Big Three Bailout: Not Like Japan's Automakers in the 90s

Includes: F, GM, HMC, TM
by: Matthew Rafat

Here's an audacious question: How is an auto bailout not preferential corporate welfare?

There is no contention that America suffers from an automobile shortage. Honda (NYSE:HMC) and Toyota (NYSE:TM) are perfectly capable of increasing production to fill in any gap caused by a GM and Chrysler bankruptcy (I don't mention Ford (NYSE:F), because it appears to be the healthiest of the Big Three). Meanwhile, Japanese car companies have created thousands of jobs in the South and are schooling Americans in how to run an efficient auto manufacturing operation.

To its credit, the UAW has responded to charges that it is asking American taxpayers to subsidize the Big Three's inefficiency. Its arguments, however, are misleading. For example, the UAW has mentioned state incentives given to Japanese car companies as support for a federal bailout (see Autonews article).

First, states like Alabama provided incentives to Japanese companies because the UAW was opposed to relocating to the deep South, which favors right-to-work laws (code for anti-union laws). The UAW's refusal to support American production in the deep South opened the field to increased competition. The UAW and the Big Three could have requested Southern state incentives, but they failed to do so on reasonable terms. As a result, the UAW's citation of Southern state incentives is designed to take your eye off the real reason for their problems, namely, an unwillingness to be flexible. It's akin to losing a war because you refused to go to the most advantageous territory to fight--and then calling the other side dirty for going where you wouldn't.

Second, speaking of the Japanese, we criticized them for years because they bailed out their banks after their speculative bubble. Indeed, almost every American economics study found that bailing out inefficient companies extended and exacerbated the Japanese recession. Just google "Japan's lost decade" for more. (Here's one particularly relevant link from a google search result.)

Third, the Japanese car companies received only $3 billion since 1992--far below the UAW's request for $25 billion (see penultimate paragraph of this Autonews article). The disparate amounts of incentives requested indicate that subsidies aren't the reason for the Big Three's woes. In addition, while it's easy to forget now, the Japanese took a major risk in coming to the South to open up manufacturing plants.

Just fifteen years ago, no major entity was considering investing billions of dollars in the deep South because of its less-than-cosmopolitan reputation. This reputation required particular fortitude from the Japanese, who decided to open manufacturing operations in places where some residents had never met a Japanese person. Although various Americans continue to refer to Southerners as uneducated and backwards, it is now apparent that these so-called "backward" Southerners have outworked the Midwestern UAW. (It will be interesting to see if Southerners will return the favor and call non-Southern workers lazy and handout-prone). In short, the Japanese should be lauded for taking a risk when the Big Three and UAW refused to consider the South as a viable business destination. Moreover, $3 billion is not what the UAW is demanding, making their reference to the South irrelevant.

The UAW's remaining argument is based on emotion. It talks about the loss of thousands of jobs, implying that without taxpayer money, the Big Three's employees will be in bread lines and bankruptcy courts. By resorting to this argument, the UAW has taken a page out of Naomi Klein's Shock Doctrine. The UAW fails to mention any other option except demanding billions of dollars in taxpayer money. For example, it fails to advocate increasing the length of time and amount of payments given to unemployed workers nationwide. Yet, the $15 to $25 billion requested could be used to extend unemployment benefits for all Americans, and at higher amounts.

Using this method, no industry receives preference, and taxpayer money benefits Americans nationwide. After all, it's not just the auto workers being affected by this recession, but engineers, accountants, and food service workers. Don't these workers have families to support, too? By demanding money only for auto employees so they can continue in an inefficient business, the UAW is essentially admitting it wants preferential treatment over every single American worker who has been laid off and those who will be laid off. Its attitude is unacceptable if you believe that government should consider the welfare of all its people, not just one particular group.

The UAW's selfishness exposes another issue with an auto company bailout--the slippery slope. What will Congress do when other industries come knocking? Will taxpayers be forced to support all affected industries that happen to have highly paid lobbyists? Once Americans understand that Congress probably wouldn't take seriously a bailout request from restaurant waiters and waitresses, they have to ask why their government is focusing on the Big Three to the exclusion of other industries. I don't know about you, but I don't remember learning in civics class that lobbyists were a branch of American government.

The only reason to provide an automobile bailout is because of the Big Three's legacy costs, which may be shifted onto taxpayers anyway through the PBGC. Unfortunately for taxpayers, it seems that all roads lead to pillaging of their wallets.