GM bailout fu­els fears of Euro­peaniza­tion of econ­omy

The Washington Times Weekly - - Politics - BY DON­ALD LAM­BRO

The Obama ad­min­is­tra­tion’s bank­ruptcy bailout of Gen­eral Motors Corp. on June 1 is the lat­est in a se­ries of un­prece­dented gov­ern­ment takeovers of pri­vate com­pa­nies that some crit­ics fear could lead to the Euro­peaniza­tion of the U.S. econ­omy.

The White House’s lat­est move fol­lows a string of sim­i­larly dra­matic ac­tions that have seen the gov­ern­ment as­sume own­er­ship stakes or con­trol of at least half a dozen other com­pa­nies, fir­ing CEOs, re­shap­ing boards of direc­tors — and in the case of GM and Chrysler — re­struc­tur­ing the com­pa­nies and giv­ing a ma­jor stake to their unions.

“You’ve got gov­ern­ment bu­reau­crats who are mak­ing de­ci­sions about what kind of car mod­els are go­ing to be pro­duced, which plants are to be closed and how many deal­er­ships to elim­i­nate. You have in ef­fect cen­tral plan­ning of this in­dus­try. Karl Marx must be smil­ing to­day,” said Phil Kerpen, pol­icy di­rec­tor of Amer­i­cans for Pros­per­ity, a freemar­ket think tank. “We’ve never seen this level of gov­ern­ment con­trol of the econ­omy in peace time his­tory.”

Not­ing that Euro­pean gov­ern­ments “now own large stakes in their fi­nan­cial in­sti­tu­tions and own or sub­si­dize car com­pa­nies, air­lines, air­craft man­u­fac­turer Air­bus and other firms,” the Her­itage Foun­da­tion’s chief econ­o­mist J.D. Foster said: “We are mov­ing in that di­rec­tion in at least three di­men­sions — the gov­ern­ment own­er­ship of ma­jor com­pa­nies, the mag­ni­tude in gov­ern­ment spending and tax­a­tion, and the level of debt.

“When the Euro­peans get into the busi­ness of own­ing com­pa­nies and manag­ing them, it tends to in­ten­tion­ally be an in­def­i­nite sit­u­a­tion, but what Pres­i­dent Obama has done is that he says th­ese in­vest­ments are in­tended to be tem­po­rary,” Mr. Foster said. That, he and oth­ers sug­gest, re­mains to be seen.

Europe’s econ­omy, while stronger in the past decade un­til the global re­ces­sion took hold, has had to strug­gle with bouts of higher un­em­ploy­ment since the 1970s when job­less­ness in­creased and kept ris­ing in the 1980s and into the 1990s — with un­em­ploy­ment in France, Ger­many, Spain and Italy hit­ting around 10 per­cent — as a re­sult of much higher tax lev­els to pay for its large wel­fare state economies.

Eco­nomic stud­ies have long shown that Europe’s higher tax bur­den, its large union­ized work force, gov­ern­ment li­cens­ing reg­u­la­tions and a slower rate of new busi­ness for­ma­tion than in the U.S. have con­trib­uted to its em­ploy­ment lethargy.

Euro­peans who have lost their jobs were un­em­ployed for longer du­ra­tions than in the U.S. be­cause of the scarcity of job op­por­tu­ni­ties, stud­ies showed.

At a White House brief­ing on June 1, Mr. Obama said he had no choice but to in­ter­vene, putting the gov­ern­ment in the “un­wel­come po­si­tion” of hav­ing a fi­nan­cial stake in the auto com­pa­nies.

The ad­min­is­tra­tion’s plan calls for pump­ing an ad­di­tional $30 bil­lion in bank­ruptcy fi­nanc­ing into GM in ex­change for a 60 per­cent eq­uity stake in the fi­nan­cially shat­tered auto gi­ant.

The Trea­sury Depart­ment un­der­scored Mr. Obama’s pledge with a state­ment of its own, say­ing it “does not an­tic­i­pate pro­vid­ing any ad­di­tional as­sis­tance to GM be­yond this com­mit­ment.”

Yet even some the ad­min­is­tra­tion’s big­gest de­fend­ers ex­pressed doubts there would be no fur­ther bailouts for the com­pany.

“But is the Obama ad­min­is­tra­tion re­ally plan­ning to cut off GM’s in­tra­venous drip of fed­eral bil­lions, when the $50 bil­lion doesn’t put the com­pany back on its feet? It doesn’t look that way,” said lib­eral ac­tivist Markos Moulit­sas Zu­niga in his Daily Kos blog.

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