Government control of private industry not new
As many Americans rightfully express their displeasure with congress for exponentially growing the size of government through bailouts and interference of the free market, we need only to examine government’s role in funding our universities to understand the blueprint for this relationship.
Our founding fathers understood the importance of an educated populace, realizing that was essential for the survival of the republic. To that end, government involvement was vital in establishing our system of higher education. This was a noble and just use of public monies at that time, however, since then our society and our universities have grown beyond this need as universities have become essentially private businesses rather than social entities. As a result of government involvement, our universities have become increasingly costly and inefficient. The cost of a college education has dramatically risen despite the billions of tax dollars Ohioans have contributed. Our university officials defend seven figure salaries for the administrators and coaches because they provide an essential service and bring revenue to the university. They compare the president to a corporate CEO and justify professor’s salaries because of a need to compete with other universities to get the best talent. These are all metrics of a private industry business model not of a government entity. University enrollment is limited by classroom and housing space available, so the numerous qualified applicants must be culled in some manner. Like any other business, if demand exceeds supply, either supply must be increased or the price must be increased to balance supply and demand. Why do universities charge so much for a college degree? Because they can; college administrators are essentially auctioning off college admissions by steadily increasing tuition in an effort to balance supply and demand. Until applications for enrollment decrease, the price of a college degree will only increase regardless of the amount of tax dollars given. Instead of making a college degree more affordable, our taxes are merely contributing to the inefficiencies of our universities, much the same as our tax dollars will perpetuate the inefficiencies of the automobile and other industries.
Many pro-government individuals think that the government can override the basic laws of supply and demand. Just as they ineffectively try to reduce the cost of college, they believe that government can and should prop up failing industries. We have seen hundreds of billions of our dollars committed to the banking industry, with no apparent positive results. The latest bailout attempt is to the auto industry. No one wants to see anyone lose their job; however, the billions of dollars being requested by the auto manufacturers will not save them. The airline industry went through much the same situation just a few years ago. The basic problems with the airlines, as with the auto manufacturers, are the legacy costs and the ability to compete with non-legacy companies within that industry. Aloha, Frontier, US Airways, America West, and ATA all asked for and received infusions of government money. Other airlines, such as United Airlines, applied but were denied. As a result, United filed for bankruptcy, reorganized, and became more competitive. Those carriers that received the government backed “loans”, did not change how they operated and did not become more competitive. Aloha and ATA dissolved, Frontier is currently in bankruptcy, US Airways went in and out of bankruptcy and only survived by a merger with America West; a merger that was necessary to save both companies. The important point is that even with a government infusion of cash, the basic laws of the free market will always prevail. For the auto industry to survive, they must produce a product that the consumer wants to buy and offer that product at a price that the consumer is willing to pay. There are many strings attached to the proposed bailout money, one of which is that government will dictate what type of vehicles the manufactures will produce. Essentially government will be designing our automobiles rather than allowing the consumer to dictate the types of vehicles they want to buy. No matter how many billions of dollars our government provides to the auto industry, if they fail to produce a vehicle that consumers are willing to buy, they will still fail.
Some refer to the bailout of Chrysler in the eighties as a symbol of success and justification for the current bailout. The fact that Chrysler not only repaid the government loan with interest, but paid it off early would seem to provide some reassurance for supporting another industry bailout. However, had the government not bailed out Chrysler in the eighties, the industry may not be in this situation now. Had Chrysler become leaner and more competitive through reorganization, it would have forced GM and Ford to become more efficient as well, leaving them better positioned for the current economy.
The most effective and practical course of action for the auto industry is bankruptcy protection. This will allow the manufacturers to reduce long term costs, retool and resize the company to become more efficient and competitive. The end result will be a stronger auto industry that benefits all Americans.