The Obama administration has pressured longtime General Motors CEO Rick Wagoner to resign, and he has done so. That high-profile decision — the first of several as the government tries to force Detroit to restructure itself — will no doubt generate complaints that the federal government is overreaching.
Let’s review the situation:
First, the federal government is not requiring GM to fire its CEO. It has no such power or authority. Instead, the federal government is pressuring GM to fire its CEO AS A CONDITION FOR GETTING TENS OF BILLIONS OF FEDERAL BAILOUT DOLLARS.
That’s a very important difference.
In private enterprise, a distressed company facing bankruptcy will often beg outside investors to rescue it with an injection of cash. However, the company understands that the bailout will come with conditions. The outside investors or lendors will almost certainly demand changes in company operation and management. They may want control of the board. They may insist on a new CEO. That’s just how such things work. The assumption is that if the company was well-run in the first place, it wouldn’t be needing outside investment.
The federal government is doing the exact same thing. GM and Chrysler came to the government seeking huge sums of taxpayer money to keep operating. Barack Obama responded just as private investors would. He had outside experts comb through the automakers’ books and operations, and then he demanded changes as a condition of saving those businesses. To do anything less — to simply hand the money to Detroit without forcing changes in management, operation and labor contracts — would be grossly irresponsible.
Conservatives always complain that government ought to act like a business. In this case, it has.
It is fine to argue that the government should not bailout Detroit or Wall Street, that we should let those companies and institutions fail and deal with the consequences. I think that’s an overly purist and largely impractical approach in the face of this historic crisis, but I do acknowledge that it’s a logically consistent approach and I understand its appeal.
However, if you believe the bailout is necessary, you also have to accept the necessity that there will be strings attached to that money.