Bailouts and Innovation: Privatizing Rewards and Socializing Risk
By Bill MerikallioThe economy has another corporate sector begging for a bailout: GM and its Detroit brethren are now sidling up to the public trough looking for “a way to enable the car companies to retool for innovation.” As Thomas Friedman of the the New York Times noted, “We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation?”
“What’s good for GM is good for America,” or so the old saw goes. GM’s market capitilzation is now about 1/40th the size of Google’s. Market capitalization is not necessarily the best measure of a company’s intrinsic worth (the stock market being much like a Junior High school popularity contest), but it clearly shows that the investing public doesn’t have much faith in the GM leadership’s ability to turn things around. Do you?
I bought a new car this year. Having loved “Roger and Me” and visited Flint, Michigan, I wanted to buy an American car, but more importantly, I wanted a hybrid. Other than a Cadillac Escalade (as if), the only American hybrid was a Saturn which all the reviews I read said was not quite ready for prime time. So I had to buy a car from Japan. While Detroit was busy pimping SUVs, Toyota was busy developing a reliable, efficient engine with a very small carbon footprint.
Now GM’s executives want American taxpayers to help them out of the gaping hole they dug. While I’m not at all averse to public funding of innovation and research, given the dismal track record of the big three, there needs to be a public reward for assuming this risk, and there need to be strings attached to this funding. For example, any public funding could be contingent on replacing senior management and the stipulation that all public money be spent developing a car that gets 40mpg. Maybe these strings are exactly what would be good for GM and for America.
