And, Solving it Presents Opportunities for a New Economy
While the automobile companies deserve some blame for the problems in their industry, there is blame to spread around. The root cause of the biggest problems is the alliance between big corporations and government which has led to poor decision-making in Washington. It is embarrassing to hear Congress put all the blame on the Detroit triopoly and not acknowledge their irresponsible behavior in bowing to corporate pressures.
Solving the auto industry problems is an opportunity to begin to shape a more effective new economy that changes the relationship between corporations and government as well as share’s the wealth more equitably.
The Causes of the Auto Crisis
Corporate-government created the three major causes of the auto industry crisis: health care, the credit crunch and low efficiency cars.
Health care is an out of control cost where double digit annual price increases are more common than rare. While other industrialized nations have controlled the cost of health care, the United States has not. President Truman called for a single payer national health insurance plan many decades ago, but the Congress has been unable to show the will to face-up to the issue because of the power of the health insurance and pharmaceutical industries. While health insurance is on the Obama-Kennedy agenda, they are still not challenging those industries as they should and not confronting the real problems.
Every business small and large has struggled with paying the health insurance costs of their employees. It has held back hiring and holds back wages. A mega-corporation like General Motors sees those problems amplified. It would not be unfair to describe General Motors as a health insurance provider who happens to make cars. GM spends $5 billion annually on health care for 1.2 million people – only 150,000 of whom work for the company. GM, Ford and Chrysler have a combined unfunded retiree health care obligation of more than $90 billion. Health care adds $1,500 to the cost of each vehicle. This reality alone makes it virtually impossible for GM to have a successful economic model and it is not something GM can fix. Health care is a major problem not only for the auto industry, but the airline and steel industry as well as businesses of all size. The failure of Congress to face up to single payer health care is becoming a threat to the American economy.
The second major cause of the current auto industry crisis is the crash of the credit markets. This has made getting loans to purchase cars more difficult and has resulted in a massive drop in automobile purchases. The U.S. auto market fell 14.8% through the first 10 months of 2008 and sales in October plunged 31.9%. Why? The lack of available credit for potential car buyers. And, on the other end, the industry cannot get loans to cover the dramatic loss in car sales.
The credit crisis is also not the fault of the automobilie industry. The cause of the credit crisis falls back on bad government that allowed the stock market to be turned into an unregulated casino. The Federal Reserve, Treasury Department, Congress and regulators failure to apply basic regulation to the financial markets and money supply are to blame (even free marketer Alan Greenspan now admits this mistake) – but now Congress wants to put the blame on the auto industry rather than accept responsibility for their failure and clean up the mess.
The third cause, inefficient 20th Century automobiles rather than forward looking efficient 21st Century green cars is a shared error of government and the auto industry. The Congress did not have the political will to demand energy efficiency, indeed they provided a tax credit for SUV purchases, and the auto industry lobbied to prevent such standards.
All there of these causes have the same source: corporate controlled government. The health insurance industry did not want the more efficient single payer national health insurance. The finance industry wanted to be free to treat the stock market like a casino, liked the Fed’s easy money and did not want to be regulated. And, the auto industry did not want to be told to build more efficient cars. Corporate-government is the root of the problems we face today.
While the CEO’s who flew in on private jets to beg for money will pay a price if their businesses fail, a bigger price will be paid by their workers, their families and retirees. The Congress has no problem giving $700 billion to white collar Wall Street, but when it comes to blue collar Main Street, the coffers are closed, or more difficult to pry open, even with the risk of a deepening recession and even a depression before them.
Solutions That Can Build a New Economy and Begin to End Corporate-Government
Solving the auto industry financial shortfall is an opportunity to begin to re-make the relationship between corporations and government. While the bailout of Wall Street has rightly enraged Americans, the reality is that hundreds of billions annually is given in corporate welfare to big business every year. The bailout is business as usual brought out in the open. Even wealthy, highly profitable businesses like the oil and pharmaceutical industries are doled out billions in tax payer dollars annually.
Taxpayer support – the common wealth of Americans – has not resulted in a fair sharing of the profits. As a result the wealth divide between the rich and the poor, between CEO’s and employees has grown grotesquely wide. President Obama talked about “sharing the wealth.” President Bush talked about an “ownership society.” In fact, we have neither an ownership society nor equitable sharing of wealth when we should have both.
Corporate welfare needs to be transformed into an equity investment by taxpayers. That is a first step to creating a real ownership society. And, taxpayers need to be treated like major investors. This means a role in setting the direction of the company and a return on their investment, in dividends. Indeed, Chrysler issued a statement on November 17th saying that it expected any loan package to come with conditions "including taxpayers having equity. . . . The Company is open to further discussions with Congress." Some have suggested in the automobile case, “a government-appointed receiver—someone hard-nosed and nonpolitical—should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible.”