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The Socialist-Syndicalist Plan for GM

Mises Daily: Wednesday, May 06, 2009 by

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"The socialist-syndicalist plan will mean socialized costs and syndicalized profits."

It has often been said that government expands during a crisis. As White House Chief of Staff Rahm Emanuel noted, "Never allow a crisis to go to waste, they are opportunities to do big things." The tendency for governmental growth during crises is more than just conjecture. Robert Higgs has explained how the hidden costs of government intervention during crises cause people to overestimate the value of intervention.[1] Thus, people tend to adopt more favorable views of government during crises.

Of course, the growth of government is not inevitable. President Warren Harding responded to a crisis by cutting government spending and bureaucracy. Furthermore, the expansion of government during crises is often partially reversed afterwards.[2] However some types of governmental expansion are very difficult to reverse. Entitlements have been the most persistent types of governmental expansion in US history. The recent crisis has taken a different trend. The Bush and Obama administrations both moved towards an effective takeover of much of the American financial industry.[3] The results of the Bush/Obama socialization of finance remain to be seen. The Bush/Obama policies towards banking and insurance may be reversed. The Obama plan for General Motors is a different matter.

GM has announced a plan for a new ownership structure.[4] The US government will swap debt for equity and take at least half ownership in GM. This amounts to socialization of a large part of the domestic means for automobile production. The UAW will swap debt for equity to cancel out the debt "owed" by GM to a union-run trust. Worker ownership of 39% of this company is syndicalism, plain and simple. Current stock holders will retain only a small portion of their current property. In effect, the federal government and the UAW are moving to seize and split nearly all future profits for GM.

There is little point in debating the economic effects of implementing socialism. Socialism has failed so consistently that one must wonder how anyone could even propose a plan for 50% socialization of GM. There is no empirical case for socialism. Furthermore, economists like Ludwig von Mises, Friedrich Hayek, and Lionel Robbins disproved the theoretical case for socialism.[5] Given that Obama recently forced GM President Rick Wagoner to resign, it is quite possible that this plan originated in the White House, rather than in GM corporate headquarters.

The record of syndicalism — or "workers capitalism" — is not as easy to ascertain. History has few lessons to teach in this area. As far as theory is concerned, Mises and Robbins each addressed this issue. Since syndicalism retains a form of private ownership, it can work better than socialism. But UAW control over half of GM also means the politicization of GM, especially since the other half is going to democratic socialism. Given the political influence of GM, it is unlikely that this plan would be reversed anytime soon after its adoption.

The effects of the socialist element of this plan are harder to predict. The voting public could feel "entitled" to GM, as it owed money to the public, and this debt was paid in an equity swap. Furthermore, a socialized/syndicalized GM would likely become a net burden to taxpayers. In other words, the costs of this move by the government could be obvious enough for much of the electorate to turn against it. It is also the case that most Americans still object to socialism.

The fact that the UAW has played a role in GM's decline could create further discontent with the socialist/syndicalist plan for GM. The UAW has exploited its position as a monopoly supplier of labor to GM, Ford, and Chrysler. For decades now, UAW workers have squeezed GM shareholders for as much as they can. The socialist/syndicalist plan for GM could end up serving as a means for GM workers to extract rents from the general taxpaying population. The general taxpaying public is too large and dispersed to effectively organize to lobby the government against UAW interests. To put it simply, it is too costly for "citizens" to lobby against the UAW on a day-to-day basis. The UAW will own 50% outright under this plan, and will likely capture the other 50% through lobbying. Consequently, the socialist-syndicalist plan for GM will likely mean socialized costs and syndicalized profits. That is how GM will likely be managed, should this plan become a reality.

"This plan would also set a dangerous precedent for American industry in general."

While taxpayers cannot meet the UAW on equal political terms on a day-to-day basis, it is possible for the electorate to win on this issue. Taxpayers can win a one-day fight against the UAW. A strong and immediate public reaction against this plan could kill it before it gets implemented. Or a strong reaction against this plan after it gets implemented could reverse this plan.

The socialist-syndicalist plan for GM would have dire consequences for the American auto industry. This plan would also set a dangerous precedent for American industry in general. Socialism is a failed and unworkable system. Syndicalism ends up politicizing industry, as different workers use governmental power in efforts to exploit each other. The one good thing about the socialist-syndicalist plan for GM is that its costs are obvious enough to provoke a response to kill it.

Notes

[1] See Higgs, Crisis and Leviathan (1985).

[2] This is part of Higgs's theory. He argues that the retrenchment of government tends to be less than its expansion.

[3] Paul Krugman has described Obama's policies as a back-door route to temporary bank nationalization.

[4] See John Stoll and Sharon Terlep, "GM Offers a Majority Stake," The Wall Street Journal, April 29, 2009; and Tom Krisher and Kimberly Johnson, "GM to cut 21,000 US factory jobs, shed Pontiac," April 27, 2009.

[5] See Mises, Socialism: an Economic and Sociological Analysis (1922) and Omnipotent Government (1944); Hayek, Collectivist Economic Planning (1935) and The Road to Serfdom (1944); and Robbins, Economic Planning and International Order (1937).