Saving Detroit Won't Save the Economy

The Challenge of Real Economic Revival

From the Desk of Ibrahim Abdil-Mu'id Ramey
MAS Freedom Civil and Human Rights Director

Share your comments in MAS Freedom's discussion forum!
SHOULD THE U.S. GOVERNMENT BAIL OUT THE AUTO INDUSTRY?
Here: http://www.masfreedomvip.com/forum/topics/should-the-us-government

WASHINGTON, D.C. (MASNET) Dec. 15, 2009 – The word socialism, if you recall, was the pejorative that we heard thrown from Republicans during the 2008 presidential primary. Every speech and policy announcement from candidate Barack Obama was seen as a threat to American capitalism and a harbinger of the "spread the wealth" ideology that Wall Street has heretofore embraced.

Even "Joe the Plumber" – who was neither a real plumber nor, apparently, someone who knew anything about tax policy or macroeconomics – got his own 15-minutes of fame as a mouthpiece for keeping America safe from the collectivist desires of poor folks.

Never mind that President-elect Obama is anything but a socialist; just mentioning the word was enough to scare the rich, even if it could not win the presidency for Senator McCain.

Socialism, in this case, the idea of collective (state) ownership of the major means of economic production, is a horror for the well-to-do; that is, until private businesses that are "too big to fail" actually do go nearly belly-up, and the state is bludgeoned into bailing them out.

Such is the case now for the U.S. auto industry. As bailout proposals are hashed out in Congress, the American public is getting play-by-play coverage through media reports while the heads of General Motors, Ford and Daimler Chrysler grovel for an infusion of more than 14 billion dollars (and much more, if they can get it), to keep the factory wheels turning in the face of projected business failures.

"Save us," they argue, because if the domestic auto industry fails, some 3 million jobs will evaporate and the whole economy will fall into the abyss of depression.

The Washington Post reported on Saturday that United Auto Workers (UAW) President Ronald A. Gettelfinger lashed out against Senate republicans after a congressional compromise bailout plan (that included a proposal to cut UAW wages) failed, accusing lawmakers of trying to "pierce the heart of organized labor."

Gettelfinger also reportedly blamed Republican senators representing states with foreign-auto plants of trying to put American companies at a disadvantage by allowing southern states to subsidize foreign automakers with hundreds of millions of dollars to build factories while turning their backs on Detroit and using tax payer dollars to subsidize the competition. "We can't compete like this as a country."

They are both right and wrong.

In classical economic theory, private capital is free to do business and make profit, but if businesses are not profitable, they should be allowed to fail so that more efficient (and presumably, profitable) enterprises can fill the void and fill the market share that the doomed enterprises formerly occupied.

Theoretically, American consumers could buy Nissan cars and Toyota trucks, and displaced auto workers (or some of them, at least) could be hired by other companies headquarters in Japan, Germany, or South Korea.

But the current crisis is a very different animal. The nation (and the world) is facing a potential economic catastrophe the magnitude of which has not been seen in 60-years.

The flag-wavers for market fundamentalism are now forced to admit that private capital (the same agglomeration that made this mess in the first place) can't save them; only a massive infusion of money from U.S. taxpayers could "possibly" save the banks, the brokerage houses, and now, the American auto industry.

If there is lesson to be learned, it may be this: Pure capitalism is a myth and the theology of absolute belief in the marketplace is false.

Government "bailout" plans backed by public funding to save private business capital from its own excesses (and machinations) must come with both real conditions, and the realization that capital is neither self-sufficient nor sacrosanct.

Don't misunderstand me. There should be a vigorous government response to the Detroit automobile manufacturing crisis (saving the Detroit Lions may be another thing altogether), as a component of larger government intervention to avert a complete economic meltdown.

The Bush administration has already announced it will consider using the $700 billion already set aside under the Troubled Asset Relief Program (TARP) to cover the initial $14 billion in loans requested by General Motors and Chrysler; a figure that has yet to include figures for loans anticipated on behalf of Ford, who, as of Friday had not yet requested immediate funding.

Congress must act responsibly and swiftly to facilitate the auto industry bailout, with a foresight insuring that the post-bail auto industry emerges substantially different.

Putting the "Big Three" on life support won't save the American auto industry, and certainly won't save the rest of the nation from a projected $7.5 trillion economic crisis either; only a complete, long term restructuring of the economy – from the tax system, to the public investments we make in education, health care, and our infrastructure will accomplish that.

And alleviating the real crisis confronting working class and poor people must be at the forefront of the architecture of this new "New Deal".

The crisis in the "Market" is real, and eventually, things will change. But the reign of private capital as the unchallenged force that dictates the course of our collective future has come to an end.

If tax payers end up owning a big chunks of formerly private industries and financial institutions, we need to pro-active in how that will operate by emulating, for example a German programs that place unionized worker representatives on the corporate boards of any and all businesses operating with the largest portions of public bailout money.

Sweden, despite its own crisis in the 1990's, has rallied in more recent years under a reformed version of democratic socialism, achieving an enviable standard of living under a mixed system of high-tech capitalism and extensive welfare benefits.

Privately owned firms currently account for about 90% of industrial output, of which the engineering sector accounts for 50% of output and exports. Coupled with robust finances the government has been able to broaden its scope for implementing reform programs aimed at increasing employment, and reducing welfare dependence.

Thus, under the Swedish system, poverty, homelessness, and social misery have become increasingly less common in Stockholm and Helsingborg than what we see here in New York City or Washington, D.C.

The Swedes also enjoy a largely government funded universal health care system (85% costs are paid by the state vs. a mere 44.6% by U.S. standards); they live longer (age 80.5) than their U.S. counterparts (age 77.5), and their infant mortality rate (3.0%) is lower than that of the U.S. rate of 6.0% – all interestingly enough, while the percent of Swedish government revenue spent on health care is 13.6% vs. a U.S. government revenue expenditure on health care of 18.5%.

Another note; Swedes reportedly give a higher percentage of their wealth to foreign assistance than do U.S. citizens.

Sure, for-profit businesses exist in Sweden (and they even have an indigenous defense industry and a Swedish military as well), however, taxes for individuals and businesses are higher (a typical worker receives only 40% of his income after taxes and overall taxation in 2007 was reportedly 51.1% of the Gross Domestic Product) than in the U.S.

Suffice it to say, the Swedish model is not a utopian system by any means.

The Swedish model of reformed "Democratic Socialism" seems to be working for them; thus, in Sweden "socialism" is not regarded as a dirty word.