed opportunity. Interestingly, the size and depth of US economy offers immense scope of´re-doing´ itself. The question is, can Obama and US Congress discern between political expediency, a practical and an accountable economic model, while rest of the financially interlinked globalized world watches. The auto bill could be the start to undo what all went wrong after successful American economic model of 30's in which New Deals played an important role.
On the other side, if Congress fails to provide monetary relief to auto industry reportedly some three million jobs could be lost in case of auto-industry bankruptcy option. Reports show that one in every ten jobs is directly linked to American auto-industry and every 100th job indirectly.
The three chief executives of Ford, Chrysler and General Motors have tactfully linked the bailout to unemployment and successfully turned their management failures into political liability for the lawmakers on the Capitol Hill.
It is opined that despite president-elect Obama´s reported reservations on Auto Bill bailout, the bill will pass both in the Congress and in the Senate to avoid en-mass unemployment. Reports already show that automakers have been asked to put up a recovery plan if they want the bailout. The bailout supporters are confident that since both houses bailed out banking sector or the Wall Street there is no reason the lawmakers can stop the auto bill. Any negative progress on the bill will have direct adverse effects for the average Americans on Main Street.
Reportedly, a group of U.S. senators reached a bipartisan agreement on aiding U.S. automakers as Congress was running out of time this week to help the cash-starved companies. It is a pressure tactic to cow lawmakers on the Capitol Hill to finalize the bailout on Republican terms during Bush´s term in office. Reports of assembling Senate after Thanks Giving are presumably part of the strategy to avoid or minimize regulation of the industry. It is therefore a serious political challenge for Obama and the Democratic Party to avoid any hasty decision on such a serious issue.
Otherwise also, the unrelenting bailout critics are reminding Washington that government cannot go on bailing out sick companies. It is a violation of free market economy and failures are not rewarded in America.
The timing of publication of new US data showing impending deflation couldn´t have been worse for the Democrat led Congress because the numbers show looming slowing of economy and unemployment while the country is already facing record unemployment. The last eight-month unemployment data revealing hundred twenty four thousand job losses pushing the accumulated figures of 1.2 million unemployed in last three years have prompted experts to remind the administration of 1930´s recession, which left one million Americans unemployed.
In this fiasco and deliberate mixing of facts and fiction for vested stakes, one thing that few have paid attention to is the fundamentals of American economic model. The US auto industry is the microcosm of the macrocosm.
The failure of Nov. 15 G-20 meeting in Washington to cobble an accountable, transparent and socialist (or regulated) ´financial system for 21st century´ had more to do with Washington´s unwillingness to let go policies of deregulation and capitalism than finding a way forward. The country´s policy makers instead opted to continue with Friedrich Hayek´s economic model given in his work Road to Serfdom, which significantly shaped the political ideologies of Ronald Regan and the concept of 'Reagonomics' in USA (and 'Thatcherism' in UK).
Neo-conservatives under Bush tested Hayek´s modal to its limits, leaving American economy in the current mess, and in the process exposing millions of average Americans to the perils of flawed economic system, including its unrelenting resistance to regulation and accountability.
The current economic chaos and plight of average Americans prove Democrat Socialist George Orwell´s comments on the book offered decades ago ominously spot on. He said "[A] return to 'free' competition, means for the great mass of people a tyranny probably worse, because (it will be) more irresponsible, than that of the state."
The effort is not to support John Maynard Keynes ´interventionist´ philosophy but to draw the attention to practical alternate that Keynes´ (financial) ideology offered in his book, ´The Economic Consequences of the Peace´, in 1919. He advocated interventionist government policy, by which the government would use fiscal and monetary measures to mitigate the adverse effects of economic recessions, depressions and booms.
Today, Congress and president-elect Obama like Roosevelt are at historic crossroad to make a choice over US auto bailout while the rest of the world watches closely. F.D. Roosevelt, the 32nd US president from 1933 to 1945 passed 15 laws in first year of his office. He passed two New Deals (in 1933 and 1936) to facilitate average American including pension program, rights to negotiate wages, establishment of unions, broad health care and education reforms resuscitating America following 1929´s great depression. Roosevelt delivered despite the historic fact that Republicans tried to stop the New Deals through US Supreme Court.
In my opinion, the road to recovery of US auto industry lies in improving products that are compatible at international level, ´green´ and the sector is itself headed by administration that works on the principles of accountability, transparency and productivity. The administration of leading three US car manufacturers cannot enjoy socialism personally while feeding its workers to rules of ´free market´. They must leave and it is only matter of time they will be shown the door.
There has to be uniformity of policies for company executives and workers in terms of pay and accountability. They cannot continue to earn on average between 15 to 22 million annually while workers are paid by the hour leaving the company to bear huge losses. Congress has to restore the parity between wages of the administration and the workers on lines of approved New Deal- 7to1.
Reportedly, one of the three auto giants suffered 22 billion dollar loss in last eight months and (its) chief executive instead of resigning is talking of massive layoff as bargaining chip to save his job. Ironically, the three chief executives flew to Washington in their company jets with tin-cup in their hand to secure bailouts for their companies. Ironically, the tax systems has been so designed that corporate flights are paid by the tax payers money not the companies. In this case reportedly, three flights cost tax payers some 60,000 US dollars for a trip that would have cost under 3,000 dollars in first class or 1100 dollars in economy class.
Next, future of US auto industry is directly linked to country´s health sector. Reportedly, against average health cost of 48 US dollars of auto industry workers in Germany, France and Japan, in US it stands at 77 US dollars. France has made its industrial sector competitive by ´socializing´ the health services nationwide. The US will have to review its corporatized health sector to stay competitive in the global market.
President-elect Obama and Democrat led Congress on the Capitol Hill need to take steps that protect blue-collar auto industry workers not the inept company executives and administration. A bailout package cannot be ruled out however what should be of interest to rest of the world is the regulatory policies that come with the financial support package.
Historically speaking, Republicans as they opposed New Deals in 30´s will never support a bailout package with attached regulations. The Congress and Obama should be mindful of the fact that the US auto industry despite getting re-tooling loans in the past 25 years has failed to modernize itself. The results will be no different if public tax dollars are given without strict regulations mandating structural changes in the auto industry to avoid reproduction of outdated products in new packaging.
If the supporters of free market are so averse to regulations, they should file for bankruptcy instead of seeking financial bailouts. If they want public´s money, they should be ready to be answerable to the public- that is what Keynes stood for. In all probability, that is what should happen in case of US auto bill.
Finally, the fate of US Auto Bill will show the world the emerging direction of US economy. If Nov. G-20 moot was an opportunity for America to turn the corner, for now it was a missed opportunity. Interestingly, the size and depth of US economy offers immense scope of´re-doing´ itself. The question is, can Obama and US Congress discern between political expediency, a practical and an accountable economic model, while rest of the financially interlinked globalized world watches. The auto bill could be the start to undo what all went wrong after successful American economic model of 30's in which New Deals played an important role.