Teetering

Two generations ago, it was fashionable to invoke the cliché that what is good for General Motors is good for America. That was a time when it was a fad to regularly burn US flags in the streets and deliver fiery tirades against “imperialism.”

Today, it is the managers of General Motors and the two other giant American auto makers who are reviving the old cliché. They have gone to Washington, hat in hand, to beg the government to bail them out. They are asking for about $25 billion in taxpayer money to tide them over and prevent a calamitous collapse of the US car industry.

Without immediate cash infusion, General Motors will run out of money by about yearend. Should that happen, millions of American jobs, both directly and indirectly employed by the auto industry, would be lost.

The effect on the domestic economy of the US would be calamitous. This is, after all, the moment of greatest weakness for the American economy.

The mood in Washington is not receptive, however.

Billions of dollars have been shelled out for ailing banks, blighted mortgage companies and an ailing insurance giant. Without raising taxes sharply, the US government is in peril of sinking in the bog of massive indebtedness.

Besides, there seems to be something extraordinarily sinful about bailing out the large automakers. The cardinal rule in a modern competitive market is that those who fail ought to be allowed to fail.

There cannot be a socially provided safety net for badly run companies. Otherwise, the economy loses the drive for excellence and courts the prospect of the state nursing incompetent enterprises at great public expense. The US will soon begin to resemble the late unlamented Soviet Union.

Besides, it is not as if the problems now confronting the American automakers resulted from some unexpected turn of events. For years, this industry has been failing. It has been a long melodrama of failure and incapacity to act on them.

As Japanese and European carmakers set new standards for efficiency and productivity, US automakers continued to lag behind. With a large domestic market, there seemed little urgency in pushing innovative and cost-effective new products.

While other automakers put out powerful subcompacts, the Detroit Three continued producing humungous battle tanks. While others began introducing hybrids and traditional cars conforming to the highest emission standards, Detroit rolled out more of the same.

When oil prices spiked the last couple of years, it seemed apparent that the death knell had been sounded on the Detroit Three. And yet, in Detroit, there seemed to be a stubborn refusal to heed the signs of the times. Little was done to improve production and fuel efficiency. Almost nothing was done to innovate or migrate towards vehicles that run on renewable energy.

But then, there is the practical side of it.

The US is in recession. The entire Euro zone is in recession. Japan is in recession. The collapse of one or even two major automakers could be the proverbial straw that breaks the camel’s back.

No one really knows how the shock of major industrial failures will impact a fragile economic situation and a volatile financial condition. The US economy is teetering, not between recession and recovery, but between recession and something even worse.

What is good for General Motors might be good for the US.

No one wants to wait to see a giant crash. The Obama administration-in-waiting seems inclined to bail out the carmakers. They are simply too big to fail. A failure in Detroit will devastate the heartland of electoral support for the incoming American president.

In the hearings at the US Congress, the Democrats seemed to be anxious only about packaging the bailout to make it politically palatable. They are seeking to extract commitments from the carmakers to innovate and achieve greater efficiency in return for a cash infusion.

That seems like a no-brainer. Unless Detroit meets new global standards of efficiency and cost-effectiveness, it will become a bottomless pit requiring endless bailouts deep into the future.

While the lameduck US Congress deliberates a bailout of the US auto industry, the global markets have found yet another reason to equivocate. Just when it seemed that we have gone through the worst episode of financial turbulence, we must now try to sort out the consequences of that turbulence in the real economy, beginning with the rustbelt of the US Northeast.

Until the matter of the US auto bailout is settled, the markets will be in suspended animation. Everyone will be waiting, with bated breath, to see if a major industry collapse could be averted.

That is something that adversely affects not just the US economy. It affects all of us. A major collapse in the US auto industry could drive the fragile global economy into a wild tailspin.

It is a dreadful thought, but could it be that what is good for General Motors be good for all of us as well?