Tuesday, April 14, 2009

In a free market economy, should government get involved in business?

Like most Americans, I am keeping a watchful eye on the bailout of the auto industry. Generally speaking, I’m a free market guy, so I tremble when the government gets involved in business. On the other hand, Peter Lynch famously advised, “Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.” American automakers seem to prove his point.
Part of the problem, of course, is that government is already involved with these companies. Over the years, various programs from tax breaks to emission standards to union workplace rules created an artificial marketplace for American autos. In themselves, most of these things seem good, but the combined consequences, intentional or not, impact the markets, for both consumers and manufacturers. When times are good, the impact may look slight. Nothing looks slight today, however.
Are some companies too important to our citizens and economy to fail? Clearly, there are some very important people who think so. They argue that carmakers and the suppliers who support them employ millions of people who would be at best temporarily or at worst permanently displaced. That’s a huge additional burden for a country already disabled by a huge recession. Plus, the manufacture and sale of autos plays a large role in our national economy, and global trade. These are powerful arguments and, for now, they seem to have won the day. The government stepped in, loaned them money, and assumed an oversight role.
In that oversight role, they kicked out one top executive and ordered Chrysler to consummate a quick merger. Those are big steps, and they raise a lot of eyebrows on Wall Street.
I think the jury is still out on this issue. Like so much else in business or government, we’ll look back on this with a lot more clarity. I have concerns about government saving some businesses, but not others. I’m skeptical that career politicians know enough about business to make good personnel or other decisions. I cringe when Congress acts on polls taken in the barber shop or union hall. Still, with all these concerns, I’m hopeful that steps already taken avert disaster and keep good people working. These are unique times and call for unique measures.
More than anything, I fear unintentional consequences. So many good ideas in government create a dark side consequence. Sadly, many great ideas are short-term, but the consequences are long-term. That’s my concern about government intervention. Maybe this time is different.

2 comments:

  1. Bigger government ( what we're seeing lately ) is *never* a good thing, and is not taking us down the right path. I have no interest in living in a socialist country, which is the path we're going towards.

    GM / Ford / Chrysler have made errors in judgement time and time again over the years. They have failed to plan for the future over and over, while the "other guys" have taken some precautions.

    The result? Today GM and Chrysler only survive because of free Uncle Sam money. Toyota / Honda / Etc are having a tough time, but they will survive without billions in free money. Why? Better planning, better management, and a vision of the future.

    It is not the US government's place to run automobile makers. Nor should it be. If GM and Chrysler are not viable companies ( they are not ), then they should proceed to bankruptcy. If they can, at that point, make themselves viable, then good for them. If not, someone will buy up the good pieces and the world will move on. Painful? Yep. But it's the right way to handle this.

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  2. I get this. I, too, am a free market advocate. I just think that the Obama administration chose a different course and I'm hopeful that it helps. I'm fearful about the consequences, but I also understand why they felt dramatic actions was necessary. We'll not know all the benefits and consequences for decades, so I think it's probably time to quit worrying and just step forward. Life is a constant set of adjustments, and somebody else just made a huge one. It's time to figure out how that impacts me and my clients.

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