Imperial Capitalism

by Doug Magill

My father worked for General Motors for over 25 years.  At the end of his career he was responsible for all relations between GM and government – federal, state and local.  While he worked with a number of legendary company leaders such as Roger Smith and Tom Murphy, his most interesting stories had to deal with the government officials he met in Washington, D.C., and around the country.

One of the worst he ever dealt with was the governor of Georgia, Jimmy Carter.  Rude, imperious and condescending, the former peanut farmer desired to have GM locate a manufacturing facility in his state, but wanted the company to grovel and feel as if it were being granted a favor from heaven.  The company decided to build elsewhere.

There were other state governments in which the officials indicated an interest in side deals to benefit the executives involved, and through which there were secret dispensations offered in terms of taxes and local regulations.  Those deals were not consummated, either.

Dad didn’t tell me these stories until after he retired, and he made it clear that there were a number of honest politicians, but there were also quite a few that were incapable of honesty and humility.  The problem was, he felt, that government officials were in a better position to manipulate the media than was a company like GM.  His job was to not only to try to get the truth out, but to keep the company away from situations in which the spin would be negative, regardless of how the company dealt with a particular situation.

His biggest concern was that someday the federal government would take control of the company and turn it into an entity that wasn’t focused on the car business.  He knew the car company culture that he loved would be destroyed.  He also felt that the mission of the company – to benefit its shareholders – would be distorted into something that would benefit the government and its favored partners.

Today GM is owned by the government, and the unions.  There are many reasons why the company went into bankruptcy, but the losses incurred by its shareholders and senior debt holders were enormous.  The only people not hurt by this were the unions.

There are discussions about the possibility of the government being paid back, but it won’t happen.  The stock price today is below the IPO price, and would have to rise significantly to reach the territory required to repay the investment.

People that work for the company will never say it out loud, but they will tell you in private that projects favored by the government are getting funding and priority for resources.

Like the Chevy Volt.

Dave Richardson reported in the Detroit News that the senior director of Consumer Reports claimed the Volt “doesn’t really make a lot of sense.”  A car that no one wants (sales currently are abysmal) and that was basically subsidized because of its touted all-electric design, for a market that is unknown.

Originally intended to be a pure electric vehicle, and then a hybrid where a gasoline motor only drove a generator, the car now is more or less a hybrid with a gasoline engine that drives the wheels at highway speeds.  And, the battery-only mileage is terrible: around 25 to 40 miles, depending on the temperature (no one really knows what it will be when either the heater or air conditioner is going full blast).

Maybe there is a small market for fanatics who don’t drive very far, but GM has pledged to build 100,000 in the first two years.  Who in the world is going to buy them?

Here is the way crony – or imperial – capitalism works.  Friends that help those in power get special favors.  It distorts markets and creates perverse incentives to invest in areas that would not be otherwise profitable.

GE’s Jeffrey Immelt has been named to chair President Obama’s economic advisory board.  And, by the way, GE has invested a lot of money in renewable energy manufacturing, particularly windmills.  So, not too long after being appointed by our eco-conscious president, Immelt announced that – oh, wait – GE will buy 50,000 Chevy Volts.  Mirabile Dictu!  We now have a captive market for a car that would otherwise be orphaned in the cruel exigencies of a free market.

Although GE already is the beneficiary of a number of tax credits for green energy, the other shoe hasn’t thudded to the floor yet.  Sooner or later there will be some late Friday afternoon announcement that the government will be buying a lot of windmills from or giving some additional special tax credits to GE.  So, we can not only subsidize inefficient vehicles so GM can design more inefficient vehicles, but we will also be subsidizing one of the most inefficient forms of energy production.

In imperial capitalism those close to the king receive favored treatment.  Believe me, it will also always be big companies.  Smaller firms or those in un-favored markets will be frozen out.  And, the big companies close to the king will be the ones dictating which markets, products, and techniques will be favored.  This will also happen with Obamacare.  Large hospital chains will be dictating which technologies and treatments are favored.  Individual patient choice will be non-existent.

It’s good to be the king.

I know Dad is rotating rapidly in his grave at the ignominy of his beloved company being owned by the government for the unions, and also being forced to work on projects that any real car guy would drive away from.  Fast.

Doug Magill formerly worked in the automobile industry and is a consultant, freelance writer, and voice-over talent.  You can reach him at doug@magillmedia.net

 

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