The real reason a Big Three bailout is a bad idea - Andrew Coyne in Maclean's

Andrew Coyne does it again. He has zeroed in on the real problem, and elucidated it as only he can do.

The overpaid mandarins of the Big Three have for too long depended on government’s handouts and guarantees, with a song and a promise to maintain local production and employment, all the while pushing their gas guzzling dinosaurs and avoiding facing the inevitable changes. The unions were willing participants in the charade, just as long as the domestic auto manufacturers acceded to their outrageous featherbedding demands, paying them more than twice the average wage for semi-skilled labour. After all, before the Japanese snuck up on them, they had a virtual monopoly, and could pass the costs on to the buyer. For a while, mechanization and robotics kept the labour costs per vehicle in check, since they could reduce the expensive work force. However, the Japanese were even better at mechanization and cost cutting, implementing such innovations as “just in time” manufacturing, and technical innovations in efficient engines and quality products, leaving the domestic manufacturers scrambling to catch up. They forgot to innovate long ago; keepers of the status quo and followers rather than leaders.

These “captains of industry”(otherwise known as fat cats) pay lip service to laissez faire capitalism when the wind is in their sails, but as soon they face strong head-winds, they run to the government trough to feed with all the other little welfare- piggies –except they do it in corporate jets.

Mr. Coyne is making the very poignant argument that shoring up a failing industry is contra-productive in the longer run; the opportunity cost of capital being tied up in an obsolete and calcified industry exceeds the short time benefits of saving them now. Better let them fail –go into bankruptcy and reorganize; unload the overpaid “cretinous” bums at the top and pay the workers what they are really worth.

Perhaps then they can emerge again as an innovative and dynamic organization that can compete in world markets. Maybe.