Earn the Bailout, Detroit
One of the first real challenges President-elect Barack Obama faces will be what to do about the ailing American auto giants.
The stakes are high. For more than 100 years, the Big Three automakers have been a cornerstone of the U.S. economy and an important symbol of American industrial might. The auto industry is the largest manufacturing industry in America. And it's not just the 239,341 employees of Chrysler, Ford and GM.
A Center for Automotive Research study conducted for the Motor & Equipment Manufacturer's Assn. estimates that for every direct job at an automaker in the United States, there are 3.3 supplier jobs. These motor vehicle parts suppliers directly employ 783,100 people in the United States and are, in turn, estimated to generate another 1.97 million indirect jobs in industries ranging from steel to plastics to technical services. The spending by these employees generates yet another 1.7 million "spin-off" jobs. A total collapse of this industry could affect as many as 3 million jobs in the first year alone -- almost 5% of total U.S. manufacturing jobs -- and send shock waves through national and foreign markets.
But a "bailout" of the status quo is unappealing. Big auto has struggled for years. Once dominant in the domestic market, the Big Three now command less than 50% of the market, and even this share is in decline. Injecting cash into these ailing institutions has an air of reinforcing failure -- pouring good money in after bad.
Furthermore, the U.S. automotive industry has been on the wrong side of almost every environmental, social and safety issue since the 1960s. The industry objected to the Clean Air Act, publicly opposed fuel economy standards, fought against seat belt and air bag legislation, dragged its feet on alternative-fuel vehicles and lobbied against almost every socially responsible initiative. Exactly why would the public want to bail out an industry that has failed in the market and been so unresponsive to the public good?
Maybe it's time for America to buy some broad-based social benefits in return for public investment in these companies. If the U.S. government -- on behalf of the people -- is going to spend considerable sums of public money and incur public debt to keep these institutions alive, let's insist on returns that benefit society as a whole, not merely Big Three shareholders, management and employees.
What might these public benefits be? Well, for one, isn't it time for Detroit to turn out a car that gets at least 100 miles per gallon -- and to do it in three years? Couldn't we demand, in return for public money, that management deliver dramatic new fuel economy standards, with appropriate rewards for success and sanctions for failure?
Since transportation (mostly autos) generates one-third of U.S. greenhouse gas emissions, can't we demand auto fleets that systematically reduce carbon dioxide emissions, perhaps the 30% by 2016 proposed by California?
And America needs a laboratory for redefining the relationship between management and organized labor. Why not require those in the boardroom and the production line to work with the new administration to redefine the role of unions and labor relations?
This isn't socialism; it would be our tax dollars at work. For years, this country has maintained a system of tax incentives to urge individuals and corporations to spend money on things deemed to be in the collective national interest. The real estate and construction industries are supported by tax breaks on mortgages. Agriculture receives numerous tax incentives and direct subsidies in the interest of maintaining family farms. A socially constructive paradigm can and should be applied to the institutions and industries that would benefit from the wave of government spending designed to keep them alive in a time of dramatic financial distress.
If 300 million Americans are going to borrow money to bail out an industry, then it seems only reasonable to insist that that industry take more socially responsible positions toward energy conservation, safety and the environment.
With millions of jobs at stake and the potential repercussions of seeing an entire section of the industrial base collapse so soon after the fallout on Wall Street, it is a political, economic and social imperative for the government to do something. But why not do it in a way that challenges this key industry to also help address society's need to reduce consumption of foreign oil, curb greenhouse gas emissions and increase safety on our highways?
I believe that our auto industry can meet this challenge -- given the right investments, challenges and incentives. After all, isn't it about time for Detroit to build smart, well-designed cars that also happen to get over 100 mpg?
Douglas Olin was a deputy assistant secretary of Commerce in the Clinton administration.
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