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backAMERItalk April, 2012
Auto bailout worked but what next?
It seems hard to believe the North American auto industry was on the brink of collapse three years ago. Today the Big 3 — General Motors, Chrysler and Ford — are doing fine, setting sales records, making healthy profits and opening plants as if the crisis had never occurred.
It is seems unthinkable that Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty poured $10.5 billion into a historic bailout of the once-mighty carmakers. All they talk about today is the danger of debt.
Was the massive rescue package worth the cost? And should governments continue to subsidize the automotive sector? Those were the questions the Institute for Research on Public Policy, a government-endowed think-tank, posed to two free market economists, Leslie Shiell from the University of Ottawa and Robin Somerville of the Centre for Spatial Economics, a private consulting firm.
Their answers: Yes and yes.
Saving GM and Chrysler (Ford did not seek public money) was a good deal, they told a Toronto audience at a working lunch put on the by the think-tank. “The case for the bailout appears stronger now than it did in the tumultuous spring of 2009,” Shiell said. The mathematics alone make it a success. The price, including concessions from workers, was $14.4 billion. The cost of losing Canada’s share of the North American industry would have been $20 billion.
Turning to the second question — should governments continue to subsidize automakers? — they took a harder line.
In order to receive future subsidies, the two economists said, auto companies should be required to pay competitive wages. At the moment, the average annual wage for an auto assembler is $66,000. The average industrial wage is $44,000. “We question whether the current pay premiums are sustainable in the long-term,” Shiell said.
Subsidies are financed by distortionary taxes, he pointed out. “More of the onus should be placed on workers to attract ongoing investment.”
This brought a sharp response from Jim Stanford of the Canadian Auto Workers.
The reason autoworkers earn a wage subsidy, he insisted, is that they are highly productive. They see problems and suggest solutions that no designer or engineer would think of. These innovations played a large role in the auto sector’s rebirth.
“Trying to cut wages in the name of attracting investment would be self-defeating,” Stanford warned.
Then the audience weighed in. Questioner after questioner challenged Shiell and Somerville’s assumptions, reasoning and conclusions. But few took the union’s side:
• How would driving down middle-class wages improve Ontario’s economy or boost its standard of living, one participant asked.
Citing Winston Churchill as his inspiration, Shiell said: “Competition is the worst form of industrial restructuring — except all the others.” Then he became more prosaic: “What’s different about our autoworkers from those in Alabama or Mexico?”
• Why not target subsidies at companies that invest in research and development, asked another questioner.
Somerville took the microphone. Governments aren’t very good at enforcing the conditions they set, he replied. Until they get better at holding companies to their promises, it probably wouldn’t be effective.
• Why demand wage concessions now, when they were not part of the 2009 bailout package (although GM and Chrysler were required to shed thousands of jobs), asked a third.
Conditions have changed, the two economists explained. In today’s climate of fiscal restraint, governments can’t afford to subsidize above-market wages. If automakers want assistance from Ottawa and Queen’s Park, they should reduce workers’ wages.
After the event, the participants gathered in clusters to talk about a fair subsidy policy. They weren’t satisfied with what they’d heard, but they knew the auto bailout was a one-time outlay. They weren’t ready to pull the plug on corporate welfare, but they wanted public money used to attract job-creating investment.
The bailout, once so controversial, had worked. But it offers no guidance for the future.
Source: TheStar.com - GAI
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