The US Congress is under enormous pressure to bail out the
“Big Three” American automobile manufacturers. The Detroit Free Press screamed that Congress will have “blood on your
hands” if it does not give thousands of millions of dollars to these mismanaged
Despite this hysteria, and the arrogance of the CEOs who
flew to Washington in their private jets to demand the money, it cannot be
denied that there will be severe consequences if any or all of these companies
go under. While the Big Three themselves might deserve all they get, their
sub-contractors do not, nor do the businesses in communities that depend on the
wages they pay. The fact that Michigan voted Democratic in November might swing
Yet, while it is essential that money is kept pumping
through the US economy, there are better ways of injecting it than through the
1 Morally, they do not deserve it. The Big
Three have been in trouble for some time because they were not making cars
people wanted to buy, even in the good times. They cannot blame the cash
crisis. All private enterprise signs up to the same deal: we undertake to
provide what people want at a price they can afford – we keep the rewards on
condition that we bear the risk. There cannot be one rule for big business and
another for the rest of us.
2 Practically, it is bad for the US economy.
Any bail-out will not mean that the Big Three will start doing what they have
failed to do before. To reward businesses that do not produce what people want
to buy is to undermine the incentive to improve quality. That is why the
Eastern Bloc had such a reputation for low quality consumer goods under
Marxism. Any country that follows that strategy will become uncompetitive.
3 It is not worth the price that must be paid.
Any money that goes to the Big Three must come from somewhere. In the short
term, it must come from higher taxes or from higher deficits – which means
higher taxes in the longer term. Either way, the money must be generated by
other businesses. So viable businesses – and marginal businesses that might
otherwise survive but will be finished by higher taxes – will be stripped to
pay these badly-run behemoths. Such policies made Britain the “Sick Man of
Europe” in the 1970s.
Ever heard of British Leyland?