Tuesday, November 18, 2008

Why Bail Out GM? It Works in the Defense Industry

Via Matt Yglesias, an interesting counter-thought to the argument that the government shouldn't be involved in bailing out the American auto industry:

Why does the United States have one of the most robust aircraft-manufacturing industries in the world? The answer is not that pure free markets have, through the workings of a natural law, granted us such a bounty. Yes, Boeing has been disciplined and strengthened by global-market competition, particularly with Airbus, but large-scale federal spending on defense contracts has crucially strengthened Boeing’s position as a locus of human capital, design experience, and innovation. In 2006, the federal government spent more than sixty billion dollars on aircraft manufacturers. Boeing received $20.8 billion, according to Government Executive magazine. (Lockheed-Martin received $27.3 billion, and Northrup-Grumman $16.7 billion.)

Why does the United States have one of the most sophisticated, innovative electronics industries in the world? Raytheon’s take from the Pentagon in 2006: $10.4 billion; Computer Sciences, $2.7 billion. And so on. General Motors received $806 million dollars that year, mostly from the Army, enough to make it the fortieth largest defense contractor on the list, just ahead, startlingly, of Johns Hopkins University, which received more than seven hundred million dollars, most of it from the U.S. Navy. (Note to self: Why?)

So we have an outsized industrial policy, centered on our national-defense strategy. General Motors receives a lot less than Boeing because our current strategy favors aviation over ground transportation. This strategy has shaped our patterns of employment and innovation—the subsidies do not remain only within the military, but spill across the civilian economy as well. Our industrial policy has also given us less inspirational national capabilities such as world-beating personal-security and mercenary services (Blackwater).

Why do we have the best killing machine in the world? Because our government funnels billions into the private industries that make the machines that do it. Somehow this massive government intrusion into the free market doesn't stifle innovation or creativity. It ensures that these companies have the funds to invent and bring a superior product to market. ( I am not saying it is a good thing.)

Why can't it be done with the American auto industry? We say to them that we are going to fund the innovation for them to make the most fuel efficient cars in the world. No money to save their butts unless they agree to make these cars. The winners produce cars that the world actually wants to buy. They keep the profits. We get the jobs. The earth gets a little greener.

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