The list of companies making bold-faced requests for a government bailout grows longer by the day.
Forget moral hazard - this has degenerated into a generalised (and disconcerting) sense of entitlement: “I, (insert-company-name-here), deserve a tax-payer funded subsidy, or at the very least the right to become a bank holding company.”
Take Chrysler’s Bob Nardelli, speaking at a conference in California (via Bloomberg):
“It would be very difficult to make it through this unprecedented downturn'’ without help.
Nardelli and his counterparts at GM and Ford have petitioned the US government for $25bn in aid, a petition supported by House Speaker Nancy Pelosi. Significantly, Barney Frank, House Financial Services Committee Chairman Barney Frank, has asked for that sum to be allocated out of the Tarp/Terp.
Still, Nardelli contends this isn’t about rescuing mere companies:
“This is about potentially losing an industry. Because of the interdependence of the supplier network, the railroads, truckers, the impact goes much further.'’
A fair point, but (this being FT Alphaville and all) let’s play devil’s advocate for a moment. Heck, let’s play Schumpeterian capitalists.
Creative destruction is a fundamental tenet of capitalism. Companies fail. Industries wither. And then, as Sombart put it ‘from destruction a new spirit of creation arises.’
The problems faced by the Detroit carmakers are not a direct consequence of the ongoing financial crisis. They are the problems of a sclerotic industry, too-long resistant to innovation and averse to change and the to the realities of a changing market.
How, exactly, does that qualify for a share of the Tarp? Further, as John Gapper reminds us, the carmakers have tried this on before. Moreover,
while Detroit often pledges to change and periodically shows progress, one thing is unchanged in two decades. It is still overpromising and underdelivering against Japanese and South Korean rivals.
GM, Ford and Chrysler are better at talking their own book than making cars, which is a tough business. It is particularly hard when you are stuck with high structural costs, an inflated dealer network and regulations that provide you with incentives to make trucks and sports utility vehicles.
Barney Frank and Nardelli must be reminded of this, and of the broader lesson that no one - no company, no industry - ‘deserves’ to be bailed out.
Which is not to say that bailouts will not continue to happen.
But before they do, the relative merits of each case, and the purpose to which each dollar of taxpayer money is to be deployed, need to be assessed with far more rigour and dispassionate rationale than appears to be true at present.
Related links:
GM wants a bailout? Here are our conditions - Clusterstock
