Dec 09 2008

When the feds take over McDonalds, will they serve fried rice?

Category: economyharmonicminer @ 9:44 am

News Analysis – Washington Takes Risks With Its Auto Bailout Plans – NYTimes.com

In the short term, Democrats are floating the idea of linking $15 billion in immediate loans to the designation of a “car czar” who, in doling out the money, could require or veto big transactions or investments, essentially a one-man board of directors. The White House indicates that President Bush, who has spent his entire presidency proclaiming that the government’s role is to create an environment that spurs free enterprise and minimizes government regulation, would very likely sign the rescue plan.

The first $15 billion and the car czar who oversees it, however, are only the beginning. “After that, we’re in uncharted water,” said Malcolm S. Salter, a professor emeritus at Harvard Business School who has studied the auto industry for two decades and, until a few years ago, was an adviser to General Motors and Ford. “Think about this: Who in the federal government would have the tremendous insight needed to fix this industry?”

Depending on how the longer-term revamping of the industry proceeds, Washington could become a major shareholder in the Big Three, it could provide loans, or, in one course that Mr. Obama seemed to hint at on Sunday, it could organize what amounts to a “structured bankruptcy.” In that case, the government would convene the creditors, the unions, the shareholders and the company’s management, and apportion a share of the hit to each of them. If that “consensus building” sounds a lot like the role of the Japanese Ministry of International Trade and Industry in the 1970s and the 1980s, well, it is.

To promote the Japanese car industry on the way up, the trade ministry nudged companies toward consolidation, and even tried to mandate which parts of the market each could go into. (Soichiro Honda, the founder of the company, rebelled when bureaucrats told him he was supposed to limit himself to making motorcycles.) By the 1980s, Congress was denouncing this as “industrial policy,” and arguing that it put American makers at a competitive disadvantage, and polluted free enterprise.

Now, it is Congress doing exactly that, but this time as emergency surgery. Other nations will doubtless complain, or begin doing the same for their own companies. “We’re at this moment in history, in which the Chinese are touting that their system is better than ours” with their mix of capitalism and state control, said Mr. Garten, who has long experience in Asia. “And our response, it looks like, is to begin replicating what they’ve been doing.”

The rest of the world has already proved that in the long run “nationalized” industries do worse than private ones. But, of course, the essence of science is the ability to duplicate results, proving the correctness of a theory.

Looks like we’re about to try to prove (reprove? improve?) the laws of economics…. as if they needed proof.

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