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Britt Combs: Government takeover of GM heralds end of free market

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By Britt Combs | The McDowell News

Published: June 2, 2009

In the 1988 movie, "Tucker" a new generation learned the story of Preston Tucker, engineer and entrepreneur who attempted to manufacture and sell an inspired new car. His machine was demonstrably superior to the offerings of the Detroit industry, who were relying on tired pre-war designs and standards in the late 1940s.

Through their political influence over the courts – the movie and the historical record agrees – the "Big Three" were able to shut him down. Existing industry crushed new industry, not through competition and sweat-based hard work, but through political and judicial force.

Walk through a full-grown forest and you'll notice the bare, open ground beneath. In the shade of mature trees, not much new plant life can gain a toe-hold on the ground. Denied sunlight, new plants must wait until the tree canopy is broken – whether through fire, logging, disease etc. -- to have a chance.

There's only so much room in the sun.

The political parties being beholden to big contributors, they are inevitably reluctant to let generous benefactors die a natural death. You hear people talk about "mortgaging our children's future" with big government spending. The government is now applying that concept to whole sectors of the economy.

While the massive Bush bailouts of last fall were horrible – propping up bad, failing businesses and cheating the next generation of Americans of their day in the sun – Obama has taken the next logical step; outright seizure of one of the biggest businesses in America.

However (allegedly) laudable the reasons behind the takeover may be (preserving confidence, saving jobs, ushering in a new era of hope, blah blah blah), the results cannot be good.

Through a backroom deal signed off on by the bankruptcy court this week, the federal government has taken over the ownership of 60 percent of GM. The Canadian government will get 12.5 percent, and a mere 10 percent will go to bondholders. By contrast, the United Auto Workers will get a 17.5 percent stake.

The new administration has matched, or even outdone, its predecessor for basic dishonesty.

As the Heritage Foundation's Andrew Grossman told the House Judiciary Committee last month, "After Congress declined to bail out General Motors and Chrysler, Bush, and then Obama, acted to accomplish the same end, drawing on funds that had been appropriated to shore up financial institutions under the TARP." In keeping with that wonderful spirit of shutting Congress out of the discussion, Obama announced he will convert all his preferred (get paid first) stock to common (voting) stock. Nice.

Suddenly he had active, majority control in GM; no debate, no feedback, no appeal and no question of the constitutionality of such a move.

It would be unforgivably childish to ignore the connection between the Democratic Party and the UAW. The government and the union (representing the highest-paid, most lavishly cared for blue collar workers in America) have ruined shareholders and bondholders. They have rewritten bankruptcy laws as they have seen fit.

Contracts between creditors and debtors have been arbitrarily rewritten. And now the government stands to directly profit by corrupt action and could loose money by applying the law fairly. This is why we used to forbid government from owning business. The enforcers of laws should have no direct stake in a company's success or failure.

How can the government, owners of two of the Big Three, possibly preserve the "level playing field" of honest market competition with Ford? They were first of the three to recognize the coming recession and launched a major restructuring before it hit. In the best Darwinian tradition of commerce, they were the "fittest" and set themselves up for survival. Ford played smart and avoided failure. And for that the will pay a huge penalty. Every time someone buys a Ford, the government will lose money.

How long can the UAW and the government tolerate that? Why compete fair and square if you can just crush them instead? If I were Ford, I would have grave doubts about the company's prospects. Surely they are giving serious consideration to kicking the dust off their heels and moving the company overseas. America is no longer the land of opportunity.

For decades, Democrats have been criticized for "punishing achievement and rewarding failure." Now, they've taken that abstract and made it a business imperative. The corrupt influence businessmen used to wield under the table is now official government policy.

Britt Combs believes the only problem with the free market is that it hasn't been tried. He writes a weekly column for The McDowell News.