Paul Nitze: Deregulation isn’t the answer |

Paul Nitze: Deregulation isn’t the answer

Paul Nitze
The Aspen Times
Aspen, CO Colorado

Somewhere, in some corner of America, a few jobs are being created. Chances are the hiring isn’t happening in Menlo Park or TriBeCa. More likely it’s in places like Wichita or Birmingham or Detroit, where workers come a lot cheaper.

Or we could take a trip to Spring Hill, Tenn., where General Motors is reopening an old Saturn plant, minus the Saturn brand. GM says it will add 600 jobs there next year, and might add another 1,100 jobs on top of that by the end of 2013. This news came out just after the United Auto Workers announced it had reached a tentative agreement with GM on pay and benefits that will create (or prevent the elimination of) 6,500 jobs over the four-year life of the contract.

For some on the left, news of the GM/UAW deal is a feel-good story about how unions can strike the right balance between competitiveness and worker protection. And in this case, there’s a bedrock of truth in that narrative. GM got to keep a two-tiered wage structure that pays most new employees about half of what existing employees make, and has also tied a big chunk of compensation to profits. The UAW secured fat profit-sharing terms and avoided cuts to pensions or health care benefits.

Before any of this could happen, GM had to start making money again. It came roaring back to profitability out of bankruptcy, earning close to $6 billion in the first half of 2011. Some of that has to do with GM’s Japanese competition taking a whack to their supply chain. Surely with this lousy economy the second half picture won’t be so bright.

But the big story is that a company that was at death’s door in 2008 is now making money and putting 200,000 people to work around the globe. A messy reorganization, made possible by $50 billion in taxpayer money, is what got the company from there to here.

Even this small spot of economic sunshine has its doomsayers. Matt Kibbe, a tea party bandleader, wrote an op-ed this summer for Fox News titled “The Truth About the GM Bailout.” In it he complains about the price tag, and claims that “corporate leaders have been forced to base their decisions not on market considerations, but on the political/ideological prejudices of their government handlers.” To Kibbe this is a story of wasted money (“fraud” is his term) and government apparatchiks sticking their fingers into free enterprise.

Apart from Kibbe’s trite use of catchphrases (he reads like an Ayn Rand cut-and-paste job), it’s his ignorance of American industrial policy that stands out. Our bailout of the Big Three automakers (mostly GM and Chrysler) stands in a long line of federal intervention to prop up our manufacturing sector. It has happened to one degree under the watch of every recent president, including Ronald Reagan, who approved the bailout of Chrysler 30 years ago.

I’m no cheerleader for federal intervention in the American economy. We’re right to feel uneasy about the fact that taxpayers will probably lose about $10 billion in the auto bailout, that the government still owns more than a quarter of GM’s stock, and that a small cabal led by Steve Rattner dictated terms to GM’s bondholders. But if you think that this was too high a price to save tens of thousands of sorely needed jobs and maintain an American presence in the auto industry, let me suggest you’re suffering from a deficit of common sense.

Having just returned from China, my first time there in a decade, I was struck by what hard-core industrial policy looks like. All of the high priests of globalization who populate the opinion pages have made this point – you can work wonders, at least for a while, if you run the economy by fiat. China controls its currency, it controls bank lending, and it dictates terms to business. When it wanted to use the availability of rare earths as a cudgel to force foreign businesses to manufacture inside China, it simply rolled up dozens of private mining operations into a few state-controlled companies.

It only takes a few days of wandering around Beijing to realize that the global economy is a long, long way from the free-trading utopia envisioned by David Ricardo. When I learned about comparative advantage in college from Martin Feldstein, Reagan adviser and champion of the free market, I didn’t know that in the real world countries scrap and claw for every job and factory, free trade be damned.

Angst about the GM bailout, even in the face of its return to global competitiveness, is symptomatic of a much larger political paralysis over our industrial policy. We live in a world in which other countries will take every one of our manufacturing jobs if they can, and have no compunction about manipulating their currencies or restraining trade in order to do it. They offer huge loans and subsidies to national champions. They steal intellectual property and strong-arm multinationals to bring jobs inside their borders.

There is no substitute for a coordinated effort, led by the federal government, to fight back in order to protect American jobs. It’s messy and ugly, and it stands at odds with our vision of a free market, but it has to be done. Pretending that a steady diet of deregulation and inaction will make us competitive is a recipe for high unemployment and a misguided reliance on low-wage jobs in the service sector.

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