Zywicki: Auto Bailout and the Rule of Law

The government bailouts of General Motors (GM) and Chrysler have been touted by some as proof that government and business can work together to save jobs and strengthen the economy, but Professor Todd Zywicki disagrees with that analysis.

"The bailout was not absolutely necessary and was pursued by means of dubious legality; the bankruptcies were highly irregular and inefficient; and the companies that have emerged from bankruptcy are far from lean and fit," he says. "They are certainly in no position to repay taxpayers for the generous loans they were given."

"Through their actions, the Bush and Obama administrations have set dangerous precedents," Zywicki says, "and made it much more difficult to reverse the trends of executive overreach and excessive government entanglement with private business."

The Auto Bailout and the Rule of Law, National Affairs, Spring 2011. By Todd Zywicki.

"When President Dwight Eisenhower named Charles Wilson — then the president of General Motors — to be his secretary of defense in 1953, some senators considering the nomination wondered whether Wilson could distinguish his loyalty to GM from his obligations to the country. Wilson assured them that he could, but then added that he did not think a conflict would ever come up. 'For years I have thought that what was good for the country was good for General Motors, and vice versa,' he said in his confirmation hearing.

"Wilson's statement — especially that 'vice versa' — was long considered the epitome of corporatist excess. To many, it represented the view that the government existed to advance the interests of large corporations (and, of course, vice versa), even if the arrangement came at the expense of average citizens and workers.

"In the past three years, however, Wilson's attitude has come back into vogue, as a new approach to the relationship between the government and the private sector has taken hold in Washington. That approach — a kind of state capitalism that seeks to entangle the government and large corporations in order to allow for careful management of the economy — is perhaps best embodied in the government bailout and subsequent bankruptcy of Wilson's old company, and of one of its longstanding competitors."

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