Bailouts, Double Standards and Hypocrisy

The Senate Republicans have made it clear they have no principled objection to bailouts. As The Freeman editor Sheldon Richman pointed out, if they’d been motivated by free market principle, they would have just refused a bailout–period. But instead, they demanded a rewrite of the House version because it wasn’t tough enough on auto workers. (Free Association blog, Dec. 13, 2008).

Richman cited a Wall Street Journal editorial of the same day that celebrated the extortion as “Mitch McConnell’s Finest Hour.” Shocked? I didn’t think so.

What’s really amusing is the WSJ editors’ obliviousness to their own self-contradiction. Using the bailout as leverage to extort lower wages, in WSJ parlance, is “reform” and “discipline.” See, it was all about making auto workers “show they were serious about making Detroit competitive again.”

No bailout will ever restore the car companies to profitability without a restructuring. Yet an explicit UAW goal is to use the bailout to avoid any such thing. The union and their Democratic protectors want to avoid the discipline that a bankruptcy could impose under Chapter 11.

On the other hand, imposing discipline on anybody besides auto workers is blackmail. A bailout, the WSJ complains, “would also give environmentalists huge leverage over the cars Detroit builds, a power they and Democrats have wanted for decades.”

And the senior executives were mentioned in the WSJ editorial only as victims: “the long line of Detroit executives… caving to the UAW…”

As Dean Baker pointed out in regard to a similar Washington Post celebration of the wage cuts,

For some reason, the Post attaches enormous importance to reducing the pay of auto workers who earn $28 an hour. It shows no comparable concern for reducing the pay of auto industry executives to parity with their foreign competitors. (The top executives at Toyota, Honda, and other successful companies get paid in the neighborhood of $1-2 million a year. Unlike their U.S. counterparts, they don’t get paychecks in the tens of millions of dollars even in the best years.) The Post has also never felt the need to insist on large pay cuts for Wall Street executives even though their banks are now wards of the state. (Beat the Press blog, Dec. 20, 2008).

And with all that talk of “restructuring” for “competitiveness,” any talk of changing the Detroit dinosaurs’ business model was notable for its absence. As Bill Wadell and Norman Bodek described it in The Rebirth of American Industry, the Alfred Sloan management accounting system treats inventory as an asset, and labor as the only signficant direct cost. So despite all the lean talk and the superficial adoption of lean methods on the shop floor, GM still produces cars to sell to inventory without regard to current orders for them, and treats human capital as a variable cost to be downsized whenever business fluctuates. But management salaries are treated as a fixed cost, and swept under the rug through the practice of “overhead absorption” (incorporating them into the price of the cars sold to inventory, so they are magically reclassified as an asset).

So there you have it. In what passes for “free market” thought among Republican politicians and neoliberal hack journalists, “restructuring” is good if it means rolling back union wages and benefits, but bad if it means abandoning the gas guzzling business model that put Detroit in the tank. Government-imposed discipline is good and pro-market only if it’s aimed at labor, and not capital or management.

More generally, I think this highlights the problems of equating “capitalism” to “the free market.” In neoliberal orthodoxy, supposedly, labor and capital are just coequal “factors of production.” So why name an economic system after one of the factors of production, in particular? What we’re seeing is that, beneath the ideological veneer of “free contract” and all the rest of it, some “factors of production” are more equal than others. That’s why, when Costco pays its workers above-average wages for the retail industry, business analysts squirm with the same undisquised moral disapproval that some people reserve for diamond-studded dog collars. But when a Bob Nardelli or Carly Fiorina gets a retirement package worth tens or hundreds of millions, after gutting their companies to massage the quarterly numbers and game their own bonuses and stock options, that’s just the way “our free enterprise system” rewards them for “the value they created.”

What the politicians and journalists are for, behind all the “pro-market” rhetoric, isn’t the market at all. It’s the interests of capital.

What we need is the genuine article: a free market without special privileges or artificial scarcity, without subsidies and corporate welfare, and without market entry barriers and other protections against competition. Of course, if we had that kind of free market, there wouldn’t even be a General Motors.