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The General Motors bailout only delays an inevitable crash
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| Contributor | kal |
| Last Edited | kal Jun 03, 2009 05:14am |
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| Category | General |
| Media | Newspaper - Daily Telegraph |
| News Date | Wednesday, June 3, 2009 11:00:00 AM UTC0:0 |
| Description | So far, the US taxpayer has ploughed more than $50 billion into General Motors, the 100-year-old car manufacturer which filed for bankruptcy yesterday. GM, Americans joke, now stands for Government Motors, since the state owns 60 per cent of it.
There is a new American dream: that a slimmed-down GM will emerge from bankruptcy to prosper in the private sector. But it is not at all clear that huge amounts of government money should be injected to bring about this result. The US bankruptcy system is usually rather good at allowing companies to restructure and relaunch themselves, so why drag in the taxpayer?
The most appealing argument for doing so – that it will save jobs – is also among the weakest. First of all, GM will shed at least 20,000 more workers anyway. Yet even that may not be enough – it is doubtful that demand, particularly for GM's inefficiently-produced cars, will ever bounce back to previous levels. In which case additional government funding will be needed to avoid further redundancies.
In other words, the latest infusion of cash will not save jobs at GM and its suppliers; it will only delay the fall of the axe for some workers. That is not nothing – particularly since the delay will also help diffuse the broader economic impact of GM's blowout – but it is not enough to justify intervention on this scale. As Robert Reich, the former US labour secretary, has argued, if the only practical purpose is to slow the decline of GM to allow workers, suppliers, dealers and communities to adjust to its eventual demise, then the funds would be better spent helping the Midwest economy diversify away from cars.
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