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Is This Socialism?

TAP's Tim Fernholz has a nice, clear rejoinder to the charge that the GM takeover is "socialism":

It's fair to call the General Motors deal or the AIG takeover examples of socialist policy; government is directly intervening in a private concern. But it's not fair to say that the Obama administration is socialist per se because socialism is an -ism, a system, a guiding philosophy, and it's clear that putting the government in charge of private production is not the Obama administration's guiding philosophy. When some conservatives try to insist otherwise, that's when they look over the top. Maybe there's a point when these socialist policies add up to actual socialism (or in the banking system, lemon socialism) but we are far, far from it.

If the Obama administration had come into office without an economic emergency, they wouldn't be involved in these firms -- don't forget that the first big government takeovers came under George W. Bush and that the management and directors of the auto companies asked for government help. The current administration has made clear they don't intend to be in the auto making (or banking) business for very long, and voluntarily laid out various guidelines to keep politics out of business decisions. Obviously, lines will be fudged and there are plenty of opportunities for conflict, but this is clearly not an administration whose every answer is "seize the means of production" -- see, for instance, this graph, or the administration's deep reluctance to take over insolvent banks despite a fairly large constituency for such an action. Ultimately, then, I'm not sure it's productive for conservatives to call the administration's response to the auto makers "socialism" -- although, hey, maybe some political points in that -- but rather to harp on the fact that the government has made a pretty unfortunate investment because it thought the collapse of the industry presented a systemic risk to the economy.

Another way to think about this is that socialism is usually considered the alternative to "capitalism." Not so here. In the case of the financial crisis, socialist policies were understood as the alternative to the collapse of capitalism, and in the case of Detroit, the alternative to the collapse of a major private industry that was temporarily unable to access credit due to the aforementioned near-collapse of capitalism. This has been, at least in the Obama administration's estimation, socialism-to-save-capitalism, which rather distinguishes it from the project of more traditional socialists.

By Ezra Klein  |  June 2, 2009; 4:26 PM ET
Categories:  Economic Policy , Financial Crisis , Solutions  
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Anyone can state their philosophy, but the only way you really know is by deeds. First it's GM and Chrlysler, next it's probably CitiBank. what will it be tomorrow? Barney Frank is floating guarantees for cities' and states' debt. Isn't this how the mortgage crisis started?

In each case, they claim that they were 'forced' into it, but the results are that they government *is* taking over private industries and will probably take over banks and then cities all under the iron fist of the federal government.

If I shoot you with a pistol, are you not just as dead if I did it accidentally and not with malice?

Posted by: ElViajero1 | June 2, 2009 4:43 PM | Report abuse

So it's socialist, not socialism. I think that's fair.

However, "In the case of the financial crisis, socialist policies were understood as the alternative to the collapse of capitalism." This is fundamentally wrong, by the same logic used above. Capitalism would not have collapsed, just certain capitalists, various derivative gambling markets, etc.

Posted by: staticvars | June 2, 2009 4:54 PM | Report abuse


You are correct. Most of the rhetoric was to heighten the fear so that the sheep would go along with anything they did.

Posted by: ElViajero1 | June 2, 2009 6:19 PM | Report abuse

How can you seriously believe that the industry would have collapsed? If you're evidence comes from the CAR think tank report you need to read the assumptions for their input-output model a little bit closer, because they are absurd. Several millions of cars would have been made and sold in this country in 2009 no matter what happened to GM, to believe anything else is a fantasy.

Posted by: moziek | June 2, 2009 9:34 PM | Report abuse

Can't we just agree that that it is not traditional socialism because the beneficiaries of these actions have been the owners and stakeholders of the banks/automakers/etc. as opposed to the workers or the people in general?

In any case, it's silly to be arguing semantics as opposed to whether it is good or bad policy compared to the limited universe of alternatives with which the government is currently faced.

Posted by: kiriljohnson | June 3, 2009 1:17 AM | Report abuse

"So it's socialist, not socialism."

Well, no, it isn't. If you're going to define terms down so far, let's just call Bernie Madoff's actions capitalist, if not capitalism.

The real point's a very simple one: making and selling automobiles on a large scale at a profit has proved very difficult over the past century. Some degree of public ownership is the rule, not the exception; massive regional subsidies play a large role in the siting of assembly plants; other subsidies propel development.

Call us when the US Marshals are outside the Ford head office.

Posted by: pseudonymousinnc | June 3, 2009 1:51 AM | Report abuse

The simple fact that the federal government will own majority stake in GM says all you need to know.
Now this industry, along with others, is under the iron fist of the federal government.

And how unfair is this to GM's competitors? How would you like to compete against a company that is subsidized by the federal government?


Posted by: ElViajero | June 3, 2009 8:53 AM | Report abuse

"let's just call Bernie Madoff's actions capitalist, if not capitalism."

Uhh, let's just call them criminal. (Although, they were actually much more like the social security system in structure than any real capitalist venture.)

Some degree of public ownership of auto companies is not the rule- except in countries with labor unions that keep the companies from profitability. There is a lot of over-investment in the auto industry- we need less capacity. Getting the government involved tends to preserve that overcapacity.

Posted by: staticvars | June 3, 2009 9:06 AM | Report abuse

"how unfair is this to GM's competitors? "

GM's competitors, last time I checked, are other mass-market auto-makers, and mass-market auto-makers have significant public stakes or receive large taxpayer subsidies -- or both.

"Some degree of public ownership of auto companies is not the rule- except in countries with labor unions that keep the companies from profitability."

Yeah, that explains why Porsche -- the most profitable auto-maker in the world on a per-vehicle basis -- is part-owned by the state of Lower Saxony. You don't think that's a representative case? Well, Porsche has a majority stake in Volkswagen (also profitable). Renault? Profitable, even though those profits are shrinking. So that's your assertion disproved right there.

To get relatively consistent profitability, you pretty much need to be a luxury mid-sized maker with a limited market and line: BMW is the obvious example. And even BMW receives large subsidies for its assembly plants, as it did in 1992 when it moved to South Carolina. Toyota reported a loss last year, and it takes advantage of sweeteners both in its development process and in choosing site locations.

This clearly doesn't mean that the ideal model of ownership is resembles the ones in communist Eastern Europe. That's a silly extrapolation. (Not least because a reconstituted GM still has to compete with other makers.) But the history of auto manufacturing, from the earliest days, shows how hard it is to make money from building cars.

I'd suggest that the best way to revive the US auto industry would be to knock out the rest of the world's manufacturing capacity, as was the case in the 1950s, but conservatives would take it seriously.

Posted by: pseudonymousinnc | June 3, 2009 9:46 AM | Report abuse

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